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Drawing up Banquet Invoice Question. Tax the Gratuity?

post #1 of 7
Thread Starter 

What is the proper way to draw up an invoice for a banquet?

Am I supposed to be applying sales tax after the service charge is applied or only on the subtotal? 

I have read that some banquet facilities are charging tax on top of the service charge. i.e. Taxable Service Charge...

 

My current employer is applying sales tax to the subtotal and then applying 18%  service charge on top of that total, which I think is wrong. 

 

I am in charge of running banquets now for my employer and would like to charge the client the correct amount but obviously would like to charge as little as possible for the tax rate and as much as possible for the service charge, only if it's legal though. Obviously, the way my employer does it now is the best way in that regard but I don't think that is the correct way as far as the tax man is concerned.

 

This is how I am thinking is the correct way...

For example:

$1000 in food

X 18% Service Charge = $180

= $1180

$1180 X 7.85% Local Tax = $92.63

=$1272.63

 

This is how my current employer is charging the same event, which I think is incorrect...

$1000 in food 

X 7.85% Local Tax = $78.50

=$1078.50

X 18% Service Charge = $194.13

= $1272.63

 

Or, are both these wrong and you only apply the percentages to original total?

 

That's how I used to always think it worked but then I saw how my employer was doing it and I saw that other companies were stating that they charge "taxable service charges". That's where the confusion is.

post #2 of 7

Contact the local IRS office. I have always found them to be very helpful in answering these questions. 

post #3 of 7

No, not the IRS. Utah State Tax Commission- http://www.tax.utah.gov/forms/pubs/pub-55.pdf

post #4 of 7

In Pa, it is mandatory to charge sales tax on the service charge or gratuity if you are adding it to the bill. If the client is paying staff a gratuity on their own, sales tax does not apply. But the staff receiving the gratuity is supposed to claim that themselves.

 

So, cost of banquet + service charge + sales tax = Total.

 

Your state may be different so you need to check laws pertaining to your state.

Gina

post #5 of 7

All the information he needs regarding restaurants is right there in pub 55 from his state's tax commission.

post #6 of 7
Thread Starter 

Thank you for the responses! Thanks for that link, Hal. Not sure why my boss was charging banquets that way all these years??? Glad to see I'm not crazy. 

post #7 of 7

This is how it's done in Texas.

 

No tax is due on any voluntary gratuity that the customer pays in addition to the price of the meal. No tax is due on a mandatory gratuity of 20 percent or less, provided it is separately and clearly labeled “tip” or “gratuity” on the customer’s bill and distributed only to employees who regularly provide the service. Mandatory gratuities exceeding 20 percent are taxable.

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