Eating Establishments – Tips and Other Charges

When it comes to tips, service charges, and other charges in Minnesota, it’s essential to understand the tax implications. The Minnesota Department of Revenue provides clear guidelines to ensure compliance. Let’s break it down.

Voluntary Tips:

Tips that customers voluntarily leave or add to a credit card receipt are not taxable. So, if your customers generously tip your staff, you don’t need to include them in taxable sales.

Tips Added by Seller:

However, if you, as the seller, add tips or service charges to the bill, they are taxable, even if the amount is given to employees. Different taxes apply based on the items involved. Here’s a breakdown:

Food Only:

6.875% state general rate tax

Any applicable local and special local taxes

Liquor Only:

6.875% state general rate tax

2.5% liquor gross receipts tax

Any applicable local or special local taxes

Food and Liquor Combined:

6.875% state general rate tax

2.5% liquor gross receipts tax

Any applicable local or special local taxes

Note: If you can determine the portion of the tip or service charge allocated to food versus liquor, you should only collect the 2.5% liquor tax on the liquor portion. Proper documentation must be kept to substantiate this allocation.

Other Charges:

In addition to tips, other charges added to a customer’s bill are considered part of the sales price. If the item or service is taxable, the additional charges are also taxable. Some examples include cover charges, delivery charges, equipment rentals, parking fees, noncash fees, dine-in or take-out fees, and more. The Minnesota Department of Revenue provides further details and examples on its website. 

Exemptions:

Certain charges are not taxable when separately stated. These include coat check fees, corkage fees, returnable container fees, and space rentals for meeting rooms, ballrooms, or halls that are not in a recreational area or for lodging.

Understanding the tax implications of tips, service charges, and other charges is crucial for businesses in Minnesota. Stay informed, comply with regulations, and ensure accurate reporting to the Minnesota Department of Revenue.

For more detailed information and resources, visit: Sales – Tips and Other Charges | Minnesota Department of Revenue (state.mn.us) or contact our tax professionals at Prudent Accountants today!