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Michigan Business Tax
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M21. Can credit card processing fees be deducted from gross receipts when determining the modified gross receipts tax base under the Michigan Business Tax Act ("MBTA")?
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Answer:
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No, credit card processing fees may not be deducted from gross receipts when determining the modified gross receipts tax base under the MBTA. A modified gross receipts tax is imposed on every taxpayer with nexus in Michigan (except for insurance companies under chapter 2A and financial institutions under chapter 2B of the MBTA) as determined under MCL 208.1200. The modified gross receipts tax base is calculated as gross receipts less "purchases from other firms," as defined in MCL 208.1113(6), before apportionment. ?Purchases from other firms" are deducted from gross receipts to derive a taxpayer's modified gross receipts tax base under the MBTA. MCL 208.1203(3). "Purchases from other firms" is specifically defined in MCL 208.1113(6) to generally include:
(a) inventory, as defined in MCL 208.1111(4), acquired during the tax year, including freight, shipping, delivery, or engineering charges;
(b) assets, including fabrication and installation costs, acquired during the tax year of a type that are or will become eligible for depreciation, amortization, or accelerated capital cost recovery under the internal revenue code for federal income tax purposes; and
(c) to the extent not included in inventory or depreciable assets, materials and supplies, including repair parts and fuel.
A credit card processing fee is essentially a fee paid to a third-party processor who provides a retail merchant with access to networks of credit card companies. The third party processor processes the credit card transactions so that ultimately the retail merchant receives payment from the consumer's credit card company. As such, credit card processing fees do not fall within any of the prescribed categories of "purchases from other firms" under MCL 208.1113(6), and therefore are not deducted from gross receipts when determining the modified gross receipts tax base under the MBTA.
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