APPEAL from the Circuit Court of Cook County; the Hon. THOMAS
C. DONOVAN, Judge, presiding.
MR. PRESIDING JUSTICE LORENZ DELIVERED THE OPINION OF THE COURT:
Plaintiff appeals from an order of the circuit court affirming a decision of defendant (Department) assessing plaintiff for unpaid retailers' occupation taxes plus interest and penalties. It contends that retailers' occupation taxes are not due on a 15% "gratuity" charge separately contracted for by its customers.
Plaintiff operates a catering business in its dining halls in the city of Chicago. Following several audits of its books and the issuance of a notice of tax liability, the Department held hearings at which the following facts found in the referee's hearing disposition order were adduced.
Dorothea Taitel, a Department auditor, testified that she examined plaintiff's records and found that plaintiff was deducting "gratuities" which were contracted for and paid by its customers from the gross receipts which were reported to the Department. The total amount of gratuities deducted during the assessment period from January 1969 through January 1972 was $297,698.63.
Henry Jasek, a Department auditor, testified that plaintiff's payroll records showed its employees, such as its waitresses, cooks and bus boys, were paid a salary based upon an hourly rate. Plaintiff's W-2 forms did not show any tips given to its employees.
George Micelli, plaintiff's president and part owner of the corporation, testified on plaintiff's behalf. A sample contract and breakdown sheet admitted in evidence was explained by him. In pertinent part it showed the following:
90 Plates at $7.75 $697.50 15% Gratuity 104.62 5% Sales Tax 34.87 20 Bottles Rose' Wine 60.00 ________ $896.99 Less Deposit 100.00 ________ $796.99
Every customer was quoted a sales price plus a 15% "gratuity," even when the contract did not contain an itemized breakdown sheet. The tax was charged to the customer on the sales price excluding this 15% "gratuity," and the amount collected was remitted to the Department. Micelli testified that the 15% "gratuity" paid by the customer was a mandatory charge not subject to negotiation between plaintiff and its customer. No correlation existed between the amount of "gratuities" collected from the customers and the amounts paid as salaries to plaintiff's employees.
The hearing referee found that plaintiff was attempting to deduct a portion of its payroll expenses from its gross receipts and held that the 15% charge was not a gratuity. He assessed plaintiff's liability as follows:
State Retailers' Occupation Tax Deficiency $ 31,055.19 Municipal " " " " 7,244.69 Plus 5% Penalty 1,914.99 Interest computed thru September 30, 1974 18,766.94 Total Liability $58,981.81
Thereafter, plaintiff filed a complaint for review of the Department's decision under the Administrative Review Act. (Ill. Rev. Stat. 1975, ch. 110, par. 264 et seq.) On September 30, 1975, the trial court affirmed the Department's decision and entered judgment for the amounts of interest and penalties remaining unpaid.
Plaintiff contends retailers' occupation taxes are not due on the 15% "gratuity" charge separately contracted for by its customers. Section 1 of the Retailers' Occupation Tax Act (Ill. Rev. Stat. 1975, ch. 120, par. 440) defines "gross receipts" from the sales of tangible personal property at retail as the total selling price or amount of such sales. That section further provides that "selling price" or "amount of sale" means the consideration for a sale valued in money including both cash and services as "determined without any deduction on account of the cost of the property sold, the cost of materials used, labor or services cost or any other expense whatsoever," but excluding State or local taxes. Ill. Rev. Stat. 1975, ch. 120, par. 440. (Emphasis added.)
In Cohen v. Playboy Clubs International, Inc. (1974), 19 Ill. App.3d 215, 311 N.E.2d 336, this court held a mandatory 15% service charge which was separately stated on Playboy's customers' bills to be includable within, and not deductible from, the selling price of food and drinks sold by Playboy. There, as here, plaintiff argued the service charge was a tip or gratuity. Nonetheless, we rejected ...