Restaurant tab surcharge a reminder to check the bill

When a Cave Creek restaurant recently placed what some viewed as a politically motivated surcharge on patron bills, it ruffled some feathers.

It also underscored the importance for customers to check their bills carefully because surprising charges sometimes show up.

The issue of unusual charges gained a bit of attention last year when a smattering of restaurants around the nation levied COVID-19 fees to pay for enhanced cleaning and safety equipment necessitated by the pandemic.

Earlier this month, the Creek Patio Grill in Cave Creek levied a “Prop 208,” or Proposition 208, fee in apparent response to the income-tax surcharge that awaits high-income Arizonans following passage of the Invest in Education Act initiative in November. The charge has since been removed from tabs at the restaurant.

These and other charges appear to be much more the exception than the rule — in part because they can turn off customers during a tough economic climate.

“Overall, in Arizona and nationally, people in the industry try to stay away from surcharges,” said Steve Chucri, president and CEO of the Arizona Restaurant Association.

“It’s not like we don’t have enough challenges already.”

Surcharge tied to ballot measure

But unusual, surprising charges do pop up occasionally.

One was the restaurant’s Proposition 208 charge, reflecting the new 3.5% income-tax surcharge approved by Arizona voters last year to help fund teacher salaries and various education programs.

An unnamed patron posted a photo of her bill on social media that showed a “Prop 208” charge of $1.80 on a $60 tab, equal to 3%.

A friend, Scottsdale firefighter Brad Duell, put the photo of the bill on his Facebook page, attracting attention from a local TV station.

“I won’t go anywhere I know they would add that kind of surcharge,” Duell said in an interview with The Arizona Republic. Duell, who supported Proposition 208, said he called to verify the charge, and it was in place at the time, though he didn’t visit the restaurant himself.

The Creek Patio Grill said it later removed the charge after “we listened to our customers and community.”

Minimum wage caused changes

Proposition 208 will increase the state’s income-tax rate by 3.5% for high-income individuals — it applies on taxable income above $250,000 for singles. It’s not a tax on businesses, which is something Duell said rubbed him the wrong way.

Roopali Desai, an attorney at Coppersmith Brockelman in Phoenix who represents the Invest in Education initiative, said the restaurant could have just raised its prices as many did following five increases in Arizona’s minimum wage since January 2017. The restaurant’s Proposition 208 charge, she indicated, seemed to be more of a political statement.

Desai also questioned why the owners were trying to collect a tax that they might not be required to pay, given the high income needed before it kicks in.

Incidentally, various restaurants around the Valley levy fees tied to another ballot measure, Proposition 206, which raised the state’s minimum wage. For example, it shows up as a P206 charge of 3% on tabs at the Living Room restaurant chain location in Ahwatukee Foothills.

Passing along COVID-19 expenses

The incident follows scattered reports of COVID-19 charges that were levied by some restaurants and other businesses last year. Safety and cleaning expenses can run thousands of dollars per location. A spokeswoman for the National Restaurant Association said the group doesn’t have data on how common these charges are.

One hazard businesses face when imposing unusual surcharges is the possibility of attracting a sales-tax audit in states, including Arizona, that collect these or related taxes, said Accounting Today in an article last year. One issue is whether a small business has properly programmed its sales terminals to collect any unusual surcharges.

That’s in addition to the possible public-relations pushback.

“Knowing the downside of a COVID-19 surcharge, sellers may be better off just raising their prices to get the additional revenue they seek,” the trade publication concluded.

Proper disclosure needed

There are also potential consumerfraud issues. “You would have to disclose it somewhere, on the menu or somewhere,” Chucri said. “There’s some jeopardy if you’re not careful.”

The legality would depend on specific circumstances, said Katie Conner, a spokeswoman for Arizona Attorney General Mark Brnovich. “But generally speaking, surcharges can be legal, as long as they are properly disclosed,” she said in an email.

But perhaps the bigger issue is just risking the ire of consumers at a time when restaurants are hurting and many consumers are, too.

Desai said most customers likely would conclude that the line items they see on their bills, aside from tip suggestions, are mandatory charges, and they could become upset if they learn that’s not the case.

“Make sure the charges are appropriate, and ask questions if there’s something you didn’t know about,” she advised.

It’s not the type of public image that many businesses want.

Arizona restaurant industry revenue fell by $2 billion in 2020, and about 1,000 of the estimated 10,000 or so eating establishments in the state closed last year, Chucri said.

“The restaurant industry is so overly competitive that you don’t want to raise prices,” he added. “Restaurants rely so much on repeat business.”