COVID-19 Surcharges Subject To Sales Tax
The last few months have, at best, been a whirlwind for all businesses, clients, and consumers. It feels like everyone is scrambling to keep up with legislative changes, and the new economic climate we are now all a part of.
We have watched as states start to respond to the extreme revenue loss and have started to see their responses. (More on that here). Something that many businesses have done is add extra fees or surcharges due to COVID-19. An example of this would be, “Restaurant Adds a Separate COVID-19 Surcharge Fee to the Sales Price of Ready to Eat Meals - Restaurant X sells hot meals for dine-in or take out. Because of the increased inventory and operating costs due to the COVID-19 pandemic, X is temporarily adding a 10% COVID-19 surcharge to each order. Customer A purchases a meal for $20. The customer is charged a $2 COVID-19 surcharge.” - Tax Notes. While we are using restaurants as an example here, this applies to all businesses that have any type of surcharge during COVID-19.
What states have started to find is that not everyone is understanding that SUT should be charged for the total gross income they are receiving and not just the original sale price. So, “Since the COVID-19 surcharge is a part of the “gross proceeds of sales,” the basis or measure upon which the sales tax (In the case above) (state and applicable local tax) is calculated is $22.” - Tax Analysts
“Many retailers have implemented changes in their operations, reduced operating hours, and changed the method and type of products offered. 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. In addition, certain retailers, such as restaurants, have expanded the use of outdoor dining, takeout, curbside services, and delivery services.
In order to recover a portion of the lost sales revenue during the pandemic or to recover some of the costs incurred to implement necessary health and safety measures, some retailers are increasing the sales price of items sold to consumers or may add a separate fee to a customer's bill, such as a COVID-19 surcharge or fee or a handling charge.”
South Carolina wants to make sure that businesses are aware that they should be adding in the needed SUT. The state is also trying to make up for revenue loss. Keep up to date on what is happening with the states by subscribing to our email list and following us on our social media channels. South Carolina was polite enough to remind the public, some states will not be, and may remind you during an audit!
By: Ellie Moffat
This blog is intended for educational purposes and not as tax advice. Tax policies and procedures change frequently, so specific information, such as thresholds, rates, etc. included in this blog may have changed since it was originally published. Please request a consultation for more in-depth information.