Exclusive Service Contracts. Such clauses have caused great debate in the industry. Negotiate for your right to use your choice of vendors. Avoiding Tax on Gratuities. Most people are unaware of the difference between service charges and gratuities.
Service charges are mandatory, gratuities are voluntary.
In most states, voluntary gratuities that are distributed to the employees are not taxable, but service charges are. You may be able to avoid paying sales tax on the gratuities for your food and beverage purchases by structuring the catering portion of the contract to comply with the law. We can research the sales tax law in the state where you plan to hold the function and determine if this is a method you can use to lower your sales tax. There are many intricacies to negotiating contracts with hotels, convention centers and other service providers. The above pointers identify a few key things to keep in mind as you negotiate and review contracts.