University:
Stanford University
Course:
ECON 1 | Principles of Economics
Academic year:

2024
Views:

188

Pages:

2
Author:

Waktu S.

Service Charge Strategies With the combined knowledge of precosting techniques and various pricing philosophies, off-premise caterers are now prepared to price parties. Using the preceding example, one way to price this party would be as follows (Please note that this is not policy, but only one example.): • $1200 food cost times factor of 2.5= $3,000 1,640 • Labor at cost • Equipment • Beverage mixers, ice, etc. at $2 PP • Total price 2,200 200 $7,040 Total Costs Food $1,200 Labor 1,640 Equipment 1,800 Mixers, etc. 100 Total cost $4,740 Total projected profit from the $2,300 party Each state has specific laws regarding gratuities, service charges, and sales taxes. It is incumbent upon caterers in every state to learn and comply with those laws. Penalties are severe for violations. Service charges are basically specified percentages added to all or a portion of the price. Caterers use different techniques, depending on their circumstances. In the previous example, if there was a 15 percent service charge on all invoice items, this would be computed on the $7,040, or an additional $1,056. Some caterers prefer to charge for service on food and labor only. Service charges are subject to sales taxes, since they are not voluntary. Gratuities, on the other hand, are voluntary, and are paid purely at the discretion of clients. They are generally not subject to sales tax. Reports from around the nation indicate that 50 percent of off-premise caterers do not impose a service charge, 25 percent do, and 25 percent sometimes do, depending on the situation. When considering whether to impose a service charge, off-premise caterers should review competitors' practices, and develop an acceptable strategy. One strategy, in a market where all caterers impose a service charge, may be not to impose one. Many states provide sales tax exemptions to charitable organizations, churches, synagogues, and not-for-profit organizations. Off-premise caterers must obtain sales tax exemption certificates from these organizations with their tax-exempt number in order to avoid penalties. Some states have laws regarding charging sales tax on labor. One California floral designer was led to believe that labor at the party site was not taxable, and for eighteen months did not charge sales tax on this labor. He was audited, at which time he was told that it was in fact taxable, and that he owed the state $58,000 in back taxes.