Is a service charge taxable?

lls31

I know taxes vary by state, so if anyone from Pennsylvania happens to know anything about this, I would greatly appreciate any info you can provide.  Our venue charges the price pp, a 21% service charge, and 6% PA sales tax.  

I was under the impression that this meant the following:

$10,000 total venue cost (this is just an example)

+ $2,100 (service charge)

+ $600 (tax)

------------------

$12,700

The coordinator at the venue is telling us this:

$10,000 total venue cost

+ $2,100 (service charge)

------------------

$12,100

+ $726 (tax)

------------------

$12,826

I was under the impression that the service charge would not be taxable, but our coordinator is telling me that it is.  I know the $126 difference in my example isn't really all that much of a difference, but there is quite a difference when I run the numbers for the actual costs.  If she's right, that's fine.  We have no problem paying it.  I just want to know if she's trying to screw us out of several hundred dollars.

acaponi87

Hmm this is the way that my contract is broken down (Michigan). It's done by person:

$63 base charge per person

18% service fee (18% of 63)= $11.34
6% sales tax (6% of 63)= $3.78

Total cost per person=$78.12

So I guess the short answer is, no our service fee is not taxed. I might post this on your local board and see what the norm/law is in Pennsylvania.

lls31

Thanks - I just posted on my local board as well as the Philly board.  Also, I found an e-mail address for the Pennsylvania Chamber of Commerce and sent a quick e-mail to them.  

It just doesn't make sense to me.  When we go out to eat, we get a total bill plus tax and we leave a separate tip.  There is no tax on the tip.  The service charge at our venue is essentially a tip, so I don't understand why it would be taxed.

crash2729

In Response to <a href="http://forums.theknot.com/Sites/theknot/Pages/Main.aspx/wedding-boards_chit-chat_is-a-service-charge-taxable?plckFindPostKey=Cat:Wedding%20BoardsForum:14Discussion:531c7985-8f83-4ed7-ade0-a28a9efed2a9Post:1f54ca24-08b1-47a1-b73e-dcfc1dbc481b">Re: Is a service charge taxable?</a>:
[QUOTE]Thanks - I just posted on my local board as well as the Philly board.  Also, I found an e-mail address for the Pennsylvania Chamber of Commerce and sent a quick e-mail to them.   It just doesn't make sense to me.  When we go out to eat<strong>, we get a total bill plus tax and we leave a separate tip.  There is no tax on the tip.</strong> <strong> The service charge at our venue is essentially a tip, so I don't understand why it would be taxed</strong>.
Posted by lls31[/QUOTE]
If you eat at a place that automatically adds gratuity, is that taxed? 

I'm pretty sure I paid tax on my service charge.

jemmini6

We had a fight with our venue over this 3 days before our wedding.  They were taxing us on the service charge, and the coordinator didn't know how to have it taken off, so she just didn't bill us for about 3 guests to make up the cost difference.

I'd also contact your state's Department of Revenue, since that's where they pay the taxes the collect from you, they might know better about the tax code for this circumstance.

honeybear072012

I'm having my wedding outside of Pittsburgh at a venue that everything is included in the price, service charge and tax, but a quick google search netted me this

http://www.pacode.com/secure/data/061/chapter60/s60.4.html

Part (c) (2) (ii)

Seems to be saying that service charges like you're talking about are taxable.

Now this is old but I have a feeling is still correct.  Not 100%.  Doesn't seem right to me as a logical thing since it's suppose to be a tip IMO but you pay sales tax on other labor services such as carpet cleaning and construction.

Hope this helps!  Keep us (or at least me because you've really intrigued me with this and I've thought of it before but never to look into) updated!

PS I hate legal jargon as I don't understand most of it...

lls31

I'm still trying to find an answer, but I did find this: https://revenue-pa.custhelp.com/app/answers/detail/a_id/2825/kw/is%20service%20charge%20taxable.

According to that list, my venue's service charge should not be taxed.

ljsquintz

In NY, you must charge tax on the service charge if it is not going to be used as a gratuity for staff.

daria24

My wedding is in Central PA and our service charge (which does not count as gratuity for the staff) is taxable. I asked about it, and it does state in our venue contract that there is a 20% taxable service charge. Boo.

AmJam04

This was such a good question! I never even thought about that...

So I went to my state's (CA) BOE and found that when the service charge is MANDATORY (as in, I have no choice as to whether or not I'll pay it as a "tip") then it is taxable. If I voluntarily give them some gratuity on my own accord, then that is NOT taxable.

Seems pretty stupid, IMO, but at least now I know before I get a big surprise!

lls31

Here is the response I received from the PA Dept of Revenue:

The service charge is included when computing the Sales tax due on the transaction. Only amounts separately stated and identified as "gratuity" or "tip" are exempt from tax.