701—203.7(423) Service charge and gratuity. When the purchase of any food, beverage or meal automatically and invariably results in the inclusion of a mandatory service charge to the total price for such food, beverage or meal, the amounts so included shall be subject to tax. The term “service charge” means either a fixed percentage of the total price of or a charge for food, a beverage or a meal.
The mandatory service charge shall be considered: (1) a required part of a transaction arising from a taxable sale and a contractual obligation of a purchaser to pay to a vendor a charge arising directly from and as a condition of the making of the sale and (2) a fixed labor cost included in the price for food, a beverage or a meal even though such charge is separately stated from the charge for the food, beverage or meal.
When a gratuity is voluntarily given for food, a beverage or a meal, it shall be considered a tip and not subject to tax. Cohen v.	Playboy Club International, Inc., 19 Ill.	App.	3d 215, 311 N.E.2d 336; Baltimore Country Club, Inc.	v.	Comptroller of Treasury, 272 Md.	65, 321 A.2d 308.
This rule is intended to implement Iowa Code sections 423.1(47) and 423.2(1).
[ARC 6508C, IAB 9/7/22, effective 10/12/22]