Restaurant.com Sales Tax Question

[stonebroke]

I live in Pennsylvania where the state sales tax is 6%. Tonight my wife and I went out to a local restaurant and used a Restaurant.com gift $25 certificate. The total bill was $48 for two entrees, 2 appetizers.

They added the 18% gratuity $8.64 and a sales tax of 2.88 for a grand total of $59.52. They then subtracted $25 and our bill was $34.52

However, I questioned the waitress who eventually asked the owner and I wasn't rude about it and didn't ask anything to be changed but I said shouldn't the tax be on on $23 (48 minus 25)...and therfore my tax portion of the bill should have been $1.38.

I said if I go to Staples for example and have a coupon for $1.00 off of a $5.00 item I expect to pay tax on $4.00 because that is the amount of my purchase.

I suggested that their computer system is set up wrong...but I really don't know. I have used restaurant.com certificates in the past but never noticed this. Has anyone else had this happen or know if I am correct or incorrect?

The waitress was a bit confused but said she got it and is an accounting major and that she is going to ask her college professor on Monday. I paid the bill as it was presented. The food was good I just have a lingering suspicion that the state of PA got an extra $1.50 from me they shouldn't have.

 

[dioxide45]

A lot of this depends on state law. In many cases if you are using a "cash equivalent" to pay for something, that amount is taxed. A "gift certificate" would be considered a cash equivalent. If you were using a real gift card, the tax amount wouldn't be reduced, you would use the card to pay for the tax.

I know in Ohio if I buy an item at a retail store and we use coupons, the coupons come off after tax. We have had several situations where we used coupons that paid for items in full and still had to pay the tax.

 

[lily28]

I have used the restaurant.com coupons in Chicago and San Francisco, and the tax has always been on the full amounts before the coupon discount.

 

[MichaelColey]

I've been to dozens of restaurants with Restaurant.com certificates, Groupon certificates, LivingSocial Certificates, etc., and everyone seems to do it differently.

I had one Groupon certificate ($5 for a $10 certificate) where they discounted the bill $5 before taxes and another $5 after taxes. For instance, if my bill was $13 they would charge tax based on an $8 order but just charge me $3 + tax. I suspect that may be the "right" way to do it, as I wasn't charged tax when I purchased the Groupon, but that would be just about impossible for Restaurant.com restaurants to do because different people pay different amounts based on what coupon they use.

I just have a lingering suspicion that the state of PA got an extra $1.50 from me they shouldn't have.

I have a lingering suspicion that the state of PA won't see the extra $1.50.

 

[dioxide45]

I must say though when I walk in to a restaurant with a $4 coupon off of two entrées, the coupon is always taken off pretax.

 

[Talent312]

In Florida, its not unusual for the coupon/voucher to be applied as a credit against the total bill, after taxes+gratuities. Although, it's fairly uncommon to have the tip included, unless you're part of a large party.

OTOH, if the coupon states a specific price ('x' for 'y') or is a BOGO, then only the price stated on its face should appear on the bill.

 

[ScoopKona]

In Florida, its not unusual for the coupon/voucher to be applied as a credit against the total bill, after taxes+gratuities. Although, it's fairly uncommon to have the tip included, unless you're part of a large party.

OTOH, if the coupon states a specific price ('x' for 'y') or is a BOGO, then only the price stated on its face should appear on the bill.

Having an 18% tip included is 100% certain with Restaurant.com coupons.

 

[classiclincoln]

When we use them, the tax is on the total amount because as mentioned earlier, the gift certificate is a "cash equivalent". You don't pay tax when you buy any gift certificate, so you must pay tax on what you spend it on (kinda like IRAs).

"Having an 18% tip included is 100% certain with Restaurant.com coupons."

Not always, You need to check when you get the final bill. We've found that about half the time they don't put on the tip, which I prefer. That way, I can give what they really deserve (which sometimes is more, sometimes less).

 

[Kozman]

When we use them, the tax is on the total amount because as mentioned earlier, the gift certificate is a "cash equivalent". You don't pay tax when you buy any gift certificate, so you must pay tax on what you spend it on (kinda like IRAs).

"Having an 18% tip included is 100% certain with Restaurant.com coupons."

Not always, You need to check when you get the final bill. We've found that about half the time they don't put on the tip, which I prefer. That way, I can give what they really deserve (which sometimes is more, sometimes less).

When using one Restaurant.com certificate the 18% was not included on the bill so we left the tip at the table. When we got to the register they added it there! When we told them the tip was at the table, they told us sorry, but we add it here. We had to race back to the table to recover the tip already left before the waitress beat us to it. I much prefer they add it to our bill at the table. So, to avoid the embarrassment of trying to recover the tip from the waitress/waiter, wait until you pay at the register before leaving one at the table.

 

[bjones9942]

It depends on how your state and local laws read, and how the restaurant handles the 'gift certificate' (which really is more of a coupon and not a gift certificate in that there was not an equal amount of currency paid for the face value, and the restaurant may likely see even less than what was paid).

Let's start where you buy a $25 'gift certificate' for $1 cash. Let's assume the restaurant got the whole dollar. Let's also assume you spend exactly $25 (not including the tip which hopefully goes to the server).

In the first scenario, the restaurant recognizes a sale of $25 and uses the $24 ($25 less the actual $1 received) as a discount on sales. Laws may or may not permit the restaurant to reduce their tax liability by the amount of the discount ($24). If they do, you should not be charged sales tax on $24 of your $25 purchase, otherwise you will pay tax on $25.

In the second scenario, the restaurant recognizes a sale of $1 and no discount is applied. The state would only know that taxes on $1 are owed, and this is what the restaurant should pass on to you.

I'm fairly sure that most states will say scenario one is the method that must be followed, but I'm just as sure (after 30 years working in restaurants) that a lot of smaller restaurants use scenario two.

So, to answer your original question, you need to contact your state department of revenue and ask if your state requires retailers to pay sales tax on discounted amounts (coupons).

 

[DeniseM]

If the restaurant is going to add on the 18% tip, it's stated on the coupon.

 

[Passepartout]

OP is talking roughly $1.50 difference in sales tax. Big deal! I usually check to see if the house charges tax pre- or post- discount, and pay what they want. I have been known to write it up on the review that one ALWAYS gets from Rest.com as soon as the rest. cashes in the coupon.

But for a buck and a half, in a restaurant I will probably never go back to, is about par for the course.

Otoh, we used a Rest.com coupon in S. Cal. last week. The house allowed us to use our wine as part of the total, then didn't charge the automatic 18% gratuity on the bill. If in the area, we would go back.

Jim

 

[Timeshare Von]

My opinion is that the restaurant handled it correctly. You are still taxed (and should tip) on the full amount before any discounts.

 

[Timeshare Von]

Having an 18% tip included is 100% certain with Restaurant.com coupons.

Not so. A few restaurants understand that sometimes that hurts their waitstaff. Even though the certificate states as much, I've had places not automatically do the 18%.

 

[Ken555]

My opinion is that the restaurant handled it correctly. You are still taxed (and should tip) on the full amount before any discounts.

It doesn't make sense to me that the State should benefit as if you spend more than you do. IIRC, in California coupons are deducted pre sales tax.

Tipping on the pre coupon value is a given and should always be done.

 

[dmharris]

I had an experience with a couple of Groupons for a pizza where one time they charged me tax and the next time they didn't. I think it depends on how much the young clerk cares/knows/has been trained for these simple transactions. In PA btw. Going to a restaurant where everything is keyed into a main computer there is less likelihood for variation I would assume.

 

[bjones9942]

My opinion is that the restaurant handled it correctly. You are still taxed (and should tip) on the full amount before any discounts.

Yvonne - With this line of thinking, you would be paying sales tax on $100 for a sweater, even though it was marked down to $50.

 

[dioxide45]

Yvonne - With this line of thinking, you would be paying sales tax on $100 for a sweater, even though it was marked down to $50.

The difference is in how state law looks at a "gift certificate". While the restaurant.com certificates are not gift cards and are more coupons, their name lends themselves to be considered cash equivalents.

Traditionally when using a coupon at a restaurant you would pay gratuity on the full amount before the coupon. Same with happy hour specials. However tax on happy hour specials would be on the discounted amount because that is the menu price at that time. Coupons at restaurants in our state come off pretax but at retail outlets they are deducted after the total is tallied. As soon as you have a gift card though, you pay those full taxes no matter what.

 

[bjones9942]

The difference is in how state law looks at a "gift certificate". While the restaurant.com certificates are not gift cards and are more coupons, their name lends themselves to be considered cash equivalents.

Traditionally when using a coupon at a restaurant you would pay gratuity on the full amount before the coupon. Same with happy hour specials. However tax on happy hour specials would be on the discounted amount because that is the menu price at that time. Coupons at restaurants in our state come off pretax but at retail outlets they are deducted after the total is tallied. As soon as you have a gift card though, you pay those full taxes no matter what.

You missed my earlier post We're in total agreement here.

 

[stonebroke]

We did Tip - And anothe "TIP" question.

The tip on the full amount (18%) was already included in the bill. I am not begrudging the $1.50 and I think the state will probably get it since it was a computerized printout.

The CASH EQUIVALENCE makes sense...the only question on that...is it then fair for the restaurant to say the certificate cannot be used to pay for alcoholic drinks (as is often the case)? - yes I understand it is their establishment and they set the rules. To do that makes it seem more like a coupon on the food?

Another question on tipping. I typically give 18 - 20 % but lately I have been realizing I am often calculating that on the total amount of my bill which includes the 6% sales tax. In this case the restaurant charged the 18 % on only the food. Do other people tip total bill or only on the food/drinks?

 

[am1]

Tip should only be on food and drinks. I would also think the more drinks that are purchased the lower % the tip should be. Why should a server in a high sales tax jurisdiction get a larger tip. Some hand held credit card terminals calculate the tip on the total bill.

 

[Timeshare Von]

When you're using a gift card/certificate, you are spending it like cash . . . you are not receiving a discounted price for goods & services.

This is the principle difference in my mind.

 

[Passepartout]

Another question on tipping. I typically give 18 - 20 % but lately I have been realizing I am often calculating that on the total amount of my bill which includes the 6% sales tax. In this case the restaurant charged the 18 % on only the food. Do other people tip total bill or only on the food/drinks?

You are asking if others tip on the taxed amount. Sometimes. Rightly or wrongly, I divide the (pre tax) bill amount by 5 (20%), then round the total paid down to the next even (taxed) dollar when paying by card. If it's cash on the table, I leave even folding money, then have the cashier throw any coin change in the tip jar for the server. I tip more for good service or friendly attitude, bare minimum for self-service or an attitude that the wait staff is doing us a favor by being there.

Jim

 

[bjones9942]

The tip on the full amount (18%) was already included in the bill. I am not begrudging the $1.50 and I think the state will probably get it since it was a computerized printout.

The CASH EQUIVALENCE makes sense...the only question on that...is it then fair for the restaurant to say the certificate cannot be used to pay for alcoholic drinks (as is often the case)? - yes I understand it is their establishment and they set the rules. To do that makes it seem more like a coupon on the food?

Another question on tipping. I typically give 18 - 20 % but lately I have been realizing I am often calculating that on the total amount of my bill which includes the 6% sales tax. In this case the restaurant charged the 18 % on only the food. Do other people tip total bill or only on the food/drinks?

The state will only see a 'computerized printout' if they do a physical audit. The adjusted sales information is compiled and reported by the bookkeeper or accountant in the restaurant and includes many pieces of information. 'Sales Discounts' is one piece.

Many states (Washington is one) have laws concerning alcoholic beverages. In Washington, you cannot sell an alcoholic drink for less than your cost. If someone paid $1 for a $25 'gift certificate' (really folks, these are coupons. The 'CASH EQUIVALENT' would be the amount the restaurant received, not the face value.), then allowing the holder to use it for an alcoholic beverage that costs the restaurant $1.50 would violate the law. Surprisingly, most restaurants don't fool around with liquor regulations as they would like to keep their license to sell.

Some people tip on the pre-tax amount, some on the post-tax amount. Some even tip differently on bottles of wine. In the end all that matters is if the customer and the server are happy.

 

[MichaelColey]

I think it all comes down to whether it's a discount (which is almost never taxed), a coupon (which varies the most), or a gift certificate (which is almost always taxes). Each state is a bit different, but most treat those three things differently when it comes to taxes (and other things).

I think Restaurant.com is considering their certificates as gift certificates, because they recently changed their policies so that the certificates never expire. That's a requirement that many states has started to make for gift certificates. Groupon has changed theirs so that the amount you pay never expires, but the promotional value does.

In reality, they function more like a coupon, but it's ambiguous enough that I think they're taking the more conservative route to avoid future litigation and tax issues.