Reminder Regarding Taxability of Credit Card Surcharges

NJ CAR has previously advised dealers of the taxability of credit card surcharges. Dealers are reminded that Sales tax on a credit card surcharge may be due when the cost of the credit card fees charged by card processors to the business is passed to the customer as a surcharge. The New Jersey Division of Taxation (the "Division") asserts that the customer must pay sales tax on the credit card surcharge if the service or merchandise sold is taxable.

The Division’s guidance follows the historical treatment of the taxability of other surcharges. In the past, the Division issued guidance on fuel surcharges and more recently issued guidance on the taxability of Covid-19 related surcharges. In each circumstance, the taxability of the surcharge depends 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:

Sales Price Definition:

  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:
    • The seller's cost of the property sold.
    • 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 makes clear that “a separately stated surcharge is an expense that a seller incurs 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 that 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.

Credit Card Surcharge Rules:

NJ CAR has previously reminded dealers of the requirements for imposing a credit card surcharge established by VISA and Mastercard. If dealers choose to impose a surcharge, the following rules must be adhered to before a surcharge can be passed on to the customer:

  1. You are required to display a sign at the point-of-sale alerting customers to the credit card surcharge.
  2. You are required to tell the customer about the surcharge before they make the purchase.
  3. The surcharge must be a separate line item on any receipt, both in person and online.
  4. Credit Card companies must be notified 30 days in advance that you are implementing a policy of charging a surcharge.
  5. The amount of the surcharge must not be more than 3% OR the actual cost to the business for processing the payment, whichever is smaller.

New Law on Credit Card Surcharges (P.L. 2023, c.146):

In 2023, Governor Murphy signed P.L. 2023, c.146 (N.J.S.A. 56:8-156.1 and -156.2) into law, which, among other things, prohibits sellers from imposing a credit card surcharge that is greater than the actual cost to the seller to process the credit card payment. Businesses must comply with the following:

  1. A seller that imposes a surcharge on a customer to process a credit card payment must disclose the amount of the surcharge to a customer, prior to the customer incurring any charge for goods or services.
  2. In the case of a seller, other than a restaurant, posting clear and conspicuous notice on a sign at the point of entry and point of sale.
  3. The seller must provide clear and conspicuous electronic notice on the checkout page of the Internet website, mobile application, or electronic kiosk prior to processing the transaction.
  4. If the seller is processing a credit card payment for a transaction that will occur over the telephone, the seller must provide verbal notice prior to processing the transaction.

Contact Information:

If dealers have questions about this topic or any other questions, they should contact:

Greyson P. Hannigan
NJ CAR’s Senior VP-Legal & Regulatory Affairs
(609) 883-5056 – ext. 340
Email: [email protected]