If a fuel surcharge is passed on to the customer does state sales tax apply?

Answer 1

Fuel surcharges are becoming more common due to increasing gasoline prices. The

taxability of a fuel surcharge follows the taxability of the service provided or the product

sold.

(1) Sales price is the measure subject to sales tax and means the total amount of

consideration, including cash, credit, property, and services, for which personal property

or services are sold, leased, or rented, valued in money, whether received

in money or otherwise, without any deduction for the following:

(A) The seller's cost of the property sold;

(B) The cost of materials used, labor or service cost, interest, losses, all costs of

transportation to the seller, all taxes imposed on the seller, and any other expense of the

seller;...

The retail sale of motor fuels such as gasoline is exempt from sales tax. Thus, when

purchased by the seller of services or property, gasoline is not subject to sales tax.

However, a separately stated fuel surcharge is an expense that a seller incurs in order to

perform a service or sell a product. The taxability of a fuel surcharge follows the

taxability of the service provided or the product sold. Thus, if the transaction is for a

service or product that is not subject to sales tax, then the fuel surcharge is also not

subject to tax. If the transaction is for a service or product that is subject to sales tax, then

the fuel surcharge is subject to tax.

Example:

• A landscaper performs a taxable mowing service at a customer's location. He

charges a separately stated "fuel surcharge" on the bill provided to the customer.

When this expense is passed along to the customer, it becomes part of the sales

price, regardless of whether it is included in a lump-sum charge for the mowing

service or separately itemized to the customer, because it is part of the

landscaper's overhead cost to perform the taxable service. Therefore, since the

service is taxable, the fuel surcharge is also taxable.

• A contractor installs a new roof at a customer's location. This installation is a

nontaxable service because it results in an exempt capital improvement. He

charges a separately stated "fuel surcharge" on the bill provided to the customer.

When this expense is passed along to the customer, it becomes part of the sales

price, regardless of whether it is included in a lump-sum charge for the

installation service or separately itemized to the customer, because it is part of the

contractor's overhead cost to perform the nontaxable installation service.

Therefore, since the service is not subject to sales tax, the fuel surcharge is also

not subject to tax.