New York: Credit card convenience fees may be taxable

The New York State Department of Taxation and Finance recently determined that a convenience fee imposed by a New York merchant on a credit card sale is part of the taxable sales price, and therefore should be taxed.

This was shared in an advisory opinion, an interpretation of a law issued by the department in answer to a specific request. An advisory opinion is binding “only with respect to the person or entity to whom it is issued and only if the person or entity fully and accurately describes all relevant facts.” That said, advisory opinions can help taxpayers understand how the state tax authority interprets tax law.

TSB-A-18(1)S, the advisory opinion at hand, describes the facts as follows: “Petitioner is a club that imposes a ‘convenience fee’ when credit cards are used to make purchases. This fee is a percentage of the total credit card purchase, and is charged to ‘offset the loss of revenue in accepting credit cards.’”

Receipts from every taxable retail sale are subject to sales and use tax in New York, and according to the department, the petitioner’s convenience fee is part of the receipt. Consequently, “to the extent a ‘convenience fee’ is charged when collecting taxable dues from members, the fee itself is considered dues and is subject to sales tax.”

However, should a sale include both taxable and exempt products/services, plus a service fee, “sales tax need only be collected on the portion of the ‘convenience fee’ attributable to the sale of the taxable items.”

Prior departmental advisory opinions — TSB-A-90(56)S, TSB-A-85(38)S, and TSB-A-97(11)S — support this one.

A little background on credit card convenience fees

Not only has the taxability of credit card convenience fees been called into question, their very legality has been challenged.

New York merchants can’t deduct the per-transaction processing fees credit card companies sometimes charge. In most states, however, businesses can pass those fees on to their customers.

New York law prohibits merchants from charging consumers a fee to cover the credit card transaction fee surcharge. Yet that statute (Section 518) has been challenged and is under an injunction as it makes its way through the courts. It’s unclear if or how this impacts the convenience fee addressed in TSB-A-18(1)S.

Nine other states and Puerto Rico also prohibit credit card surcharges.

To be sales tax compliant, you have to get sales tax right on each aspect of every transaction, and sometimes product taxability isn’t always obvious.

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