Imagine no more because those days are here and many small businesses are taking the opportunity to charge clients who chose to charge their purchase to their preferred piece of plastic.

Several credit card processing companies have been marketing the idea of “passing the credit card fee onto your customers,” and I’m here to say that this might be the worst idea of client engagement I have ever heard.

Here are five reasons why you should not charge your customers extra fees when they whip out their plastic at your establishment.

1. Profit and loss envy

I completely understand why a business owner might make this election. Like most good bookkeepers, we track a separate expense line on our client’s Profit and Loss for credit card convenience fees. This amount stands out like a sore thumb and many business owners begin salivating at the idea of this cash being funneled back to their pockets.

For context, I looked up the average fee for a small dining establishment. With gross sales of around $500,000, their total credit card fees were just under $16,000 for the year. What business owner wouldn’t love the opportunity to pocket an additional $16,000?* This could replace an aging machine, provide some pay increases, or maybe afford the owner a little well-deserved vacation! But is it as easy as just jacking the price up on the credit card machine? Let’s think about this a bit deeper.

*After-tax impact would net the owner $10,520 of Distributable Net Income (DNI).

2. Customers buy more with a card

Every business owner looks for ways to increase revenue and wasn’t this one of the reasons why you started accepting credit/debit card payments in the first place? According to Forbes.com, customers will spend 12 to 18% more per transaction when using plastic instead of cash. Think about it: Would you prefer to cut 15% off your bottom line just to avoid plastic? Probably not.

3. Cash isn’t as “free” as you think

Retailers who accept cash-only payments face several hidden costs that can directly impact their business’s bottom line, a few of these hidden costs (or risks) include

• employee theft
• external theft
• costs of surveillance systems to combat theft
• time spent counting
• reconciling and depositing cash
• balancing cash drawers
• bank fees (believe it or not, cash management is why branch banking has become so expensive)
• loss of sales from people (like me) who prefer using plastic over cash
• counterfeit loss
• proper record keeping
• accounting and change management

While cash transactions may seem straightforward overall, they come with a variety of hidden costs that can affect your bottom line and operational efficiency.

4. You already increased your prices when you started taking credit cards!

Like many business owners 20 years ago, I noticed that the fees of taking credit cards were eating into my bottom line. At that time I made one simple adjustment: I raised my prices by 5% and rounded up to the next whole dollar. I made this adjustment many years ago. By making that adjustment years ago and adjusting my prices for inflation, I have already accepted the fees as a part of my operational reality.

I will gladly pay (and deduct) the credit card processing fees because ultimately my clients are happy and I’m thrilled that my systems automatically reconcile these transactions with no effort on my part.

5. Customers (like me) will intentionally avoid you because you charge.

I live near Midland, Michigan and many Mom and Pop restaurants around here charge the added convenience fee when using a credit card. When I find myself in these situations, I prefer to reach for my emergency $100 to avoid paying the discretionary fee. I find it appalling that the restaurant owner will then ask me if I have any smaller bills.

I feel like I’m darned if I do and darned if I don’t, but I only go there when someone in the family insists on visiting this establishment. I refuse to go out of my way to patronize a business that looks for ways to penalize me as a paying customer.

As a matter of principle, I will go out of my way to intentionally thank business owners who choose not to charge a fee for using my card.

Discount instead of charge!

If you’ve read my rant and still prefer cash, here’s an idea: Instead of penalizing–I mean charging your customers who prefer to use a card–why not offer a discount to your customers who use cash (or write a check for that matter)?

This will encourage your customers to make decisions based on your operational preferences and not punish your customers for doing business with you.

It is essential that claims for Employee Retention Credits be made by business owners with complete understanding of the eligibility requirements as well as the consequences for improper, erroneous or fraudulent claims.

Taxpayers who question their claim may contact Frazier Law at (615) 267-0125 or (989) 704-6560 for an independent ERC review.

Key Features of the Withdrawal Process:

1. Employers who have submitted an ERC claim but have not received a refund can opt to withdraw to bypass future repayment, interest, and penalties.
2. The withdrawal process assists businesses that were misled into filing ineligible ERC claims by overzealous promoters. Claims retracted will be considered as unfiled, and no penalties or interest will be levied by the IRS.
3. It’s important to note that if someone deliberately filed a fraudulent claim or was part of such activities, the withdrawal won’t shield them from potential criminal consequences.

IRS Commissioner Danny Werfel emphasized the agency’s commitment to supporting small businesses that were influenced by aggressive ERC marketing schemes. Werfel encouraged employers with pending claims to consider this withdrawal option.

About the Employee Retention Credit (ERC):

The ERC, or Employee Retention Tax Credit, is a refundable tax credit for businesses that kept employees on their payroll during specific periods of the COVID-19 pandemic. It is aimed at companies affected by government-mandated operational suspensions or substantial revenue drops. The credit is not available for individual taxpayers.

Since its inception, approximately 3.6 million claims have been filed for the ERC. The IRS is intensifying its audit efforts on dubious claims and has numerous ongoing criminal investigations related to the credit.

Recent Developments:

A recent halt on processing new ERC claims was announced on September 14, mainly due to the surge of ineligible claims. This pause will extend until the end of the year. Claims made prior to this date will continue to be processed, albeit at a reduced speed owing to comprehensive compliance checks.

Guidelines on Withdrawing an ERC Claim:

To qualify for the withdrawal process, employers should meet the following criteria:

• Claims were made using specific adjusted employment returns.
• The adjusted return was solely for the ERC without any other modifications.
• They intend to retract the entire amount of the ERC claim.
• The IRS has either not paid the claim or, if paid, the refund check hasn’t been cashed or deposited by the employer.

Details on the withdrawal process can be found on the IRS website. The IRS also offers resources, including an upcoming webinar and an interactive eligibility checker for the ERC.

Beware of Scams:

The IRS has noted new tactics from scammers post the September 14 moratorium announcement. There have been cases of promoters persuading businesses into availing expensive upfront loans expecting a refund. The IRS urges taxpayers to be vigilant and be aware of the signs of ERC-related scams. The IRS continues to advocate for employers to consult trusted tax professionals and be cautious about promoters looking to exploit them.

Under the new law, dealers must meet several criteria to qualify for the expanded credit. First and foremost, the dealer must principally sell used automobiles, meaning at least 50% of its sales come from the sale of used vehicles. Additionally, the dealer must collect a down payment averaging no more than 5% of the automobile’s sales price. The down payment requirement is designed to ensure that the vehicle is at a price point where there is an actual need for financing.

Another requirement is that the dealer must assign 100% of its security instruments, or its loans, to an affiliated finance company that is physically located at the same headquarters location in Tennessee. This requirement is intended to make sure that dealers are not manipulating loopholes in the law and eventually gaining an unfair advantage.

The dealer must also advance the sales tax amount from its own funds on each purchase, meaning that there is no waiting around for government processes to fill in and pay the required amount. The affiliated finance company must have the right to repossess or enforce any lien against an automobile it financed – a key factor in the security of transactions.

Lastly, the dealer must reimburse the finance company for the sales tax the finance company is unable to collect from the purchaser. This is done to ensure that the finance company and the State of Tennessee are paid, no matter what.

References Tenn. Code Ann. §§ 67-6-507, 48-103-102, Pub. Ch. 467 (2023)

CONTENT DISCLAIMER: The information provided here is believed to be up-to-date as of the date of publication, ensuring that you receive the most recent and accurate details. It’s important to note that changes may occur due to new statutes, regulations, or court decisions, reflecting the dynamic nature of the subject matter. However, we aim to provide a comprehensive overview with this notice.

We understand that unexpected events and situations may arise, which may not have been foreseen in this notice. In such cases, we encourage you to reach out to the department or consult with your trusted tax professional for further guidance. They will be well-equipped to assist you and ensure you have the most relevant and tailored advice for your specific circumstances. Thank you for choosing Frazier.