Lots of restaurants (in my experience) add a mandatory or "optional" gratuity to large parties; i.e., when there are eight or more people in the group. Red Lobster and Olive Garden restaurants -- which (during the relevant period) were owned by plaintiff GMRI -- followed this general practice. The customer could add an additional tip beyond this amount, or could ask that the "optional" tip be taken off, but basically, it's what you paid.
That's my experience too.
What I hadn't thought of before is how that "optional" tip was taxed.
Tips ordinarily aren't taxed -- at least for sales tax -- because they're truly "optional." (The recipient has to pay income tax, but we're talking about only sales tax here.) But mandatory tips are, since they're part of the price of the service. So which one is this one?
California says that it's essentially mandatory (or at least standard), so it's subject to sales tax. GMRI disagrees.
The Court of Appeal holds that California is correct. And I think that's right. At least given the text of the relevant authorities.
There's an upside to adding on an (essentially) mandatory tip; that way, your employees definitely don't get hosed. But there's a downside as well. That way, you're taxed.
So pick your poison.
