Distinction between Optional and Mandatory Tips Reflected in California

A recent amendment classifies and distinguishes between optional and mandatory tips. Voluntary tips paid by the customer to an employee are considered optional tips and are not taxable. On the other hand, mandatory tips, gratuity or service charges billed to the customer in the invoice are taxable even if the final recipient of these tips is the employee that catered to the customer. (Reg. 1603, California State Board of Equalization, effective August 15, 2007)

Posted on August 9, 2007