Is a club's credit-card 'convenience fee' subject to New York sales tax?

Plain-English summary

A social or athletic club charges a "convenience fee" — a percentage of the purchase — whenever a customer pays by credit card, to "offset the loss of revenue in accepting credit cards" (i.e., its card-processing cost). It accepts cards for tangible personal property, services, food and drink, and dues. It asked whether the convenience fee is taxable.

The Office of Counsel concluded the fee is part of the receipt and is taxed just like the thing being paid for:

• "Receipt" is the sale price of property or taxable service without any deduction for the vendor's expenses (Tax Law § 1101(b)(3); 20 NYCRR 526.5(e)). The convenience fee covers a processing expense the club incurs in making the sale — and expenses aren't deductible from receipts.
• So when the underlying sale is taxable (property, food, drink, or a taxable service), the convenience fee is part of the taxable receipt.
• When the fee is charged on taxable club dues, the fee itself is treated as dues and is taxable (Tax Law §§ 1105(f)(2), 1101(d)(6); TSB-A-90(56)S — a finance charge is an increase in dues).
• If a single transaction mixes taxable and nontaxable items that are separately itemized, tax applies only to the portion of the convenience fee attributable to the taxable items (TSB-A-97(11)S — a cost component is taxed the same as the charge it relates to).

What this means for you

Any business adding a credit-card surcharge / convenience fee

A card surcharge is not a tax-free add-on — it's part of your receipt and is taxable to the same extent the underlying sale is. Charge it on a taxable burger or taxable dues, and the fee is taxable; charge it on a wholly non-taxable item, and that portion isn't.

Clubs and membership organizations

A convenience fee on taxable dues is itself dues and taxable. Don't treat the surcharge as a separate, untaxed line.

Mixed transactions

If one charge covers both taxable and nontaxable items and you separately itemize them, prorate the convenience fee and tax only the part tied to the taxable items.

Common questions

Q: The convenience fee just covers my card-processing cost — why is it taxable?
A: Because receipts can't be reduced by the vendor's expenses. The fee is part of the receipt for the sale and is taxed the same as the sale.

Q: Is the fee on membership dues taxable?
A: Yes, when the dues are taxable — the fee charged on dues is itself treated as dues and is taxable.

Q: A customer buys a taxable and a nontaxable item and pays one convenience fee. Do I tax all of it?
A: No — if the items are separately itemized, tax only the portion of the fee attributable to the taxable item.

Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner. Use it as guidance and confirm your own facts.

Citations and references

• Tax Law § 1105(a), (c) (tax on tangible personal property and enumerated services)
• Tax Law § 1105(d) (tax on food and drink)
• Tax Law § 1105(f)(2) (tax on dues paid to social or athletic clubs)
• Tax Law § 1101(b)(3) (definition of receipt; no deduction for expenses)
• Tax Law § 1101(d)(6) (definition of dues); 20 NYCRR 526.5(e); 20 NYCRR 527.11(b)(2); TSB-A-90(56)S; TSB-A-97(11)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2018.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a18_1s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-18(1)S
Sales Tax
April 12, 2018

Office of Counsel
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S180206A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTED REDACTED REDACTED REDACTED REDACTED REDACTED R. Petitioner
asks whether a “convenience fee” it charges when credit cards are used for purchases is subject
to New York State and local sales tax. We conclude that this fee is properly included as part of
the basis upon which sales tax, when applicable, is calculated.
Facts
Petitioner is a club that imposes a “convenience fee” when credit cards are used to make
purchases. This fee is a percentage of the total credit card purchase, and is charged to “offset the
loss of revenue in accepting credit cards.” Petitioner does not identify the types of sales that it
makes, so it is assumed that Petitioner is a social or athletic club per Tax Law §1105(f)(2), and
that it accepts credit cards for the purchase of tangible personal property, services, food and
drink, and for the payment of dues.
Analysis
New York imposes sales and use tax on, among other things, the receipts from every
retail sale of tangible personal property, as well as the receipts from every sale, other than sales
for resale, of certain enumerated services. See Tax Law §§ 1105(a) and (c). The tax is also
imposed on the receipts from the sale of food and drink by restaurants, taverns or other
establishments (as well as other charges made therewith), and “dues” that are paid to social or
athletic clubs. See Tax Law § 1105(d), (f)(2). “Receipt” is defined as the amount of the sale
price of any property and the charge for any service that is subject to tax, without any deduction
for expenses. See Tax Law § 1101(b)(3); 20 NYCRR 526.5(e). The term “dues” includes any
membership fee paid to a social or athletic club, as well as any assessment, irrespective of the
purpose for which it is made. See Tax Law § 1101(d)(6); 20 NYCRR 527.11(b)(2).
Petitioner’s “convenience fee” is a charge it makes to “offset” the loss of revenue that
occurs when a customer uses a credit card. This “loss of revenue” presumably is caused by a fee
that Petitioner must pay to process credit card payments, which is an expense it incurs when
making a sale. Expenses incurred by a vendor in making a sale, regardless of the taxable status
of the sale, are not deductible from its receipts. See 20 NYCRR 526.5(e). When making a sale
of food, drink, tangible personal property or services that is subject to sales tax, Petitioner’s
“convenience fee” is a part of its receipts for such and must be included in the basis upon which
sales tax is calculated. Likewise, to the extent a “convenience fee” is charged when collecting
taxable dues from members, the fee itself is considered dues and is subject to sales tax. See, e.g.,

-2-

TSB-A-18(1)S
Sales Tax
April 12, 2018

TSB-A-90(56)S (finance charge considered an increase in the amount of a member’s dues);
TSB-A-85(38)S (any charge that is paid for the privilege of being a member constitutes dues). If
both taxable and nontaxable items are purchased in a single transaction and the items are
separately itemized, however, sales tax need only be collected on the portion of the “convenience
fee” attributable to the sale of the taxable items. See, e.g., TSB-A-97(11)S (the tax consequence
of a cost component of a charge is the same as the tax consequence of the charge itself).
DATED: April 12, 2018

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

NOTE:

An Advisory Opinion is issued at the request of a person or entity. It is limited to the
facts set forth therein and is binding on the Department only with respect to the
person or entity to whom it is issued and only if the person or entity fully and
accurately describes all relevant facts. An Advisory Opinion is based on the law,
regulations, and Department policies in effect as of the date the Opinion is issued or
for the specific time period at issue in the Opinion. The information provided in this
document does not cover every situation and is not intended to replace the law or
change its meaning.