Being a small business owner myself means that I often want to support other small businesses in what they do too. However, it can get a little bit awkward when I catch them breaking the law. This has happened to me a few times. I was once nearly charged state, city, and other local sales taxes for a service. In Colorado, services are not subject to sales tax, only tangible items. I quickly caught the business owner and tried to nicely offer my correction and help finding out more information about proper sales taxes. I’ve also been told, when purchasing products like used lenses from someone that if I pay via Paypal I’m expected to pay the Paypal fees as well. My spidey-business-sense sets off red flags when I hear things like that.
Now the legalities of these kinds of surcharges associated with using credit cards are important for you to know as a business owner if you chose to accept credit cards as a form of payment. The legalities are not always easy to find and often depend on the US state you reside in (and some of you it will depend on your country), as well as credit card companies themselves and their own policies.
A surcharge is an extra fee added on to another fee or charge. Some people will call them the Paypal fees, a credit card fee, a checkout fee and a variety of other terms. Usually businesses are interested in tacking on a surcharge that will cover the cost of the transaction of using a credit card. As a business owner it is always going to cost you money to accept credit cards. Different companies take anywhere from 1-4% of the payment. Thus, business owners want to find a way to cover the cost of these fees and will charge their customers and clients a credit card fee.
Here’s what you need to know.
1. Many large credit card companies, like Visa and Mastercard do not allow retailers to charge their cardholders a checkout fee to use their card. If your client wants to pay you with a Visa or Mastercard, you may not charge them any surcharges. You’ll want to check other credit card companies to see what their policies are. What happens when these credit card companies catch you tacking on surcharges to their cardholders, I cannot say, but many of these credit card companies have places online to report retailers for doing just that. >Here< is a link to Visa’s report system.
2. 10 US States have a ‘No Surcharge Law’ which means you cannot charge a surcharge to use a credit card in California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas. Each state’s laws are slightly different. Visa provide’s a great link to >this page< which outlines each of those 10 state’s laws pretty clearly. In these states if you are charged a surcharge you have a right to report the retailer to your state’s Attorney General. To those of you who reside and do business in these states please check out the laws and see exactly what the surcharge law is for you.
3. Paypal’s Terms of Service prohibits its retailers from charging a surcharge for accepting Paypal as a payment method. You can check out the Paypal User Agreement yourself at this >link< Click on Number 4 at the top (Receiving Money) and then scroll down to Number 4.6 “No Surcharges” to read their entire agreement on this.
It’s important to do your research for your state and see what of these state laws and company policies will apply to you, hopefully this article can start to point you in the right direction for your business. Personally, because of the policies of companies like Paypal, Visa, and Mastercard as well as my state law here in Colorado I do not charge any credit card fees. There are still a lot of great options out there for accepting credit cards. I use both Paypal and Square to accept credit cards and I don’t mind the fees because I can count those fees as a business expense.