Colorado Service Charge Laws: What Businesses and Customers Need to Know

If you’ve eaten out in Denver, booked a hotel in Aspen, or bought tickets online, chances are you’ve seen a “service charge,” “convenience fee,” or “automatic gratuity” on your bill. Are these charges legal in Colorado? What’s the difference between a tip and a service charge? Who gets the money? This practical, plain-English guide breaks down Colorado service charge laws so you know your rights—whether you’re a customer, worker, or business owner.

What Is a Service Charge?

A service charge is a mandatory fee added by a business to your bill, over and above the listed price. It’s not a voluntary tip. Service charges might be called “automatic gratuity,” “wellness fee,” “resort fee,” or “processing fee.” You’ll see them at restaurants (especially for large groups), hotels, event venues, spas, and online stores.

Example: Restaurant adds 20% “service charge” for parties of six or more.
Example: Hotel includes a nightly “resort fee.”
Example: Online ticket site charges a “convenience fee.”

Are Service Charges Legal in Colorado?

Yes, service charges are legal in Colorado, but there are important requirements:

Full disclosure: Colorado consumer protection law (C.R.S. § 6-1-105) requires all fees to be clearly disclosed up front—no hidden or last-minute surprises.
Honest labeling: Businesses can’t mislead customers by calling a mandatory charge a “tip” or “gratuity.” If it’s required, it must be described as a service charge, not a voluntary tip.
Credit card surcharges: Colorado allows credit card surcharges, but only if disclosed before payment and not more than the actual cost of processing (up to 2% or the business’s actual cost, whichever is less). Debit card surcharges are not allowed.

Service Charges vs. Tips: Key Differences

Colorado law and federal law make a big distinction between service charges and tips:

Service charges are required fees that belong to the business. The employer decides how to use this money—it can go toward wages, benefits, or be kept as revenue. Service charges can legally be used to meet minimum wage obligations.
Tips (gratuities) are voluntary payments left by customers and belong to employees, though tip pooling among staff is allowed. Employers cannot use tips to cover business costs or pay managers/owners.
Employers must clearly state on menus, signs, or receipts which is which. Confusing or mislabeling can lead to consumer complaints or lawsuits.

Common Service Charges in Colorado

Restaurant service charges: Often added for large parties or special events. Some places add a “living wage fee” or “kitchen appreciation” charge—always check the menu or receipt.
Hotel resort or facility fees: Added daily for amenities like Wi-Fi or gym use. These must be disclosed during booking.
Credit card surcharges: Legal for credit cards if disclosed before payment, up to the state’s cap (2% or actual cost, whichever is less).
Online convenience/processing fees: Common on ticketing and delivery platforms.

Can You Refuse to Pay a Service Charge?

If the charge was disclosed on the menu, receipt, website, or before you completed your purchase, you generally must pay it. If it was a surprise or not disclosed in advance, you may have grounds to dispute it or file a complaint with the Colorado Attorney General’s Consumer Protection Section.

Are Service Charges Taxed?

Most mandatory service charges are subject to state and local sales tax in Colorado, just like the underlying purchase. Voluntary tips are not taxed as part of the sale.

Employer Rules: Service Charges and Employee Pay

When a Colorado business collects a mandatory service charge, that money belongs to the business—not automatically to employees. If the employer promises to share the charge with staff, they must follow through. Otherwise, service charges can be used for payroll, operating costs, or benefits. Employees should check pay stubs and ask managers if unsure.

Spotting and Avoiding Hidden Fees

Read menus, receipts, or booking screens for notices about service charges or extra fees.
Ask before buying: “Are there mandatory service charges or fees?”
If you’re surprised by a charge, ask for a manager or contact the state’s consumer protection office.

Helpful Resources

Final Thoughts: Service Charges in Colorado—Legal, But Must Be Clear

Colorado businesses are allowed to add service charges as long as they’re clearly disclosed and not misleading. For consumers, the best defense is to read before you pay and ask questions. For business owners, transparency is your best insurance against complaints and legal headaches.