GMRI, Inc. v. Cal. Dep't of Tax & Fee Admin.

*115 GMRI, Inc. (GMRI or the Company), a restaurant operator, appeals from a judgment entered in favor of the State Board of Equalization (the Board) after the trial court granted the Board's summary judgment motion. 1 The trial court concluded a 15 or 18 percent gratuity restaurant managers automatically added to parties of eight or more without first conferring with the customer (large party gratuity) amounted to a "mandatory payment designated as a tip, gratuity, or service charge" under California Code of Regulations, title 18, section 1603, subdivision (g), 2 and therefore part of the Company's taxable gross receipts, in one circumstance: where the large party gratuity was added and neither removed nor modified by the customer. We affirm.

BACKGROUND

The facts are stipulated. Between January 1, 2002 and December 31, 2004, the time period relevant to the tax dispute in this case (period in dispute), GMRI operated Olive Garden and Red Lobster restaurants in California.

*116 Customers of these restaurants were notified on their menus that an "optional" gratuity of either 15 or 18 percent (depending on which restaurant and time period within the period in dispute) "will be…