Wednesday, May 2, 2012
Service Charge- Is it taxable or not?
That is a good question to ask to your catering company or catering venue because you don’t want to miscalculate or have any surprises when you pay your final bill. Most catering venues charge 20% for service charge, which you are responsible for that cost that covers waiting staff, linens, directional/place cards, any operating venue costs, etc. In New York, tax is applied to the service charge. Most of us go out to restaurants for dinner, most of the time tax is not applied on the gratuity and service charge. However, in catering venues that have large parties, tax is applied on the service charge.
If you are the type that is organized with finances and likes to see the figures in a spreadsheet. Here is an example in how you would calculate your catering bill with taxable service charge:
$9,095 ($85 x 107 adults)
$1,952 (service charge-20% x $9,760)
$1,010.16 (total x Tax 8.625%)
The numbers turn out to be a big difference when tax is applied to service charge, therefore please ask the question to your venue –“Is your service charge taxable?” so, you can make sure your budget is accurate.
Below is NY tax regulations regarding to service charges-
Gratuities and service charges
Gratuities and tips that a customer leaves voluntarily for the wait staff are not taxable.
Mandatory gratuities are different because they are automatically added onto the bill given to the customer. However, a mandatory gratuity is not taxable if all of these conditions are met:
• the charge is shown separately on the bill,
• the charge is identified as a gratuity, and
• all of the money collected is given to the employees.
If any of these conditions is not met, the mandatory gratuity is taxable along with the rest of the catering bill.
Many caterers bill a service charge on banquets or on parties of more than eight or ten people. Since these charges are not specifically listed as gratuities on the bill or invoice, the service charge is always subject to sales tax.
For more details, see TSB-M-09(13)S, Sales Tax on Gratuities and Service Charges.