Tips, Gratuities, and Service Charges (Publication 115)
Service Charges

Unrelated service charges

Tax does not apply to separately stated charges for services unrelated to furnishing and serving meals, food, or drinks, such as optional entertainment or any staff who do not directly participate in the preparation, furnishing, or serving of the meals, food, or drinks. For example:

1. Coat-check clerks
2. Parking attendants
3. Security guards

Pooled tips for taxable and nontaxable services

If your contract requires your customer to pay a lump-sum tip in addition to your other charges, tax applies to all charges directly related to the preparation and service of the meal. But if you divide the tip among employees who prepare and serve food and those who provide parking, the portion paid to the parking attendants is not taxable. Your invoice and business records must clearly document the specific percentage or amount paid to each type of employee and the service provided.

Optional service charges related to nontaxable sales may be segregated by:

1. Listing the taxable charges separately on the invoice
2. Separately stating the sales tax
3. Keeping separate records of taxable and nontaxable charges

Cover charges

A cover charge is taxable if it allows your customer to consume food or beverages served on the premises without paying additional amounts for them. This is true even if the customer does not consume any food or beverages, or if the value of the food or beverages is less than the cover charge. Separate cover charges for admission only are not taxable.

Corkage charges

Charges for opening and serving a customer-furnished beverage are generally taxable.

Health surcharge

By law, restaurants in the City of San Francisco have the choice of either raising their prices or adding on a “health surcharge” cost to each meal check, to cover the owner's portion of the health insurance that they provide to their employees. Despite the fact that this is a government mandate, it is interpreted by the CDTFA as an increase in the price of the meal and therefore is subject to California sales tax.