Mandatory charges, such as automatic large party gratuities, have been a long misunderstood Washington State Tax issue for the Restaurant Industry. With the state in need of increased tax revenue, Department of Revenue audits of restaurant operators have been on the rise. Making sure you are not caught off guard with the treatment of mandatory charges is important.
Any additional charges (specifically automatic gratuities) imposed by the restaurant which increases the price to the customer are subject to both sales tax and the Retailing classification of B&O tax. This treatment applies regardless of whether or not the charge is explicit on the menu. WAC 458-20-119(8) What this means for restaurant operators: If a mandatory gratuity is added to a guest check, the full amount of the check, including the mandatory gratuity, amount is subject to retail sales tax and the Retailing B&O tax.
Charges for rental of private rooms not, which are not separately stated on the bill/check, are also subject to sales tax and the Retailing B&O tax.
Also remember that as of July 1, 2011, meals provided for free to restaurant employees, are no longer subject to sales tax or Retailing B&O tax. RCW 82.08.9995 However, reduced price meals provided to employees are still subject to both sales tax and Retailing B&O tax based upon the amount charged to the employee for the meal.