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NY – Gratuities & Sales Tax; To Charge or Not to Charge, that is the question.

Posted by salestax on August 5, 2009

Perhaps someday, I’ll look up the rules in all the states and see if they all say the same thing about this subject (at least at the most basic level) or if they vary. 

From my experience, the biggest difference is whether the tip is mandatory (usually taxable) or optional (usually exempt) to the customer. 

The New York, explanation, however, takes its stance a little further than most.  Especially with their 3-point rule on whether determining taxability.  New York uniquely makes a proclamation that if the gratuities are turned over to the employees in any way (cash, as payment of taxes and/or union dues), then gratuities are not taxable, if they are also separately stated and labeled as “gratuity” on the invoice/bill.  I find the part about being turned over entirely to the employees intriguing – especially in the sense that it doesn’t have to be in cash, but could be in the form of other employee responsible taxes, dues, etc.

For your reading enjoyment:  http://www.tax.state.ny.us/pdf/memos/sales/m09_13s.pdf

And, if you’d like to brush up on what California says about the sales tax implications on gratuities, click here.

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One Response to “NY – Gratuities & Sales Tax; To Charge or Not to Charge, that is the question.”

  1. Cyndi Baker said

    Are mandatory gratuties taxable if given back to the employees serving the function 100%? Does the description of the gratuity have to be termed “tip” or “gratuity” opposed to some other description?

    Thank you.

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