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“Any non-discretionary charge added to a restaurant or bar customer’s bill, regardless of what it’s called, is a service charge,” Mollie Steinemann, the Colorado Restaurant Association’s manager of government affairs, told Denverite in a written statement. “Auto-gratuities fall into this category, as do things like health and wellness charges, back-of-house service charges, and anything else that a customer can’t opt into. Service charges are considered revenue and operators are required to collect sales tax on them.”
Service fees do not function like tips, which are non-compulsory gifts from the customer directly to the staff. Instead, service fees are simply an additional form of revenue. They bring in additional funds that owners can then distribute as they see fit.