MI Department of Treasury to Small Business: “Credit Card Surcharge Fees Subject to Sales Tax”

May 31, 2024

MI Department of Treasury to Small Business: “Credit Card Surcharge Fees Subject to Sales Tax”

Last week, the Michigan Department of Treasury issued guidance that “swipe fees” charged by a business in order for a customer to pay by credit card are part of the purchase price of the tangible property. The Visa-Mastercard duopoly controls over 80 percent of the U.S. credit card network market- more than 576 million cards – and every time a Visa or Mastercard credit card is swiped, around 2-3 percent is deducted out of the transaction amount the merchant actually receives. Due to rising costs, many businesses have begun charging a “surcharge” for those customers paying by credit card in order to defray the service fees charged by the major credit card companies. The Department of Treasury was asked to give guidance as to whether sales tax should be collected on the additional surcharge and answered with a resounding “yes.” According to Treasury, “the General Sales Tax Act imposes on sellers a 6% tax on “gross proceeds” aka “sales price.” The tax base on a transaction thus is the “sales price,” defined broadly to include “the total amount of consideration … for which tangible personal property or services are sold … valued in money.” The statute adds that the sales price includes “service cost[s] … and any other expense of the seller.” Treasury concludes that the credit-card surcharge is part of the sales price as a “service cost” or “any other expense of the seller.” Sellers employing credit-card surcharges on purchasers should make sure that they remit tax on the surcharges.” Click HERE for more guidance information from the MI Department of Treasury. NFIB will be working with the business community to pass legislation in Michigan that would clarify further and allow small business owners to pass through the cost without paying sales tax. Meanwhile, in Washington DC, NFIB is actively supporting Credit Card Competition Act. The Visa-Mastercard duopoly gets to set the interchange rates for every bank that issues one of their credit cards causing artificially high rates. The Credit Card Competition Act would dismantle this duopoly and interject more competition in the credit card marketplace by allowing banks to carry more than one card, thus giving small business owners multiple credit card network options. Take Action HERE to support the Credit Card Competition Act.

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Michigan