Minnesota automatic gratuity, large parties and sales tax

An automatic gratuity for a table of eight sounds like the staff's money and nobody else's. In Minnesota the state still wants its sales tax on it. The sales tax rule, the wage law's definition of a gratuity and the price law's disclosure rule all touch the same line on the same check, and an owner who knows only one of them can get the others wrong. This guide, checked in November 2026, puts the three side by side. It is general information, not legal advice. Our separate guide on the junk fee law explains the price rule in more detail.

Is an automatic gratuity taxed in Minnesota?

Yes. The Minnesota Department of Revenue's eating establishments guide says tips or service charges a seller adds to the bill are taxable, even if the tip amount is given to employees. The guide draws the other line too: tips a customer voluntarily leaves or adds to a credit card receipt are not taxable. So the test is who decides. If you add it, it is taxed. If the guest chooses it, it is not. A suggested tip line printed on a check is still the guest's choice, while an 18 percent charge that appears for every party of eight is yours.

How do you show it on the check?

Print it as its own line, named for what it is, with the percentage, and apply the tax code that your register uses for taxable service charges. The tax is charged on the gratuity as it is on the meal. Guests who see tax on a gratuity sometimes object, so train staff to explain in one sentence that the state taxes any charge the restaurant adds. A short note on the menu about the party size and the percentage helps.

What does Minnesota's wage law call a gratuity?

The wage law defines gratuities to include an obligatory charge assessed to customers, guests or patrons that might reasonably be construed as payment for personal services, unless the employer gives clear and conspicuous notice that the charge is not the property of the employee. The statute on tips says a gratuity received by an employee is the employee's sole property. So a charge that looks like a tip, without a notice saying otherwise, is treated as a tip that belongs to staff. That is a pay rule, separate from the tax rule.

What does the price law require?

The price law says a food or beverage service establishment complies if its total price includes a clear and conspicuous disclosure of the percentage of any automatic and mandatory gratuities charged. So the percentage should appear where the guest sees prices, not only on the check. Print it on the menu, on your online ordering and reservation pages and in any large party confirmation. A charge for the restaurant's own costs is a different question, covered in our guide on the junk fee law.

How should you pay the money out?

Because the gratuity is taxed on the way in and belongs to the staff on the way out, pay it through payroll with the same care as other wages. The wage law says card tips must be paid in full by the next scheduled pay period, and a charge that works as a gratuity should follow the same timeline. Decide the split before the first large party. Many owners divide it among the servers, runners and bussers who worked the table, by hours. Keep a record of the amount charged, the tax collected and the amount paid out.

What about private events and buyouts?

Put the gratuity in the contract as its own line, with the percentage and the statement that it is paid to staff, and show the sales tax on it as with any added charge. The Department of Revenue's guide also says catering is taxable, including charges for delivery, preparation or services, so any other service charge on the invoice is taxed too. If the host adds a voluntary tip on top, record that separately, because that part is not taxed.

Does downtown Minneapolis change the answer?

For hotel banquet rooms, the department's Minneapolis fact sheet says the Minneapolis liquor and restaurant taxes apply to mandatory tips and service charges along with delivery and related charges. Ask the department how those local taxes apply to a gratuity at your location.

What should you do next?

Look at your last large party check. Is the gratuity on its own line, with the percentage? Was tax charged on it? Did the full amount reach staff by the next pay date? If any answer is no, fix it this week. Then read how tip sharing works in Minnesota, since the same staff share the pay-out.

More guides for your business:

• Minnesota junk fee law: what it means for restaurant service charges
• Minnesota tip pooling and tip sharing rules for restaurants
• Minnesota sales tax on restaurant meals: the state and local layers

More in the US guides for food businesses.