Was a grocery store's separately labeled credit-card service charge included in California taxable gross receipts?

Plain-English summary

A grocery store added a separately labeled service charge when customers paid with a bank credit card. The amount partly reimbursed the store for the fee charged by its bank.

Tax counsel treated that charge as a seller expense recovered from the customer, not as a separate nontaxable service. The portion attributable to taxable tangible personal property remained in taxable gross receipts.

Because a grocery transaction can include both taxable and nontaxable items, the source states the conclusion only for the surcharge portion attributable to taxable merchandise.

Citations and references

• California Revenue and Taxation Code section 6012, described as including all sale receipts without deduction for labor or service cost, interest, or any other expense in the sales price of tangible personal property (as cited)
• Sacramento Auditing memorandum concerning redacted X's credit-card service charge, answered by Tax Counsel GAT on April 19, 1968 — underlying memorandum, attachments, author identity beyond JAN, and referral record not reproduced in the official PDF
• Redacted grocery-store merchandise sales paid through Master Charge Card or other bank cards, customer invoice additions, $0.25 charge below $8.43, 3% charge at or above $8.43, and approximately 4% bank charge — store invoices, card receipts, merchant agreement, bank statements, fee schedule, sales mix, and allocation calculations not reproduced in the official PDF
• April 19, 1968 internal tax-counsel opinion identified only by GAT, concluding that the portion of the service charge attributable to taxable tangible-personal-property selling price was taxable — no audit schedule, return adjustment, assessment, taxpayer response, refund claim, agency adoption, appeal, or later outcome supplied
• Official Annotation 295.1500's grocery-store, bank-card, compensatory-charge, price-of-goods conclusion, and April 19, 1968 date — annotation omits the Sacramento memorandum, exact $0.25/$8.43/3%/approximately-4% figures, section 6012, supporting opinion's express taxable-selling-price allocation limit, missing records, later outcome, and reliance status and supplies no additional proceeding record

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/295-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/295-1500.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Sacramento – Auditing (JAN)

From:

Tax Counsel (GAT)

295.1500

April 19, 1968

This is in regard to your memo concerning the application of sales tax with respect to an amount designated as a “service charge” which “X” charges its credit card customers. It is our understanding that whenever a customer purchases merchandise from “X”’s grocery stores and charges the purchase price to his Master Charge Card or other bank credit card, “X” will make an additional charge on the customer’s invoice to compensate itself for the amount which the bank charges “X” for its credit card services. If the total sales price of the merchandise sold to the credit card customer is less than $8.43, “X” makes a service charge of $.25. If the total sales price is $8.43 or over, “X” makes a service charge of three percent of the invoiced amount. The bank’s charge to “X” is approximately 4 percent of the invoiced amount. Under Section 6012 of the Revenue and Taxation Code the total amount of the sales price of tangible personal property includes all receipts from the sale without deduction for labor or service cost, interest paid or any other expense. The credit card “service charge” is merely a specific charge which “X” imposes on its customers in order to partially reimburse itself for the service cost arising out of the bank’s charge for its services. Accordingly, it is our opinion that the portion of “X”’s service charges to credit card customers which is attributable to the taxable selling price of tangible personal property constitutes taxable gross receipts.

GAT:

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