How are mandatory tips taxed?

(KOMO file photo)

I'm sure you've noticed: A growing number of restaurants around here are going tip-less. They're automatically adding a 20 percent service charge to the total bill which they then distribute to the entire staff.

A KOMO listener wrote me to point out that when we voluntarily leave a tip, that gratuity is not taxed. But when the gratuity is part of the total bill, we do pay tax on it. His question: Is that right?

The answer: Yes.

"It really boils down to whether or not you had a choice to leave that tip,” said Brittny Goodsell with the Washington Department of Revenue. “If the business includes the tip in your total bill, then it will be taxed. But if the total bill doesn't include the tip and you still decide to leave one, then that tip will not be taxed."

What about when you get a receipt via an app or table kiosk and there's a blank line for a gratuity?

The state says the gratuity is exempt from being taxed, if the app or device makes it clear the gratuity is voluntary – by defaulting to a blank line or displaying $0 value for the gratuity that the customer can freely adjust.

Any charges automatically included in the bill using these apps or devices are mandatory and therefore subject to retail sales tax

More Info: Washington State Department of Revenue Rules on Gratuities

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