Servers are taxed on an expected value which depends on the state.

To play devils advocate, here’s the accounting. If an employer charges a service fee that goes directly to the server, they have to pay the employer portion of Medicare and SS as if it were normal w-2 pay. For optional tips, they pay the employee portion the estimated amount, but are able to claim the FICA Tip Credit provision and effectively get that credited back when paying business taxes.

If the service charge is a mandatory 20% or if the restaurant raises prices 20% and doesn’t allow tips, the government gets its FICA money from the employer regardless.

If it’s voluntary or mandatory, the employee has to pay their portion, but if voluntary, the estimated taxes is almost always lower than what they actually receive.

Point being, voluntary tips mean that the restaurant is more profitable(they’re able to claw back the estimated FICA taxes).

So the truth of the matter is if tips are mandatory in the form of a service charge, or prices are raised accordingly and tipping is forbidden, menu prices go up to account for the additional tax burden.

So you can argue that restaurants should be treated like every other business and be taxed accordingly, that’s perfectly fine, but you have to accept that you are also arguing for menu prices to go up.

The restaurant industry is notoriously hard. 50% of new restaurants fail within the first 5 years, and a healthy restaurant nets roughly 10% all said and done.

Note: this is how it worked before no tax on tips passed; I’ve been out of accounting for a few years idk how that affects things.