TIL restaurant service charges are taxable?

Submitted by erudite-ostrich t3_11a1lhj in washingtondc

There's been a lot of discussion on here about automatic gratuity/required service charges on restaurant bills, but I only just recently learned that these service charges (in contrast to discretionary/voluntary gratuity) are also taxed at 10%.

While an additional tax on a service charge is only going to add a fairly negligible amount (~2%?) to most peoples' restaurant bills, if automatic service charges become even more ubiquitous in DC (and voluntary tipping goes the way of the past), it does seem to be adding another (albeit small) burden on people going out to eat. In the wake of I-82, has there been any discussion about making service charges tax-free?

5

Comments

You must log in or register to comment.

LoganSquire t1_j9pqms8 wrote

It has to be taxed. Otherwise restaurants would set prices at $1 per entree and charge a 2500% service charge.

22

jeffreyhunt90 t1_j9purih wrote

Blows my mind how few people understand this.

A year ago I got in a fight with hip city veg about their EXTREMELY hidden service fee. Through an email exchange with them, they disclosed that the DONT PAY TAX on the service fee.

Me informing them that was tax fraud likely played a large role in them dropping the fee.

10

RoeRoeRoeYourVote t1_j9ts3vh wrote

... wait, how does a fast casual place do a hidden service fee?

2

jeffreyhunt90 t1_j9uuusw wrote

There was a 4% service fee that you’d only know about if you got a physical receipt, or calculated the totals in your head. It didn’t even appear on the computer screen as you order or pay.

EXTREMELY hidden.

2

BlakeClass t1_j9pn0as wrote

They won’t be tax free, dealer processing fees have been taxed for decades. It would have to be a government charge like registration or title fees to be not taxed.

5