Dual Pricing and Gross Receipts State Tax Considerations Only:
There is an important concept that many business owners don’t fully understand when setting up a dual pricing program: the credit card price should be the regular, displayed price of the product or service, and the cash price should be presented as a discount from that price. Gross Receipts Tax Applies to the amount collected by the Merchant.
This distinction can become especially important in New Mexico, because New Mexico does not have a traditional sales tax. Instead, businesses are generally subject to the state’s Gross Receipts Tax, or GRT, on taxable receipts. The New Mexico Taxation and Revenue Department explains that gross receipts generally include the total amount of money or other consideration received from selling property or performing services, and the legal responsibility for reporting and paying the tax belongs to the seller.
So let’s go back to our $100 example.
If the customer pays by credit card, the merchant receives $100 in gross receipts before considering the merchant’s processing expenses. If the customer pays cash and receives the 4% discount, the merchant receives $96. Those are two different transaction amounts, and the merchant’s taxable receipts generally reflect the amount actually received, subject to the applicable New Mexico tax rules, deductions and exemptions.
There is another important consideration for New Mexico business owners.
The New Mexico Taxation and Revenue Department explains that businesses commonly pass GRT through to customers, but if the GRT is passed through, it must be separately stated on the invoice. The department also notes that the business remains legally responsible for reporting and paying the tax.
For New Mexico merchants, there is also a tax-planning reason to pay attention to the difference between the credit card price and the discounted cash price. If the credit card price is the regular price and the cash customer receives a discount, the merchant’s actual receipts from the two transactions are different. The merchant needs to account for those receipts correctly when calculating and reporting gross receipts tax.
New Mexico’s GRT system is different from a traditional sales tax system, and the business remains responsible for reporting and paying the tax on its taxable receipts.
The credit card sales is reported for calculating gross receipts tax at $100 and the cash sales is reported at $96.
At Electronic Money Company, we believe the most important thing is to educate the merchant before implementing a program. A dual pricing program isn’t something that should simply be turned on without explaining how the pricing, receipts, customer communication and reporting work.
If you’re currently paying thousands of dollars a year in credit card processing fees, it may be worth taking a closer look at your options. At Electronic Money Company, we can help you understand how dual pricing works, what technology is available and whether it makes sense for your business.
Give us a call at 505-296-2847.
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