Effective November 6, 2020, the Arizona Department of Revenue has adopted a rule that amends the Transaction Privilege Tax (TPT) to allow restaurants to deduct the full amount of a gratuity from the tax base despite the fact that the amount distributed to an employee is reduced by credit card processing fees. Previously, Arizona did not allow gratuities to be deducted unless the full amount of the gratuity was distributed to an employee. If a restaurant cannot specifically segregate the charges for gratuities and amounts (if any) attributable to credit card fees or if any portion of the gratuity less amounts attributable to credit card fees is not distributed to the employee(s), the total gross receipts from the gratuities including any amounts attributable to credit card fees are included in the tax base. This amendment brings the rule in line with current industry standards as well as the federal Fair Labor Standards Act. In addition, the new rule better reflects the way that gratuities are treated for income tax purposes. The new rule should result in fewer potential penalties being assessed against businesses for improperly accounting for or improperly deducting gratuities. Restaurants should make note of these changes. (R15-5-1708, effective November 6, 2020)