Simple economics: as costs go up, so do prices.
We know this. When weather damaged crops last year, you saw it at the grocery store. When gas costs edged up, so did delivery fees. And as the price of beef has crept up, so have the costs of many items on restaurant menus.
Customers generally understand that this is the way companies operate. Most businesses, in return, don’t make those increases quite so public, sneaking rates up or quietly tacking on additional fees.
Sometimes, however, companies want customers to understand the increases, if only to prove a point. Earlier this year, Gator’s Dockside, a chain of self-described “family-friendly, sports-themed restaurants” in Florida, made news when it started charging an “ACA Surcharge” ostensibly to cover the cost of implementing the Affordable Care Act (sometimes called Obamacare).
Now, MasterPark, a parking business at Sea-Tac International Airport located just outside of Seattle, Washington, is making its own statement about the new minimum wage. Earlier this month, Seattle City Council voted to raise the minimum wage to $15 an hour, phased in over a number of years, a rate that’s more than twice the current federal minimum wage of $7.25 an hour. Last year, SeaTac, the town where Sea-Tac is located (confusing, I know) passed its own law raising the minimum wage, making most of the metropolitan area subject to (or soon to be subject, depending on the exact location) to the new minimum.
To combat the increased costs, MasterPark has tacked a “living wage surcharge” of 99 cents per day onto customer bills. Rather than simply raise prices, MasterPark is separately stating the surcharge – to prove a point – wedging it nicely between “airport access fee” and “sales tax” on the receipt.
The company has posted an explanation on its website, saying:
MasterPark charges, taxes, and fees include a ‘Living Wage’ surcharge. This is due to the $15 per hour minimum wage requirement for certain businesses in SeaTac. The surcharge covers a portion of the resulting increase in operating costs.
In Seattle proper, the minimum wage increase won’t begin to be phased in until April 15, 2015. That said, there’s also a chance the increase might not happen at all. A number of challenges have been raised, including a lawsuit filed in U.S. District Court which claims that the increase “unfairly and irrationally discriminates against interstate commerce generally, and small businesses that operate under the franchise business model specifically.”
The status of the bill won’t change the nature of the surcharge to businesses (though it could rankle consumers). While taxes collected by a business on behalf of a third party are not considered income to a business, a self-imposed surcharge – no matter what the reasoning – is considered income. Sales taxes, however, which are collected from customers to be passed along to state and local tax authorities are not income to the business. In fact, in most jurisdictions, that money isn’t attributable to the businesses at all: the term “trust fund taxes” applies to since those dollars are being held by the business for the benefit of a third party (similar to employee-side retirement contributions).
The “living wage” surcharge, however, is completely taxable to MasterPark: it doesn’t matter what label is slapped on it. Clearly, any money that is actually used to pay employees the increased wage (the cost of doing business) would be deductible but merely stating that the surcharge is meant to cover costs doesn’t make it so.
While MasterPark may be at the front of the pack when it comes to labeling the surcharge on its receipts, it isn’t expected to be the last. Paul Guppy, the research director of the Washington Policy Center, expects the trend to continue with other businesses.
Most customers ultimately believe that transparency is a good thing. But could separating out costs on a business by business basis be confusing for consumers?
In most state and local jurisdictions, businesses are required by law to separately state the sales tax amount on a receipt; alternatively, some states allow businesses to provide a written statement indicating that the sales price includes sales tax so long as the amount of the tax is clear. Other kinds of taxes may also be required by law to be stated separately; a common example of such taxes are liquor taxes which are found on some restaurant receipts.
At some point, if businesses tack on other costs, in addition to sales and other taxes, as separate line items, how long is that sales receipt going to be? If businesses pick and choose which costs to break out for consumers, what is the real result? Will our eyes start to glaze over as we blindly pay our bills, unaware of the actual price of goods and services? And is that good for competition? I’m not so sure. What do you think?
(Author’s Note: The original version of the article misstated that MasterPark was located in Seattle as per the description on its website. It is not, it is SeaTac, as corrected above. Thanks to Working Washington @Working Washington for the correction)
