DAR File No. 39987

Tax Commission, Auditing

Section R865-19S-94

Tips, Gratuities, and Cover Charges Pursuant to Utah Code Ann. Section 59-12-103

Notice of Proposed Rule

(Amendment)

DAR File No.: 39987
Filed: 12/10/2015 10:07:41 AM

RULE ANALYSIS

Purpose of the rule or reason for the change:

The proposed amendments clarify a long-standing Tax Commission practice that required service charges, tips, gratuities, cover charges, and other similar charges are subject to sales tax.

Summary of the rule or change:

The proposed amendment clarifies that if a service charge, tip, gratuity, cover charge, or other similar charge is included on a patron's bill, it is part of the sales price and subject to sales tax unless: 1) it states on the front of the bill that the amount is voluntary and may be increased or decreased by the patron; and 2) the language stating that the amount is voluntary must be in the same font size as the service charge, tip, gratuity, cover charge, or other similar charge included on the bill. A voluntary payment is a payment for a nontaxable service. The amendment also deletes redundant language and makes technical changes.

State statutory or constitutional authorization for this rule:

• Section 59-12-103

Anticipated cost or savings to:

the state budget:

None--The amendment clarifies long-standing practice that a required service charge, tip, gratuity, cover charge, or other similar charge is subject to sales tax.

local governments:

None--The amendment clarifies long-standing practice that a required service charge, tip, gratuity, cover charge, or other similar charge is subject to sales tax.

small businesses:

None--The amendment clarifies long-standing practice that a required service charge, tip, gratuity, cover charge, or other similar charge is subject to sales tax.

persons other than small businesses, businesses, or local governmental entities:

None--The amendment clarifies long-standing practice that a required service charge, tip, gratuity, cover charge, or other similar charge is subject to sales tax.

Compliance costs for affected persons:

Unknown, but presumed insignificant programming costs if the establishment chooses to place a voluntary charge on an invoice.

Comments by the department head on the fiscal impact the rule may have on businesses:

The Tax Commission does not know the compliance costs for businesses, but presumes there may be some minor programming costs if a business elects to place a volunteer amount on an invoice.

Rebecca L. Rockwell, Commissioner

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Tax Commission
Auditing
210 N 1950 W
SALT LAKE CITY, UT 84134

Direct questions regarding this rule to:

• Christa Johnson at the above address, by phone at 801-297-3901, by FAX at 801-297-3907, or by Internet E-mail at [email protected]

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

02/01/2016

This rule may become effective on:

02/08/2016

Authorized by:

Rebecca Rockwell, Commissioner

R865. Tax Commission, Auditing.

R865-19S. Sales and Use Tax.

R865-19S-94. Service Charges, Tips, Gratuities, [ and ]Cover Charges, and Other Similar Charges Pursuant to Utah Code Ann. Section 59-12-103.

(1) (a) Restaurants, cafes, clubs, private clubs, and similar businesses must collect sales tax on service charges, tips, [or] gratuities , cover charges, or other similar charges included on a patron's bill that are required to be paid.

[(a) Tax on the required gratuity is due from a private club, even though the club is not open to the public.]

(b) Voluntary [tips]amounts left on the table or added to a credit card charge slip are not subject to sales tax.

(2) A service charge, tip, gratuity, cover charge, or other similar charge that a restaurant, cafe, club, private club, or similar business includes on a patron's bill is presumed to be required unless:

(a) language on the front of the bill states that the service charge, tip, gratuity, cover charge, or other similar charge is voluntary and may be increased or decreased by the patron; and

(b) the language described in Subsection (2)(a) is in the same font size as the service charge, tip, gratuity, cover charge, or other similar charge that the restaurant, cafe, club, private club, or similar business included on the bill.

[(2)](3) [Cover charges]Charges to enter a restaurant, tavern, club or similar facility are taxable as an admission to a place of recreation, amusement or entertainment.

 

KEY: charities, tax exemptions, religious activities, sales tax

Date of Enactment or Last Substantive Amendment: [August 28, 2014]2016

Notice of Continuation: January 3, 2012

Authorizing, and Implemented or Interpreted Law: 9-2-1702; 9-2-1703; 10-1-303; 10-1-306; 10-1-307; 10-1-405; 19-6-808; 26-32a-101 through 26-32a-113; 59-1-210; 59-12; 59-12-102; 59-12-103; 59-12-104; 59-12-105; 59-12-106; 59-12-107; 59-12-108; 59-12-118; 59-12-301; 59-12-352; 59-12-353