13 Jun Are credit card fees charged by restaurants subject to sales tax?

Q. Many restaurants are now adding a service charge to their bill if you use a credit card. Is that charge subject to New Jersey sales tax?
— Diner

A. You’re right that more and more restaurants are passing along the fees they have to pay for credit card processing.

The fees range from 1.5% to 3.5%, depending on the card processor and the deal it has with the business. And now with higher inflation and ongoing supply chain issues, more businesses, including restaurants, are passing the credit card fees along to consumers.

It’s legal.

But a new bill to be introduced on Monday would make sure that consumers are made aware of the charge before they make a purchase, and it would prohibit businesses from charging consumers a fee that’s larger than what it pays to the credit card processor.

The bill would require notification about the fee by all companies, but it specifically addresses restaurants, saying the notification must be “in the customer entry area or on a printed menu.”

So are the fees taxable?

Yes, according to the state’s Treasury Department.

“Since the transaction is taxable — the restaurant meal — the service charge is subject to tax,” said spokeswoman Danielle Currie.

It’s not always convenient, but you can avoid the fee by paying with cash.

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This story was originally published on June 13, 2022.

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