                               February 28, 1974


The Honorable Robert S. Calvert                    Opinion No. H-    247
Comptroller of Public Accounte
State of Texas                                     Re: Are “service gratuities”
Austin, Texas                                      or tips a part of the sales
                                                   price of taxable food and drinks
                                                   when collected by a restaurant
                                                   where a group requests to be
                                                   billed for the gratuity along with
                                                   the other charges and which
                                                   gratuity is disbursed by the
                                                   restaurant?

Dear Mr.   Calvert:

       You have submitted two questions to us concerning whether gratuities
or tips are a part of the sales price of taxable food and drinks under the
Limited Sales, Excise and Use Tax Act (1) when billed to and collected from
a function’group at its request and then disbursed to the waitresses,   etc.,
and (2) when paid directly to waiters and waitresses under circumstances in
which their employer credits the gratutties    against a portion of the state or
federal minimum wage requirement.

       The Limited,Sales,  Excise and Use Tax Act is found as Chapter 20. of
Taxation-General,   V. T. C. S. The limited sales tax is imposed as a percentage
of “the receipts from the sale at retail of all taxable items. .   . ” (Art. 20. 02)
“Receipts” as defined, in part, by Art. 20. 01(D) to mean the total price of
retail sales without any deduction for labor or service costs.   Art. 20. 01 (L),
in defining “Sales Price, ” states in subparagraph (2): “The total amount for
which a taxable item. is sold includes all of the following: (a) Any services
which are a part of the sale. ”

       Our attention has been called to a number of decisions involving the laws
of other states: Anders v. State Board of E.qualization, 185 P. 2d 883 (Cal. App.
1947); Green v. Surf Club, Inc., 136 So. 2d 354 (Fla. App. 1961); Youngstown




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The Honorable Robert S. Calvert,    page 2     wa47)




Club v. Porterfield,  255 N. E. 2d 262 (Ohio 1970); Towner v. Kosydar, Ohio
Bd. of Tax Appeals, May 31, 1972 (CCH- “State Tax Reports - All States”.
Paragraph 200-526); St. Paul Hilton Hotel Co. v. Commissioner of Taxation,
Minnesota Tax Court, August 31, 1972 (CCH”State?‘ax       Reports - All States”,
Paragraph 200-611).
                               __      .   -  .- -.
      Taken together, these authorities would seem to establish that, where
by agreement or otherwise;.the    employer benirfrnl ‘from collection of the
gratuities, they are to be considered as part of the sales price.    Anyexample
would be when the employer guaranteed a minimum wage if the tips did not
equal it, and thus benefited from whatever tips were collected.      .,

      Therefore, we are of the opinion that where the employer merely collects
a gratuity and passes it on’tothc’empl6yee’s,  is tequested by his customer,
he derives no benefit from its collection and the ,gratuity should not be considered
a part of the sales price for fixing the amount of salon tax due. Your first
question is answered in the negative.

      On the other hand, where all or part of the gratuities are credited by
the employer against minim6m wages wh%?h’he Is i’equired to pay under state
or federal law, the employer derives a very definite benefit and the gratuities
should be considered a part of the sales price for purposes of fixing the sales
tax   Your set ond question, therefore,  is answered in the affirmative.

                                  SUMMARY

                  Whether or not gratuities are to be considered a
           part of the sales price of taxable food and drink under
           the Limited Sales, Excise and Use Tax Act depends
           upon whether the employer derives a benefit from their
           collection.

                                                   flours    very trulv,




                                               u       Attorney General of Texas




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            The Honorable Rdbert S. Calvert,   page 3     (H-247)




            DAVID M. KENDALL,      Chairman
            Opinion Committee




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