NJ CAR has previously reminded dealers of the requirements for imposing a credit card surcharge. If dealers choose to impose a surcharge, the following rules must be adhered to before a surcharge can be passed on to the customer:
- You are required to display a sign at the point-of-sale alerting customers to the credit card surcharge.
- You are required to tell the customer about the surcharge before they make the purchase.
- The surcharge must be a separate line item on any receipt, both in person and online.
- Credit Card companies must be notified 30 days in advance that you are implementing a policy of charging a surcharge.
- The amount of the surcharge must not be more than 4% OR the actual cost to the business for processing the payment, whichever is smaller.
Dealers have inquired about the taxability of a credit card surcharge when the cost of the credit card fees charged by card processors to the business is passed to the customer as a surcharge. The historical treatment of such surcharges by the New Jersey Division of Taxation points to the fact that the customer must pay sales tax on the credit card surcharge if the service or merchandise sold is taxable.
The Division of Taxation issued guidance on the taxability of fuel surcharges in the past and more recently has issued guidance on the taxability of Covid-19 related surcharges. In each circumstance, the taxability of the surcharge depended on whether the service provided, or the product sold by a business is taxable. This guidance depends on the definition of “sales price,” which is set forth at N.J.S.A. 54:32B-2(oo)(1) and states that:
(1) Sales price is the measure subject to Sales Tax and means the total amount of consideration, including cash, credit, property, and services, for which personal property or services are sold, leased, or rented, valued in money, whether received in money or otherwise, without any deduction for the following:
(A) The seller’s cost of the property sold.
(B) The cost of materials used, labor or service cost, interest, losses, all costs of transportation to the seller, all taxes imposed on the seller, and any other expense of the seller; …
The guidance from the Division of Taxation makes clear that “a separately stated surcharge is an expense that a seller incurs in order to perform a service or sell a product.” As the surcharge is part of the sales price, the taxability of a surcharge depends on the taxability of the service provided or the product sold. Thus, if a service or product a business is offering is not subject to Sales Tax, then the related surcharge is also not subject to tax. If the transaction is for a service or product that is subject to Sales Tax, then the related surcharge is subject to tax.”
Dealers should first determine if the product or service they are selling is subject to Sales Tax. If Sales Tax is applicable, then Sales Tax on a credit card surcharge (if charged) must also be collected and remitted to the State.
If dealers have questions about this topic or any other questions, they should contact Greyson P. Hannigan, NJ CAR’s Director of Legal & Regulatory Affairs at (609) 883-5056 – ext. 340 or via email at [email protected].