In my relaxed perusals of the news this holiday weekend, I found two extremely good analyses by the typically good Amity Shlaes of the Financial Times. In her 27 June column she made a very important point about tipping in restaurants and a recent Supreme Court decision:
In the Fior d’Italia case, summed up on restaurant.org, the National Restaurant Association webpage, the IRS reviewed the restaurant’s credit card receipts, finding a tipping rate that averaged a little over 14 per cent. Then it presumed the same rate on cash revenue, and concluded that workers had failed to report $304,000 in income for a two-year period. It charged the restaurant for back taxes of $23,262 (FICA of 7.65 per cent).
In its 6-3 ruling, the high court gave the IRS the authority to go after such unreported cash by estimating the amount of cash tips that go to employees.
She points out something very important — the effect that this ruling will have at the margin on the quality of restaurant service. In her 1 July column, Shlaes pointed out another potentially detrimental unintended consequence of a legal/regulatory change, this time addressing the timely question of the accounting industry’s ability to monitor its actions and enforce them without new legislation. Read both columns; they are good.