Colorado HB25-1090 for Restaurants: How to Disclose Service Charges and Automatic Gratuities

Your menu prices are probably legal exactly as printed. It is the small line at the bottom of the check — the 20 percent service charge, the "kitchen appreciation" fee, the automatic gratuity on parties of six — that Colorado now regulates practically word by word.

House Bill 25-1090, the Protections Against Deceptive Pricing Practices Act, took effect January 1, 2026, as section 6-1-737 of the Colorado Revised Statutes. It is not a ban on restaurant fees. Diners will still see service charges on their checks; the law's job is to make sure they see those charges before they order, understand the amount, and know where the money goes. For food and beverage establishments, the legislature wrote a custom compliance path instead of the all-in advertised price every other industry must show. This is your playbook for that path.

The Restaurant Carve-Out: Your Compliance Path in One Paragraph​

Colorado's default rule is strict: any advertised or displayed price must show the total price as a single number, presented more prominently than any other pricing information. Restaurants, bars, brew pubs, and tasting rooms that sell drinks for on-site consumption get an alternative. In every offer, display, or advertisement for a good or service, you comply if the price is accompanied by a clear and conspicuous disclosure of two things: the percentage or dollar amount of any mandatory service charge, and an accurate description of how that charge is distributed.

Two details in that sentence matter enormously. First, a "mandatory service charge" means any mandatory fee, charge, or amount you add to a guest's bill — not just line items labeled "service charge." An automatic gratuity, a kitchen appreciation fee, and a mandatory packaging fee on takeout orders all fit the definition. For gray-area fees such as a card surcharge, disclosing them the same way costs nothing and removes the argument. Second, the disclosure must appear in every offer, display, or advertisement: the printed menu, the menu board, the website, the online ordering page, the third-party delivery listing, and the price you quote on a phone order. A disclosure that lives only on the final receipt arrives after the diner has already consented to pay, which is too late — the law separately requires the nature and purpose of any charge to be disclosed before the customer agrees to pay it.

Why Restaurants Got Their Own Rule​

Service charges did not appear on Colorado checks by accident. They are how many operators fund back-of-house wages that tips cannot legally reach, in a state where the wage floor keeps climbing. In Denver, the 2026 minimum wage is $19.29 an hour, and tipped food-and-beverage workers must receive at least $16.27 an hour directly from the employer on top of $3.02 in documented tips. Statewide, the tipped floor is $12.14. When the house must guarantee those rates whether or not the dining room fills, a percentage-based service charge looks like the only math that works.

Diners, meanwhile, are running out of patience. In a March 2026 survey of 1,000 U.S. consumers, 78 percent said tipping practices have become ridiculous, 44 percent said they are tipping less than last year, and the share tipping servers 20 percent or more slipped from 45 percent to 41 percent in six months. A related survey found 68 percent of guests cutting back on restaurant dining this year, with average weekly restaurant spending down to about $90 — roughly $25 less than in June 2025. Notably, 56 percent said they would accept higher menu prices to fund better wages and eliminate tipping altogether.

That tension is exactly why the legislature chose disclosure over prohibition. Your charges can stay. But every diner must be able to read, before ordering, what the charge is and where it goes.

Service Charge vs. Automatic Gratuity vs. Tip: The Words on Your Receipt Are Legal Claims Now​

Three different things get blurred together on guest checks, and the law treats the blur as a potential violation:

• A tip is voluntary. The customer chooses whether to pay it and decides the amount. A blank tip line the guest may fill in or leave empty is the classic example.
• A service charge is mandatory and set by the house — a fixed percentage or amount the guest cannot decline.
• An automatic gratuity is, legally speaking, a service charge wearing a friendlier label. If the guest cannot remove it, the "gratuity" wording does not make it a tip.

The wording matters because HB25-1090 separately prohibits misrepresenting the nature and purpose of any pricing information, including the recipient of an amount charged. If your check says "gratuity" but a portion stays with the house to cover operating costs, you have misstated who receives the money — an independent violation regardless of how prominently the percentage was displayed.

Regulators in other jurisdictions have published useful illustrations of the line. In one example, stating only "a 20% service fee will be added to all guest checks" was deemed non-compliant, while adding "and will be used to cover our increasing operational costs — this fee is not a tip" passed muster. Colorado's statute codifies the same principle: amount plus accurate distribution, stated plainly. A compliant disclosure sounds like this: "An 18% service charge is added to every check. Twelve percent goes to hourly kitchen and service staff, and 6 percent is retained by the restaurant to offset operating costs. This charge is not a tip, and any additional tip is voluntary."

The Payroll Side: Service Charges Are Wages, Not Tips​

The disclosure rule is only half the story. Under long-standing IRS guidance, mandatory service charges are income to the employer whether or not you distribute any of them to employees. That classification has payroll consequences many operators miss:

• Amounts you pay out from a service charge are wages, subject to income-tax withholding and employment taxes, reported as wage income — not as tip income.
• Because they are wages rather than voluntary tips, they sit outside the tip-credit and tip-deduction rules that apply only to genuine tips. You cannot claim the FICA tip credit on service-charge distributions the way you can on tips your servers actually receive.
• Your point-of-sale system must therefore track service-charge revenue separately from tips, and your payroll process must pick those distributions up as wages. A single "gratuities" bucket in the books will not survive contact with either the disclosure audit or the payroll audit.

Every Surface Where the Disclosure Must Appear​

"Every offer, display, or advertisement" is broader than most operators assume. Walk through this list against your own operation:

1. Printed menus and menu boards. The disclosure must be distinguishable by size, contrast, and location — easily noticeable and readable to an ordinary person, not buried in footer fine print.
2. Your website and online ordering pages. In any interactive electronic medium, the disclosure must be unavoidable — no scrolling past it, no hiding it behind a tooltip or a checkout step.
3. Third-party delivery and ordering listings. Those listings display your prices to Colorado customers, so treat them as your offers and keep them in sync. Stale menus showing last year's prices and charges are a common violation hiding in plain sight.
4. Table signage and register displays. Particularly important for counter-service spots where the menu board is the entire offer.
5. Phone quotes for takeout, catering, and large parties. For a communication that is only audible, the disclosure must be delivered audibly, at a volume, speed, and cadence an ordinary person can easily hear and understand. Add one sentence to your phone script.
6. The guest check itself. Print the full disclosure on the receipt as well — not because the receipt alone satisfies the law, but because it proves the diner saw the same terms at payment that they saw when ordering.

Three formatting rules apply across all of these: the disclosure must appear in each language the offer appears in, it must not be contradicted or watered down by anything else in the same communication, and the total price must remain more prominent than any other pricing information. A menu that trumpets "100% of our service charge goes to staff" while the website says something softer means at least one of the two misstates the distribution — and whichever statement a diner relied on is the violation.

Seven Mistakes That Still Violate the Law​

Most noncompliant restaurants will fail in one of these familiar ways:

1. Fine-print-only disclosure. If diners need a magnifying glass or a lawyer to find the charge, it is not clear and conspicuous.
2. Receipt-only disclosure. By the time the check arrives, the diner has ordered, eaten, and consented. Disclosure must precede the decision, not memorialize it.
3. Calling it a gratuity or tip when it is not distributed like one. The label is a claim about the recipient. If the house keeps a share, say so.
4. Stating the percentage but not the distribution. The statute requires both. "20% service charge" with no explanation of where it goes is half a disclosure.
5. Silent phone quotes. Quoting a catering total without mentioning the mandatory charge fails the audible-disclosure rule.
6. Stale third-party menus. Your delivery-app listing is your offer. If fees changed in January and the app still shows the old terms, that is your violation.
7. Contradictory statements across surfaces. The menu, the website, the receipt, and the server's explanation must all tell the same story about the same charge. If they contradict each other, at least one of them misstates the distribution.

What Noncompliance Can Cost​

A violation of the pricing law is classified as a deceptive, unfair, and unconscionable act or practice under the Colorado Consumer Protection Act, which unlocks serious enforcement machinery:

• Attorney General or district attorney enforcement. The state can seek civil penalties of up to $20,000 per violation — and each affected consumer or transaction counts as a separate violation, with no overall cap on a related series of violations. A noncompliant disclosure shown to hundreds of diners is not one $20,000 exposure; it is hundreds of them.
• Private lawsuits. An aggrieved customer does not need to send a demand letter or satisfy any other pre-suit requirement before suing. A business found liable owes the greater of actual damages, $500, or triple damages if bad-faith conduct is proven — plus the plaintiff's costs and reasonable attorney fees, which is what makes small-dollar fee cases worth filing.

The act gives the attorney general rulemaking authority, but no restaurant-specific rules have been published, so the statute text itself is the compliance standard to build against. Check the attorney general's site periodically — and treat every POS record as both your compliance proof and, if you ignore this law, the other side's Exhibit A.

Your Restaurant Compliance Checklist​

Work through these six steps before your next menu reprint:

1. Inventory every mandatory amount on every check. List each service charge, automatic gratuity, packaging fee, and surcharge. For each one, decide: keep it and disclose it properly, or drop it.
2. Rewrite the disclosure once, in plain language. Percentage or dollar amount, accurate distribution, and a "this is not a tip" sentence where true. Use identical wording on every surface.
3. Fix every surface in the same pass. Menus, menu boards, website, online ordering, delivery-app listings, register signage, receipts, and the phone script all change together — a staggered rollout leaves live violations behind.
4. Separate it in the books. Record service-charge collections as their own revenue line, distributions to staff as wage expense, and reconcile point-of-sale totals to payroll every month. Clean separation is what lets you prove both disclosure accuracy and payroll correctness.
5. Train every employee who quotes prices. Servers, hosts, bartenders, and whoever answers the phone should be able to explain the charge accurately in one sentence.
6. Keep dated copies of every version. Save each menu, web page, and disclosure revision with its effective date. If a complaint ever questions what diners saw last quarter, your archive answers it.

Keep Your Menu Prices — and Your Books — Transparent​

HB25-1090 asks restaurants for the same thing diners have always wanted: prices that mean what they say. Meeting that standard is mostly a paperwork discipline — consistent disclosures on every surface, service-charge revenue tracked separately from tips, and payroll records that match. Beancount.io provides plain-text accounting that gives you complete transparency and control over your financial data — version-controlled, with no black boxes and no vendor lock-in. Get started for free and see why developers and finance professionals are switching to plain-text accounting.