Iowa Admin. Code r. 701-203.7

Current through Regsiter Vol. 46, No. 26, June 12, 2024

Rule 701-203.7 - Service charge and gratuity

When the purchase of any food, beverage or meal automatically and invariably results in the inclusion of a mandatory service charge to the total price for such food, beverage or meal, the amounts so included shall be subject to tax. The term "service charge" means either a fixed percentage of the total price of or a charge for food, a beverage or a meal.

The mandatory service charge shall be considered:

(1) a required part of a transaction arising from a taxable sale and a contractual obligation of a purchaser to pay to a vendor a charge arising directly from and as a condition of the making of the sale and

(2) a fixed labor cost included in the price for food, a beverage or a meal even though such charge is separately stated from the charge for the food, beverage or meal.

When a gratuity is voluntarily given for food, a beverage or a meal, it shall be considered a tip and not subject to tax. Cohen v. Playboy Club International, Inc., 19 Ill. App. 3d 215, 311 N.E.2d 336; Baltimore Country Club, Inc. v. Comptroller of Treasury, 272 Md. 65, 321 A.2d 308.

This rule is intended to implement Iowa Code sections 423.1(47) and 423.2(1).

Iowa Admin. Code r. 701-203.7

Renumbered from 701-212.7 by IAB September 7, 2022/Volume XLV, Number 5, effective 10/12/2022