Cover Charges
A cover charge is generally a fee charged to allow guests entry for a specific event or activity.
In general, if the cover charge is for the privilege of listening to music or watching a pay-per-view show and no dance floor is available, retail sales tax does not apply. The gross amount received is subject to B&O tax under the Service and Other Activities classification.
A cover charge that entitles guests to an opportunity to dance or to participate in a contest, such as karaoke, is subject to retail sales tax and the Retailing classification of the B&O tax.
Sales tax may be included in the amount charged as a cover charge if it is properly posted that tax is included.
Discount Coupons and Two-for-One Promotions
Discount coupons and two-for-one promotions: Selling meals or beverages on a "two-for-one" or similar basis is not giving away a free meal or beverage, but rather selling meals or beverages at a discounted price. The tax applies to the amount that is actually received by the seller. Therefore, both Retailing B&O and retail sales doingbusiness/businesstypes should be calculated on the reduced price, the amount actually received by the tavern.
Example: A customer uses a two-for-one coupon to purchase two meals. The selling price of each meal is $10. Tax applies to $10, the actual amount charged for the two meals. If extra items are sold, such as beverages, tax applies to the $10 plus the amount charged for the beverages.
Employee Meals
Retail sales tax and the Retailing B&O tax apply to meals provided to employees. The tax applies whether individual meals are sold, a flat charge is made, or whether meals are furnished as a part of the compensation for services rendered.
Retail sales tax applies to the selling price. Therefore, where a specific and reasonable charge is made to the employee, the measure of the tax is the selling price. Where no specific charge is made, the measure of the tax is the average cost per meal served to each employee based upon the actual cost of the food.
Where meals furnished to employees are not recorded as sales, the tavern may use an estimate to determine the meal count. The estimate must be based on the restaurant's actual policy regarding employee meals. For example, a tavern may have a policy that every employee working five hours receives a meal.
If the tavern does not have a written policy or a policy cannot be determined, the tax due shall be presumed to apply according to the following formula for determining meal count:
- Those employees working shifts up to five hours, one meal
- Employees working shifts of more than five hours, two meals
Since it is often impractical to collect the retail sales tax from employees on the sale of meals, the employer may, in lieu of collecting such tax from employees pay the tax directly to the Department of Revenue.
References: RCW 82.04.040 and 82.08.010; WAC 458-20-124 and 458-20-119
Free Meals
Taverns are not required to pay or report retail sales tax or use tax on food products, including meals, actually given away. This exemption does not include carbonated beverages; therefore, carbonated beverages provided free of charge are subject to use tax.
Meals provided to employees are presumed to be in exchange for services and are not considered to be given away.
References: WAC 458-20-119, 458-20-124, and 458-20-108; ETA 408.08.108 (pdf)
Gratuities
Tips or gratuities received under circumstances that are clearly voluntary are not part of the selling price and, therefore, are not subject to sales tax. However, if the tip or gratuity is added to the bill and is a mandatory charge for services, the charge becomes part of the selling price subject to tax.
A gratuity is not voluntary when the amount is agreed upon and the contract document states that a gratuity "will be added." For example, a tavern may have a policy of charging groups of five or more a mandatory 15 percent gratuity. When a gratuity is applied in this manner, the entire charge is subject to retail sales tax and the Retailing classification of the B&O tax.
References: WAC 458-20-119 and 458-20-124
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