September 22, 1983
You request a ruling as to the application of the Massachusetts sales tax on meals and the room occupancy tax to mandatory percentage service charges made to customers.
Massachusetts General Laws Chapter 64H imposes a five per cent sales tax on a vendor's "gross receipts," defined as "the total sales price received by vendors as a consideration for retail sales." (G.L. c. 64H, § 1(6)). In determining the sales price, "no deduction shall be taken on account of...(ii) the cost of materials used, labor or service cost, interest charges, losses or other expenses" (G.L. c. 64H, § 1(14)(a)), and "there shall be included (i) any amount paid for any services that are a part of the sale…." (G.L. c. 64H, § 1(14)(b)).
Technical Information Release 78-5 (Gratuity Charges for Meals or Banquets and Other Functions) states that separate gratuity charges for meals at banquets and similar functions are not subject to the sales tax if the gratuity charges are separately listed in the vendor's price list and in the invoice given to the purchaser, and if the gratuity charges "are kept as a segregated fund and almost immediately turned over in their entirety to the waiters or other service personnel." However, if the gratuities are paid only in part to the service personnel or if the gratuities are used to pay in part the wages of the service personnel, the entire amount of such charges is considered receipts of the vendor and is subject to the sales tax. Technical Information Release 78-5 is limited to gratuity charges for meals served at banquets and similar functions.
Massachusetts General Laws Chapter 64G imposes a room occupancy tax, levied on the total amount of rent charged for each occupancy. (G.L. c. 64G, § 3).
Based on the foregoing, it is ruled that:
1. The full price charged to the purchaser for a meal is subject to sales tax, including any mandatory service charge, unless the meal is served at a banquet or similar function. If the meal is served at a banquet or similar function, gratuity charges that are separately stated, kept segregated from other charges, and "almost immediately turned over in their entirety to the waiters or other service personnel employed at such function" are exempt from the sales tax. But gratuity charges that are paid only in part to the service personnel or are utilized in part to pay their wages are subject to the sales tax in their entirety.
2. The full amount charged to the occupant of a room, including any mandatory service charges, is subject to the room occupancy tax.
Very truly yours,
/s/Ira A. Jackson
Ira A. Jackson
Commissioner of Revenue