Tennessee credit card surcharge rules for restaurants

Guides to Tennessee law say a restaurant may add a surcharge for paying by credit card if it discloses the surcharge clearly in advance, and that failing to disclose differences between credit, debit and cash prices can be a deceptive practice. The card networks add their own limits, and this guide has not confirmed whether state law sets any cap. A restaurant that wants to recover card costs should treat disclosure, the network rules and an attorney's review as the three steps.

Does Tennessee allow a credit card surcharge?

Surcharge guides written for merchants say Tennessee allowsSurcharge guides written for merchants say Tennessee allows a credit card surcharge with advance disclosure. One guide says that adding a surcharge at payment without showing the card price on the menu would breach the state's transparency expectations. Because these are commercial guides, confirm the position with an attorney, and check for any new law since they were written.

What has the Attorney General said?

The state's consumer protection authorities have warned businesses against deceptive credit card surcharges, and the principle is that failing to clearly disclose differences in credit, debit and cash prices may violate state consumer protection law. The point is not that surcharges are banned but that a customer must not learn about one for the first time at the register. Read the Attorney General's current consumer guidance for the exact wording.

What do the card networks require?

The card networks set rules for merchants that surcharge, including notice to the network and the acquirer, a signs requirement at the entrance and the register, a limit on the percentage and a bar on surcharging debit cards. Guides describe the percentage cap differently. These rules are in your merchant agreement, so read it or ask your processor for the current terms, and do not rely on a number you read online.

How should you disclose a surcharge?

1. Put a sign at the entrance and at the register.
2. Show the surcharge on the menu or the ordering page, with the percentage.
3. Show it as a separate line on the check and the receipt.
4. Tell the guest before they pay.
5. Apply it only to credit cards, not debit, and keep it at or below your actual cost.

Is a cash discount an alternative?

Many restaurants prefer a cash discount, in which the menu shows the card price as the regular price and gives a reduction for cash. Ask an attorney how a cash discount program should be worded in Tennessee, and check the card network rules, since they treat a discount differently from a surcharge.

A worked example of the cost

A restaurant processes $60,000 a month by card at an effective cost of 2.8 percent, which is $1,680. A surcharge of 3 percent on credit card sales would bring in more than the cost, which can be a problem if it exceeds the actual cost. A smaller surcharge, set at 2.5 percent and disclosed, would bring in about $1,500 on $60,000, and recover most of the cost. These percentages are invented for the arithmetic. An owner who prefers not to surcharge could raise menu prices by 1 percent on card-heavy items and renegotiate the processing rate.

What about sales tax?

Ask your accountant whether a surcharge is part of the taxable price. In Tennessee, an amount that the seller adds to the check is generally part of the price, so a surcharge is likely to be taxed, and the guide on mandatory gratuities explains the logic for added charges.

What about online orders?

Make sure the website and the ordering platform show the surcharge before checkout, and that the amount matches your policy. If a third party adds a fee, check how it is labeled and who sets it.

What should you do before you start?

Read your merchant agreement, ask your processor about notice requirements, ask an attorney to read your wording and train your staff to explain it in a sentence. Review it every year, because the rules have been changing.

What should you tell staff and guests?

Give servers and cashiers one sentence to use: a surcharge of a stated percentage is added to credit card payments and is shown on the menu and the check, and paying with cash or a debit card avoids it. Avoid describing the charge as a government fee or a tax, because it is neither. If a guest objects, a manager can explain the policy and the signs, and record the complaint. Review the policy each year with your processor, since network rules and state guidance change, and keep dated copies of the signs and menu wording you used.

What if you decide not to surcharge?

Many Tennessee owners skip the surcharge and cover card costs through menu prices, a processor rate review or a cash discount program. These options avoid a sign at the door and a conversation at every table. Whatever you choose, keep a dated record of how you set the policy and who reviewed it, so you can explain it if a guest or a regulator asks.

More guides for your business:

• Tennessee mandatory gratuity and sales tax: why it is taxed
• Tennessee gift card rules for restaurants
• Tennessee automatic renewal law for restaurant memberships

More in the US guides for food businesses.