Is a credit-card surcharge a propane retailer adds to the customer's bill subject to Kansas sales tax, and can the retailer deduct its credit-card fees from gross receipts?

Plain-English summary

A propane company adds a 2.09% fee to a customer's bill when the customer pays by credit card, to recoup its credit-card service fees. Its employee asked whether that surcharge is subject to Kansas sales tax. The Department's answer: yes — the surcharge is taxed just like the rest of the bill (which, depending on the buyer, might be state and local sales tax, local sales tax, or no tax at all).

Why the surcharge is taxable. Kansas measures the tax by the "selling price," defined as the "total cost to the consumer exclusive of discounts allowed and credited, but including freight and transportation charges from retailer to consumer" (definition (g)). When the customer elects to pay by credit card, the customer agrees to pay the additional 2.09% for the propane. So the "total cost to the consumer" includes that 2.09% surcharge, making it part of the taxable selling price.

And you can't net out your card fees. "Gross receipts" (definition (h)) is the total selling price/amount received, with only specific credits allowed (for returned property refunded in full, and for trade-in allowances). The Department stressed that a retailer's expenses of using credit-card companies are not excluded from gross receipts — so when the company reports its monthly gross receipts, it cannot deduct the credit-card service fees it pays.

What this means for you

Retailers that surcharge credit-card payments

A surcharge you add so a card-paying customer covers your processing cost is part of the total cost to the consumer — and therefore part of the taxable selling price. Charge sales tax on the surcharge just as on the underlying goods.

Don't reduce gross receipts by your processing fees

The fees you pay to credit-card companies are a cost of doing business, not a deduction from taxable gross receipts. Report the full selling price (including any surcharge) and remit tax on it.

The customer's status still controls the rate

Whether the bill carries state and local, local only, or no tax depends on who the buyer is (e.g., exempt uses of propane). The surcharge simply follows the same treatment as the rest of that bill.

Common questions

Q: We add a fee when customers pay by credit card. Is that fee taxable?
A: Yes. The surcharge is part of the total cost to the consumer — the taxable "selling price" — so it's taxed the same as the rest of the bill.

Q: Can we subtract the credit-card processing fees we pay from our taxable sales?
A: No. Those expenses are not excluded from gross receipts; you can't deduct them when reporting monthly gross receipts.

Q: What rate applies to the surcharge?
A: Whatever applies to the underlying sale for that buyer — state and local, local only, or none — because the surcharge follows the taxability of the rest of the bill.

Q: Does this ruling apply to my business?
A: A Kansas private letter ruling addresses only the requesting taxpayer's facts and cannot be relied on as precedent by others, though it reflects how the Department treats credit-card surcharges in the tax base.

Citations and references

• "Selling price" (definition (g)) — the total cost to the consumer (excluding discounts allowed/credited, including freight/transportation). A credit-card surcharge the customer agrees to pay is part of the selling price and is taxable.
• "Gross receipts" (definition (h)) — the total selling price/amount received, with only specified credits (full refunds on returns; trade-in allowances). Credit-card service fees the retailer pays are not excluded, so they can't be deducted from taxable gross receipts.
• K.A.R. 92-19-59 — the regulation authorizing Kansas private letter rulings.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2002-093

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

November 12, 2002

XXXX
XXXX
XXXX

RE: Your letter postmarked October 21, 2002

Dear XXXX:

I have been asked to answer your letter that we received last month. You work for a company that sells propane. When a customer uses a credit card to pay a bill, the company adds a 2.09% fee to the bill to recoup the charges for credit card service fees. You ask is these charges are subject to Kansas sales tax. Please be advised that they are subject the sales tax that is imposed on the rest of the bill. Depending on who the buyer is, this may be state and local sales tax, local sales tax, or no tax at all.

The Kansas retailers' sales tax act contains the following two definitions:

(g) "Selling price" means the total cost to the consumer exclusive of discounts allowed and credited, but including freight and transportation charges from retailer to consumer.
(h) "Gross receipts" means the total selling price or the amount received as defined in this act, in money, credits, property or other consideration valued in money from sales at retail within this state; and embraced within the provisions of this act. The taxpayer, may take credit in the report of gross receipts for: (1) An amount equal to the selling price of property returned by the purchaser when the full sale price thereof, including the tax collected, is refunded in cash or by credit; and (2) an amount equal to the allowance given for the trade-in of property.

Retailers must collect sales tax from their customers bases on the "selling price." For purposes here, the selling price is the "total cost to the customer." When one of your customer's elects to pay by credit card, the customer agrees to pay an addition 2.09% for the propane. Thus, the "total cost to the consumer" includes the additional charge of 2.09% which you indicate is to recoup credit card service fees.

Please note that as a retailer, the expenses associated with utilizing the service of credit card companies are not excluded from gross receipts. Thus, when you report your monthly gross receipts, you cannot deduct from taxable gross receipts the amount that you pay in credit card service fees.

I hope that my answer to your question is complete. If you have any more questions, please call me at 785-296-3081. This private letter ruling is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to make an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially affects this private letter ruling.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Date Composed: 11/14/2002 Date Modified: 11/15/2002

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