Tip Top Tax?
Posted on January 18, 2008 by Her and tagged taxes
Several wedding vendors have sent us cost estimates that include the tip, then tax the entire amount (including the tip). Is it normal/legal for them to tax the tip? Someone who knows the answer, please let me know!
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feministfinance | Jan 18, 2008
It's permitted but I don't think it's usually required--that would depend on your state's tax laws. I would try to negotiate round that in the contract, that gratuity will not be taxed. If they don't pay it back to the state treasury (which, honestly, I doubt many do) it's just a way for vendors to inflate their bottom lines. I have had luck negotiating around it.
Don't be afraid to negotiate on vendor contracts. I changed several elements of our photography contract, a couple of times to clarify points and a couple of times to add provisions we'd agreed to verbally (like that she cannot use images from our wedding for commercial purposes except with our written permission, where her standard contract allows her carte blanche). It's always worth asking, and sometimes it's worth walking away over.
Patrick | Jan 18, 2008
Check the math and find out if the tax amount is calculated on the total with or without tip. (ie. for a $1000 bill, 18% gratuity is $180, and 7% tax is 70 for a bill of $1250, but 7% on $1180 is $82.60 for a total of $1262.60)
A Writer and Her Money | Jan 18, 2008
Don't forget that as in almost all other things in life, just about every wedding service fee is negotiable. (I've been a wedding photographer as well as a harried bride and one-time wedding planner.) Treat them like any business would a vendor: ask for a lower cost, or see if there's a service you wouldn't mind dropping or reducing to decrease the cost.
Good luck!
Marjorie
Colin | Jan 18, 2008
Miss Squirrel is absolutely correct. The difference is between it being a mandatory gratuity (Section 130.2145(d) of Illinois tax law) and an optional gratuity.
Also a good case that backs this up is Peoria Hilton Hotel v. Illinois Dept. of Rev. (201-101). (too much information, but I love to research this sort of thing)
Go for some negotiation!
It's legal as long as it is a mandatory gratuity, but try your hand at negotiations. If it is going to make or break a contract, the vendor will write it as optional.
I think other people have covered it. I suspect it is one of those things that varies by the state applying the sales tax, but some quick research gives the impression that sales tax is necessary on mandatory tips.
By the way, I have to say that the idea of a 'mandatory tip' sucks. I mean, why don't they just call it something like "staff surcharge" because that is effectively what it is!
MVP | Jan 24, 2008
Wow, that means the government's getting taxes from you, the customer, as well as from the employee(s) receiving the tip, in the form of income tax.
Miss Squirrel | Jan 18, 2008
Yup, if it's a mandatory gratuity they can do that. I totally disagree with it but as far as I know, it's legal. If the tip is optional then they can't tax you.
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