'Prop. 138 Tips Over Service Charges: A Better Deal for Customers and Workers'

You've probably heard of mandatory service charges popping up at restaurants across the country and you are already familiar with leaving a tip for your favorite server, but what's the difference? And, why do customers and workers prefer the tipping structure?

Let's start with defining each:

• Service charges are mandatory fees charged to customers as a percentage of the total bill. Service fees and surcharges are the property of the business and both sales tax and business income tax must be paid on them.

• Tips are voluntary payments from customers to servers and other hospitality workers in traditional service occupations. Tips are the property of the employee receiving the tip and cannot be retained or utilized by the business. All tip income is free from sales tax and business income taxes.

So why are tips preferred over service charges?

Service charges are mandatory fees. Customers do not determine if to pay or what amount. That is predetermined by the business. Additionally, service charges are considered "business income" by the State and Federal governments. This means that in addition to the mandatory fee, customers are forced to pay sales tax on the service charge, which can be between 5.6% and 11%. Service charges are charged at the same amount regardless of the quality of service the customer received and there is no requirement that the service fee be paid out to employees.

Tips are the exact opposite. Customers alone determine when to leave a tip and in what amount. Tips left by customers are free from sales tax and are the legal property of the server(s).

Knowing this, it makes sense that both servers and customers prefer the voluntary tipping model. In fact, a Pew Research report found that 72% of adults oppose automatic service charges on their bills. For consumers it is more than just a choice between how to pay for service, it is their ability to reward excellent service that motivates tippers. The same Pew Research report found that 77% of adults say that the quality of service is a major factor in their tipping decision.

Another major factor for customers is who keeps the money. As we discussed, service charges are the legal property of the restaurant while tips are the legal property of the server. Americans overwhelmingly say that tips should stay with the server.

The tipping system not only avoids unnecessary taxation on service, but it also helps to create the hospitality and attentiveness consumers crave when dining out. Great service turns into generous tips. Servers make more money and consumers get better service for the same dollar spent on a tip compared to service charges. In fact, 90% of servers prefer the tipping model and 87% fear that a change to the tipping system would negatively impact them. That is why servers overwhelmingly support Prop. 138 and tips over service charges.

Vote yes on Prop. 138 and keep tipping in the hands of workers and costumers..