If this restaurant was passing the entire service charge to its waitstaff, it would be advantageous to call it a gratuity and exempt it from sales and income tax. The IRS does not tax tips/gratuities as income.
By charging (state) sales tax on the service fee, they also have to declare it as revenue, which increases their income and thus their income tax. They have to pay a portion of that service fee in income tax, so they aren’t going to be passing the full amount to their waitstaff. The restaurant will be keeping the bulk of that service fee.
If this restaurant was passing the entire service charge to its waitstaff, it would be advantageous to call it a gratuity and exempt it from sales and income tax. The IRS does not tax tips/gratuities as income.
By charging (state) sales tax on the service fee, they also have to declare it as revenue, which increases their income and thus their income tax. They have to pay a portion of that service fee in income tax, so they aren’t going to be passing the full amount to their waitstaff. The restaurant will be keeping the bulk of that service fee.