Beginning January 1, 2014, two changes are being implemented that affect the restaurant. The first is a change to mixed beverage tax and the second is a change in determining FICA tip credit. Both will require decisions by operations to ensure compliance with the new laws. MIXED BEVERAGE TAX Starting January 1, 2014 House Bill 3572 relating to mixed beverage taxes will take effect. The bill shifts a portion of the burden of mixed beverage tax from the seller to the consumer in the form of sales tax. Previously owners would pay 14% mixed beverage tax on sales of all alcohol if you have a mixed beverage license. House Bill 3572 now lowers the 14% mixed beverage tax to a 6.7% tax and enacts a new 8.25% sales tax paid by the consumer. The total tax paid on a mixed beverage will now be 14.95% instead of the previous 14%. Owners still have options in light of the new changes in the law. First, owners may choose to keep liquor prices the same and pass the tax burden to the consumer as the law has intended to do. For example a $5.00 drink would now show as, $5.00 + $0.41 tax, totaling $5.41. This option would in turn allow business owners to keep 7.3% more of the old mixed beverage tax. The other option is to lower liquor prices and include sales tax in the price to keep the customer paying their customary price for a drink. For example, a $5.00 drink would now show as, $4.62 + $0.38 tax, totaling $5.00. Below is the link to a private letter with sample calculations of how to report mixed beverage sales under the new law and a link to Texas House Bill 3572.
- http://tra.informz.net/InformzDataService/OnlineVersion/Individual?mailingInstanceId=2704237&subscriberId=793687757
- http://www.legis.state.tx.us/BillLookup/History.aspx?LegSess=83R&Bill=HB3572
SUGGESTED GRATUITY Those who take advantage of the FICA tip credit will now face a stricter set of guidelines in determining tips versus service charges. Starting January 1, 2014 the following 4 requirements must be met to be considered a tip:
- Payment must be made free from compulsion
- Customer must have unrestricted right to determine the amount
- Payment should not be the subject of negotiation or dictated by employer policy
- The customer has the right to determine who receives the payment
How does this affect the credit? The FICA tip credit is a credit given to employers who have paid FICA taxes on behalf of their tipped employees above and beyond a calculated minimum. If tips do not qualify as tips under the above four requirements, they will be deemed service charges. Although service charges are a normal business deduction, they are not included in the calculation for FICA tip credit. Please contact your CPAs at ADKF for a review of your current processes to be sure you will be in compliance with these changes beginning January 1, 2014. Below is the link to Revenue Ruling 2012-18 including IRS questions and answers explaining the tip versus service charges and examples. http://www.irs.gov/irb/2012-26_IRB/ar07.html