Service Charge and Tax
Add a percentage service charge to a bill, then tax on the sum, as many restaurant bills do.
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Formula
How the calculation works
A service charge and a tax stack, and the order is not symmetric the way a discount and a tax are. The service charge is a percentage of the bill, and the tax is then a percentage of the bill plus the service, so the tax itself is charged on the service. An 86 bill with 12.5% service becomes 96.75, and 10% tax on that adds 9.68.
Because the tax lands on the service as well, the effective total is not the bill plus the two rates. Adding 12.5% and 10% gives 22.5%, which would be 105.35, but the true total is 106.43, because the tax also applies to the service portion. The difference grows with both rates.
The convention is not universal. Some places tax only the goods and treat the service charge as a fee outside the tax base, which would give 105.35 here. The tool follows the more common rule, where the service charge is part of the bill, but it states that assumption rather than presenting it as a fact about any one country.
Common mistakes
- Adding the service rate and the tax rate and applying the sum to the bill, which understates the total because the tax on the service is left out.
- Treating a service charge as a tip, when it is printed on the bill and usually enters the taxed amount.
- Assuming the tax base is the same everywhere; where the service is taxed separately the total is lower.
When to use it
- Use it to check a restaurant bill that shows both a service charge and a tax line, and to see how much of the total is each.
- It is not the tool for a tip, which usually sits outside the tax base; use the tip calculator for that, and decide the rate by local custom.
Worked example
An 86 bill with a 12.5% service charge adds 10.75; 10% tax on the 96.75 sum adds 9.68, for 106.43 in total.
Common questions
Is the tax on the bill alone or with the service?
It depends on the local rule. Where the service charge counts as part of the bill, tax is charged on the sum including it, which is the convention this tool follows.
Is a service charge the same as a tip?
No. A service charge is printed on the bill and is part of the taxed amount; a tip is separate and usually outside the tax base.
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