California: When to Tax Tips
- Nov 14, 2014 | Gail Cole
Sales tax is generally a percentage of the sales price. For example, 5% tax on a meal costing $25.00 is $1.25. Simple. Complications arise when gratuities are thrown into the mix. Should the gratuity be included in the sales price?
There are mandatory tips and there are optional tips, and never the twain shall meet.
Optional gratuities are not subject to sales tax. Optional tips are, as the name suggests, not mandatory. It’s an optional tip when you put a dollar in the tip jar next to the cash register of your favorite coffee house. One morning you might not feed the jar because you don’t have a spare dollar, or you’re in a bad mood, or you don’t like the way the cream looks in your coffee. You don’t have to leave a tip. That’s your prerogative.
Mandatory gratuities are subject to sales tax. As the name suggests, mandatory tips are not optional. When you and ten of your friends go to an expensive restaurant for a fine meal, a mandatory tip will very like be included in your bill. You have to pay it, or you’ll have to wash dishes.