Post # 1
Hi all! I would love your opinions on what I should do in this situation. I am a bride on a very small budget, like many of you are, and want to know what you would do in my case.
So back in December, my fiance and I signed a contract and put down a deposit for our reception venue. On the contract, it reads "A 20% service charge is added to the final bill, prior to sales tax." I wanted clarification to this because it could be interpretted differently by different people. So the banquet manager told me that a 20% service charge would be added to the food and beverage subtotal before they added the sales tax, that way, we won’t have to pay the 20% on the sales tax. Does that make sense? Anyhow, we went back for a food tasting in June and the banquet manager printed out some sample estimations for me. After looking them over, I emailed him.
This was my email to him:
" Anyhow, the reason I am emailing is because I had a chance to look over the sample banquet contracts you provided us that contained the hypothetical fees. I was going over the numbers and saw that the 9.25% sales tax was added after the subtotal and 20% service charge. Is that correct? From what I recall, during the first meeting with us, you had said the sales tax only applied to the food/beverages and was calculated BEFORE the 20% service charge so that the service charge was not taxed. Please clarify this with us. Thanks"
This is his email back:
"Since we are a restaurant that caters large reservation and have a banquet facility we need to report "mandatory tips". We received a letter from the State Board of Equalization stating we need to change our format. On our passed events we had the tax structure before the service charge."Unfortunately we have had to restructure our contract to having the serving charge before the State Tax. I hope I have not confused you more.
So what irks me is that I signed the contract and feel like they are not upholding their part. Secondly, if I did not look over the sample estimations, they probably would have not told me of their "change in structure." Plus, it doesn’t make sense to me that I have to pay sales tax on a service charge? Should I even try to argue? I am already going to be charged a 1% tax increase because of the tax hike after I signed the contract. Let me know what you all think! Thanks!
Post # 3
I could be wrong about this, but I think it’s standard for hotels/events venues to charge sales tax in this way. It’s not fair, though — I agree.
If they are legally bound to report income as he stated, there’s nothing you can do to change that. However, I would continue this discussion with them and drive home the point that this represents a change from your original understanding and agreement. Calculate how much more this is going to cost you in the end, and ask the venue to reduce their catering costs accordingly.
Post # 4
This is standard, but I agree it totally sucks! That is the same way as our caterer handled it and we also asked the same question as you did and did a bunch of research on it to make sure. He’s telling the truth about the laws. Sorry 🙁
Post # 5
I’m with the above posters, though I do think that given the fact that you asked for clarification at the time of signing, you have a pretty strong argument to ask for some concession. It’ll work out to be a slightly less than 2% difference (.0925*20). Depending on the number of people, that’s probably a larger chunk of cash for you than it is for them. You might just approach them and say that while you understand the tax reasons for the change you did not budget for the extra $X. Maybe they can discount your food price enough to offset the difference (or at least meet you half way). The email they sent sounds pretty good-natured…and it sounds like they are willing to own their mistake. It’s certainly worth taking a shot and talking to them (imho).
Post # 6
I agree with fizicsGirl, it certainly cannot hurt.
Post # 7
Is the procedure in your contract anywhere? You should be granfathered in to the old system if it is. If not they should discount something to equal the difference.
Post # 8
It sounds very standard to me. Im sorry you have to go through this.
Post # 9
Thanks everyone for the feedback. I just needed to vent because we are on such a tight budget. Although our contract states that taxes will not be applied to the service charge, I guess I’ll just take the loss and try to negotiate for something else like using their Audio Visual Package for free. It just sucks that this new structure and the tax hike fell before my wedding! You bees are awesome!
Post # 10
I should preface this by saying that I’m a lawyer, so I may have a more cynical eye. Here’s the thing – sales tax has nothing to do with server’s income. It is a state-imposed tax on the sale. If you go to a restaurant and leave a tip, you aren’t paying sales tax on the tip. You may want to look at your state’s sales tax guidelines or even call them to see if they charge sales tax on service charges. It sounds odd to me. The service charge would not be subject to sales tax in most states.
Post # 11
Yes this is standard, I also asked my venue before I signed the contract and was basically told the same thing
Post # 12
It is a CA state law that establishments are able to tax the service charge, but I still agree it stinks. Does your contract say tax is not applied to service charge or was it told to you by the manager? Maybe he got confused? Try talking to them, it cant hurt to ask. If its contracted that sales tax is not applied to service charge, they can not enforce it. The only thing they can enforce is the new tax rate.
Post # 13
It’s not fair, but it happens.
Our venue charges quite a large service charge. In the end we compromised with our venue and got it down to about 13% (I think ours was 17%)
Maybe a little negotiation is in order?
Post # 14
I agree with the others – negotiate with them – and if they won’t give you any $$ off, perhaps they can give you more food, or more time, or something along those lines.
Good luck and let us know how it goes!
Post # 15
I had an issue with this as well in the state of NY. I even found a layman’s terms description of the laws of taxing services. From reading those laws, it seemed to me that the "service charge" the venue applies should not be taxed, as it is not food/beverage, it is paying for the staff. One venue we looked at discussed this, mentioned it was illegal and they didn’t do it, but many people did that anyways. I calculated out the two different ways, based on a $75/head cost pre-tax/service charge – tax and service charge separately, or service charge, then the whole thing, including service charge taxed. The final outcome, with about 150 people, wasn’t really worth arguing with the venue. Especially, in our case, since we bargained them down to $75/person. Usually they charge $120/head pre-tax on Saturday nights… so I guess I can’t complain.
I’d recommend doing out the math both ways to see what the difference really comes down to. Then, either negotiate, or if it’s not worth it, just suck it up. You don’t want to get on their bad side by arguing over a couple hundred dollars. Good luck!
Post # 16
I don’t think it’s fair, but I don’t think that there’s anything you can do about it other than finding another venue.