Jesse Kirchner
Administrative Law Specialist, Bureau of Tax Policy
Michigan Department of Treasury
The Michigan Department of Treasury works with retailers and MRA to provide guidance on tax matters. MRA recently was asked about the application of sales tax to a credit card “surcharge” — a charge added to a credit card purchase to cover the fee paid by the seller to a payment processor like Visa or Mastercard. In a credit card transaction without a surcharge, a retailer charging $50 gets $50 minus the payment processing fee. But if the retailer imposes a 2% surcharge, the $50 charge becomes $51 (2% of $50 = $1). (Regardless of the surcharge, a purchaser paying with cash would be charged only $50.)
Retailers want to know whether a credit card surcharge is subject to sales tax. In Michigan, the answer is yes.
Michigan’s General Sales Tax Act imposes on retailers a 6% tax on the sales price. See MCL 205.51(1)(c); MCL 205.52(1). The sales price is defined broadly to include the money value of all “consideration … for which tangible personal property or services are sold.” MCL 205.51(1)(d). The statute expressly includes in the sales price “service cost[s] … and any other expense of the seller.” MCL 205.51(1)(d)(ii).
Under that definition of sales price, the surcharge is taxable if it is a “service cost” or “any other expense of the seller.” A payment processor provides a service to a retailer, which the retailer pays for. The retailer’s payment of the payment processor’s fee is, therefore, a “service cost” or an “expense of the seller.” It follows that a seller’s surcharge to cover the cost of the fee is part of the sales price and thus part of the tax base. For these reasons, where a transaction is subject to Michigan’s sales tax, a credit card surcharge also is subject to the tax.
A retailer imposing a surcharge on a taxable sale should include the surcharge on the bill as a taxable item and subject it to the 6% sales tax. (In an exempt transaction, by contrast, the surcharge also is exempt.) The tax collected must be remitted to Treasury as part of a monthly, quarterly, or annual sales-tax return. The retailer should also ensure that its point-of-sale system accurately marks the surcharge’s taxability.
Note from MRA: Retailers should know that, since 2013, payment processors’ terms allow a retailer to impose a surcharge on a purchase made with a credit card, but not on a purchase made with a debit or prepaid card. Whether a surcharge is allowed by a payment processor’s terms does not affect its taxability.
