Can I customer claim money back for taxes overcharged?

Question

A place where I work gets many claims about why the restaurant charges 10.6% tax, the employees find out that it was the tip which is also being charged and by law this is not allowed no matter the cirmcustances, they been doing it for about 4 years now in sales of millions of dollars, worst of all, all managment has been propely adviced of the customer claims, how can we find out where the extra charge is going to and how can the customers get thei money back, everytime there is a complaint, the managers take the money from the employees income. Any advice or similar situations?

A little more detail, the tip is clearly shown as 17%, what I'm talking about is the taxes, they should be no more than 9% in special circumstances ( usually is between 6.5% and 7% ). The establishment is charging taxes on the tips, what I will really like to know is what is happening to the extra tax money which amounts for hundreds of thousands if no more. I'm pretty sure the IRS is just taking extra just like that, if so wouldn't they think the books are not correct? and if people complaint and notifies the managment shouldn't they get at least an reasonable explanation instead of a refund coming out of the employees hard earned income? Now, think again, the staff if requiered to report and pay 100% of the earned tips, would't this be a double tax pay and what about the thousands of customers? shouldn't they get the money back, they do keep track of names and addresses of about 90% of customers since most of them pay with room charge from the adjacent hotel or credit card.

Answer 1

Depends on the state you're in and if the gratuity was disclosed to customers (most will have a sign or fine print):

Article on automatic tipping (9/20/06):
http://media.www.reflector-online.com/media/storage/paper938/news/2006/09/20/News/Tipping.May.Become.Mandatory-2540342.shtml

http://www.fairtip.org/why.asp

It is customary for an 18% gratuity to be charged on parties of 6 or more, and is not illegal. It isn't a tax - it's a percentage of the check paid as gratuity.

Michigan House Bill 4111 (Require restaurants to disclose automatic gratuity charges ):
* Introduced by Rep. Glenn Anderson on February 1, 2005, to require restaurants to notify customers of any automatic gratuity or service charge added to bills, including the percentage (if any) retained by the restaurant, and to require that the tips be distributed to the appropriate staff.
o Referred to the House Commerce Committee on February 1, 2005.
http://www.legislature.mi.gov/(S(mce0ua2wphmu5nzdclrmewma))/mileg.aspx?page=getobject&objectname=2005-HB-4111&queryid=17939728
Virginia:
http://www.policylibrary.tax.virginia.gov/OTP/policy.nsf/c8fb8e1da80997e68525689b00694d3b/4cabc24775a6aad8852569ab006b0032?OpenDocument

If you receive an automatic gratuity for service which the customer complains or does not wish to pay - and the management refunds the gratuity - it would come from the gratuity given to the server - since it is automatic, where else do you think the employer should draw from?

Answer 2

Some states laws are written that whenever an automatic gratuity is applied to a check, the tip is part of the total check unless the ENTIRE gratuity is paid to the server as compensation. If the restaurant keeps ANY of the gratuity, then it could be subject to sales tax.

As for getting a refund of the overcharged sales tax, the customer has 2 options: 1. Get a refund from the restaurant, or 2. Get a refund from the State.

As for the IRS, I guess that the restaurant would have to show that all automatic gratuities are being paid as wages or else there could be a problem when it comes time to audit the restaurant.

Answer 3

We need more information. There appear to be several aspects to this, and several possible answers.

First, your state or local government may assert criminal jurisdiction. Your police or sheriff would be the contact to start this.

There may also be consumer protection issues, and another state or local agency would consider it. Some newspapers and TV stations do this, too.

Finally, IRS could be interested in it. 800-829-0433 Report Tax Fraud

Answer 4

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Answer 5

If true, your state's sales tax department might find this very interesting.

Answer 6

Defenitely my dear. u can