Donna Genie explains that adding credit-card processing surcharges can create unexpected sales-tax liabilities because many states treat those fees as part of the taxable transaction (notably California, New York, and Texas). She gives a concrete example (a $100 product + $3 processing fee → sales tax on $103), emphasizes meticulous recordkeeping (including names, dates, and Department of Revenue contacts), and warns that audits can produce back taxes and penalties that exceed collected fees.
Questions this video answers
California, New York, and Texas.
$103.
Chapters
We're all kind of tired of seeing businesses tack on credit card processing fees to their bill as a surprise when you pay. That consumer surprise may be preparing to turn around and bite business owners if they aren't careful. Business owners might be thinking they are recouping 3% processing fees, but instead may get a visit from their state Department of Revenue and find they owe thousands of dollars in sales tax that they weren't expecting. Are those pesky fees subject to sales tax? Well, every state handles credit card processing fees differently when it comes to sales tax. Some states absolutely consider these fees as a part of the taxable transaction. California, New York and Texas are particularly strict about this. You can't just assume that one rule fits all. Each state has its own specific guidance. When you charge a processing fee, that amount gets added to the total transaction value for sales tax purposes. For example, if your product costs $100 and you charge a $3 processing fee, you're now calculating sales tax on $103. This might seem small, but over hundreds or thousands of transactions, it adds up quickly. Keep absolutely precise records of each product processing fee charged, the total transaction amounts, how you're calculating the sales tax and the dates of these transactions. Now, don't wait for an audit. Regularly review your current practices with these key questions in mind. Are you consistently applying the processing fees? Are you correctly calculating the sales tax on these fees? And do you understand your state specific regulations? And most of all, keep records of your research if you find that your state does not subject these fees to sales tax. Keep documentation of your research. The document names. Write down every name, phone number and dates and times of conversations of people that you talk to at the Department of Revenue who confirm that decision in case something changes in the future. Now, here's a critical warning for you. And an audit could cost you substantially more than the processing fees you're trying to collect. We're talking potential penalties, back taxes, serious compliance headaches. And in my experience, sales tax auditors don't leave without collecting a check. They will dive into your sales and use tax while they're there looking at everything, not just this credit card processing fee. And trust me, they will find something. It's literally impossible to be 100% complet compliant. The bottom line here, processing fees aren't just a simple transaction. They are a complex tax consideration that requires a lot of documentation, research and strategy. So stay informed and protect your business's financial health with solid information on sales tax. It.
