Are Tips Subject to Sales Tax in California?
If you’re a restaurant owner that’s been through a California sales tax audit, you probably asked the auditor the above question at some point during the process. The answer you probably received was, “It depends,” or, “Sometimes.” If you’re lucky, you didn’t get further clarification in the form of an audit bill for tax on your employees’ tips.
The underlying principle is deceptively simple: if the amounts of your tips are optional (left up to the customers), and all of the tips are actually distributed to your employees, the tips are […]