COVID Surcharges and Sales Tax

By TaxConnex on Thu, Sep 10, 2020 @ 11:00 AM

Hands operating pos terminal with magnetic cardLost sales, expenses for cleaning, more time and money for employee protection and training are just some of the reasons for businesses to claim they now have to charge extra to pay for responding to the pandemic (aka, “COVID surcharges”). In many places and for many industries these charges have become commonplace.

Dentists’ offices were among the first reopening to charge such fees, followed by hair salons and other businesses that necessitate personal contact. Lately they’ve been followed by retailers, notably restaurants, nationwide.

These fees raise the question – "are COVID surcharges subject to state sales taxes?”

States to watch

Nevada, Texas, South Carolina and New Jersey are among the first states mandating surcharges on retail sales subject to sales tax.

Here’s what they say:

  • “As a result of the on-going COVID-19 pandemic, many retailers have implemented changes in their operations, reduced operating hours, and changed the method and type of products offered,” says the South Carolina statute. “In an effort to implement social distancing and public health and safety measures, businesses have made investments in personal protective equipment, new cleaning and sanitization measures, customer signage, shields at customer service areas, and employee safety training.” (South Carolina restaurants are charging an average of 3 percent as a surcharge.)

  • In Nevada, “Some businesses are now charging an additional fee attributed to COVID-19. This additional fee added to the final selling price of retail sales appears to be a move to help recoup costs associated with added implementation expenses and other increased costs. Any business adding this fee is advised that this amount is subject to Nevada sales tax,” reads that state’s notice.

  • “If the item or service sold is taxable, then the related fees or surcharges are also taxable, even if separately stated or identified as a dollar-for-dollar reimbursable expense,” reads the notice from Texas.

  • In New Jersey, “A separately stated surcharge, regardless of what it is called, to cover the cost of COVID-19 precautions is an expense that a seller incurs in order to perform a service or sell a product. As the surcharge is part of the sales price, the taxability of a COVID-19 precautions surcharge depends on the taxability of the service provided or the product sold. Thus, if a service or product a business is offering is not subject to Sales Tax, then the COVID-19-related surcharge is also not subject to tax. If the transaction is for a service or product that is subject to Sales Tax, then the COVID-19-related surcharge is subject to tax.”

 Your questions:

  • Do you need to add a COVID surcharge to your invoices, not only for your own expenses but because some of your business partners might start charging you more because of their own COVID surcharges?

  • Have you determined in which states these surcharges are subject to sales tax?

  • Are your compliance systems set up to properly charge the tax associated with these surcharges?

 COVID surcharges and taxation are rapidly developing topics for today’s businesses – and potentially risky ones. Contact us to find out if your business could be impacted and how to protect yourself from sales tax non-compliance. 

TaxConnex

Written by TaxConnex

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