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Michigan Department of Treasury says Credit Card Surcharge Fees are Taxable

May 24, 2024

Small business owners in Michigan need to be aware of recent guidance issued by the Michigan Department of Treasury regarding sales tax on credit card surcharges. This new directive clarifies that sales tax should be applied to surcharges imposed by businesses when customers choose to pay with a credit card.

When a seller accepts payment by credit card, it pays a small fee, a percentage of the payment, to a payment processor like Visa or Mastercard. So, for example, if a restaurant charge of $50 is paid by credit card, after the payment processor takes its fee, say $1, the restaurant gets the balance of $49. In an isolated transaction, the processor’s fee lowers the seller’s receipts; but sellers may nonetheless benefit when they accept convenient payment methods. In other words, the fees can be viewed as a cost of doing business.

Sellers sometimes pass that cost on to purchasers. Thus, if the restaurant above passed along the fee, the $50 charge turns into a $51 charge as the $1 payment-processing fee, also called a “surcharge,” is added to the bill. This leads to a question about the sales-tax treatment of the credit-card surcharge—that is, whether a credit card surcharge is subject to sales tax. According to the Michigan Department of Treasury, these surcharges are considered part of the sales price of taxable goods and services. As a result, they are subject to the same sales tax rate that applies to the goods or services being purchased.

For small business owners, this guidance means that they must now ensure that sales tax is applied not only to the price of the goods or services sold but also to any credit card surcharge added to the transaction. Failure to comply with this directive could result in underpayment of sales taxes and potential penalties.

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