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TITLE 34PUBLIC FINANCE
PART 1COMPTROLLER OF PUBLIC ACCOUNTS
CHAPTER 3TAX ADMINISTRATION
SUBCHAPTER OSTATE AND LOCAL SALES AND USE TAXES
RULE §3.337Gratuities

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

  (1) Mandatory gratuity charge--Any amount required by the seller for the service of meals and food products for immediate consumption including soft drinks and candy.

  (2) Qualified employees--Employees who customarily and regularly provide the service upon which a gratuity is based, including, but not limited to, waiters, waitresses, busboys, service bartenders, wine stewards, and maitres d'hotel. The term does not include janitorial help, chefs, cashiers, or dishwashers.

  (3) Reasonable mandatory gratuity charge--Mandatory gratuity charges that do not exceed 20% of the sales price.

  (4) Total direct compensation--Total salaries paid to qualified employees. The term does not include other benefits paid or incurred on an employee's behalf, such as health and life insurance, sick leave, or vacation time.

  (5) Voluntary gratuity--A tip added to the bill at the suggestion of the purchaser or money given freely by the purchaser over and above the sales price.

(b) Voluntary gratuities are excluded from the sales price of taxable items.

(c) Mandatory gratuity charges.

  (1) Reasonable mandatory gratuity charges are excluded from the sales price of taxable items if they are:

    (A) separated from the sales price of the meal or food product served for immediate consumption;

    (B) identified as a tip or gratuity by any reasonable means, including such terms as service fee or service charge; and

    (C) disbursed to qualified employees. Any portion of a reasonable mandatory gratuity charge that is retained by the employer is subject to sales tax.

  (2) Mandatory gratuity charges in excess of 20%. If a mandatory gratuity charge exceeds 20% then the entire mandatory gratuity charge is subject to sales tax regardless of how the gratuity is disbursed.

(d) Records. The employer must maintain records that demonstrate the amount of mandatory gratuity charges that have been disbursed to qualified employees. In order to comply with this requirement, the records must show:

  (1) the amount of mandatory gratuity charges collected from customers and the corresponding disbursements to each qualified employee; or

  (2) that the total direct compensation due all qualified employees equals or exceeds the total amount collected as mandatory gratuity charges.


Source Note: The provisions of this §3.337 adopted to be effective February 16, 2006, 31 TexReg 856; amended to be effective November 28, 2007, 32 TexReg 8521

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