Waiters and bartenders, unhappy that tips are now considered salary, are taking action to keep some money off the books. In some downtown restaurants, waiters and waitresses tell patrons to pay additional tips in cash instead of including a gratuity with the price of a meal on a credit card slip.
If the money does not run through a credit card provider, Costa Rica’s tax authorities will have no way to track down the payment, they reason.
The effort at blatant tax evasion comes after a protest Thursday at the building housing the Corte Suprema de Justicia. Court magistrates have determined that tips were salary, ending 40 years of untaxed income for the waiters and others who work in eating establishments.
Cash tips are not unusual, both in restaurants and in other occupations. For example, hotel workers almost always get cash tips, as do porters who load luggage into taxis at Juan Santamaría airport. But restaurant workers get most of their tips on the books. Restaurant operators are obligated to add 13 percent of the cost of a meal as sales tax and also 10 percent as a mandatory tip. The remainder that diners may leave behind in cash can be around 5 percent. But many Costa Ricans and long-time residents leave no extra money as tips. They reason that the tip already has been paid with the price of the meal.
Calling tips salary has other consequences. If a waiter earns more than 660,000 colons a month, about $1,300, the employer is obligated to withhold some salary and turn it over to tax authorities. In addition, waiters and others affected by the ruling also have to surrender 9 percent of their salary to the Caja Costarricense de Seguro Social. And the employers also have to pay at least 13 percent more. So the more an employee earns on the books, the more money has to be remitted to pay for social security charges.
And then the insurance policies that cover the workers on the job also are keyed to monthly salaries.
So the more money that is considered salary, the more the employee and the employer has to pay.
That is why many in the tourism business oppose the tips-as-salary ruling, too.
The Sala IV is studying several appeals to its ruling and may go back on its ruling.
Until then, food service workers will be doing their best to evade taxes on any cash tips.