Could an Illinois business add a credit-card surcharge, and was the fee part of taxable gross receipts?

Plain-English summary

A registered dietitian asked whether she could add a $3 fee when clients used a credit card to help cover the card processor's 2.75% charge.

IDOR said Illinois did not prohibit the described surcharge at the time of the April 2014 letter, while noting that legislation had been introduced in 2013 to end the practice.

For Retailers' Occupation Tax purposes, a card company's service charge was the retailer's cost of doing business. It could not be deducted from gross receipts, and the surcharge collected from the customer remained in taxable gross receipts even when separately stated.

What this means for you

This is historical surcharge guidance. Its tax-base point was that a retailer could not reduce taxable receipts by passing a payment-processing cost to the customer or showing it separately.

Common questions

Was the surcharge prohibited under the letter's 2014 statement? No.

Could the retailer deduct the processor fee? No.

Was a separately stated surcharge outside gross receipts? No, for a taxable retail transaction.

Citations and references

• 86 Ill. Adm. Code 130.410.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2014.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2014/st-14-0021.pdf

Original ruling text

ST 14-0021-GIL 04/08/2014 GROSS RECEIPTS
Costs of doing business are an element of the retailer's gross receipts subject to tax even if separately stated on
the bill to the customer. See 86 Ill. Adm. Code 130.410. (This is a GIL.)

April 8, 2014
Dear Xxxx:
This letter is in response to your letter dated February 20, 2014, in which you request
information. The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are
issued by the Department in response to specific taxpayer inquiries concerning the application of a
tax statute or rule to a particular fact situation. A PLR is binding on the Department, but only as to the
taxpayer who is the subject of the request for ruling and only to the extent the facts recited in the PLR
are correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information
Letter (“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of Department policy
and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website
at www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to
your inquiry.
The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:
I am a Registered Dietitian in Private practice. I use the Square to accept credit card
payments. I am writing to inquire the legalities of charging my clients a $3.00 service
charge when they use credit cards for payments. Charging the client 3.00 helps to
cover the 2.75% charge from Square. So, for instance I charge 60.00 for a visit for
check payment. I would charge 63.00 if the client pays by credit card. Is this legal?
Thank you and I hope I explained this clearly.
DEPARTMENT’S RESPONSE:
The Illinois Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in
the business of selling tangible personal property at retail to purchasers for use or consumption. 86 Ill.
Adm. Code 130.101. In Illinois, a Use Tax is also imposed on the privilege of using, in this State, any
kind of tangible personal property that is purchased anywhere at retail from a retailer. 86 Ill. Adm.
Code 150.101. These taxes comprise what is commonly known as "sales" tax in Illinois.
In computing Retailers' Occupation Tax liability, no deductions shall be made by a taxpayer
from gross receipts or selling prices on account of the cost of doing business. See 86 Ill. Adm. Code
130.410. Costs of doing business are an element of the retailer's gross receipts subject to tax even if
separately stated on the bill to the customer. For example, a retailer may choose to accept payment
from a customer through the use of a credit or debit card, and the retailer may not receive the full
amount of payment due to the service charges or fees charged by the credit or debit card company.
These charges or fees are part of the retailer's cost of doing business and are not deductible from the
gross receipts subject to tax.

Page 2
April 8, 2014

Some states disallow the act of imposing a surcharge on transactions where the customer
chooses to pay by credit card instead of by check, cash, or other means. Currently, Illinois does not
prohibit such a charge, but legislation was introduced in Illinois in 2013 to end this practice. In sum,
imposing a surcharge to cover the cost of a credit card surcharge is currently legal in Illinois, but you
must include the charge that you collect in your taxable gross receipts.
I hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.
Very truly yours,

Cara Bishop
Associate Counsel

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