The Tax Policy Division has issued a crucial memo to the Audit Division clarifying the taxability of credit card processing fees. This guidance addresses the claims made by some retailers that these fees should be excluded from the sales price of taxable items.
Key Points:
- Retailers' Claims: Some retailers argue that credit card processing fees should be excluded from the sales price of taxable items. They base this on two points:
- The fees are akin to finance, carrying, and service charges, or interest from extending credit.
- The fees fall under the definition of data processing services, specifically the settling of an electronic payment transaction.
- Definition of Sales Price: According to the memo, the sales price of a taxable item is the total amount for which the item is sold, without deductions for materials, labor, services, or other expenses. Finance, carrying, and service charges, or interest from credit extended for sales, are excluded from the sales price.
- Credit Card Processing Fees:
- Retailers who separately state credit card processing fees are not extending credit to their customers; they are merely accepting credit cards as a form of payment.
- Therefore, these fees are not considered finance, carrying, and service charges or interest from extending credit and cannot be excluded from the sales price of taxable items.
- Data Processing Services Exclusion:
- The settling of electronic payment transactions by payment processors and financial institutions is excluded from the definition of data processing and is not taxable.
- However, retailers selling taxable items are not acting as credit card payment processors or financial institutions. Thus, their sales do not qualify for this exclusion.
- Inclusion in Sales Price:
- Credit card processing fees are an expense incurred by retailers in connection with the sale of taxable items.
- When retailers separately state a charge to recover this expense, it becomes part of the sales price of the taxable items.
The memo emphasizes that credit card processing fees must be included in the sales price of taxable items when separately stated by retailers. This clarification is essential for ensuring compliance and accurate tax reporting.
For the full article: https://star.comptroller.texas.gov/view/202406004M?q1=202406004M
