Surcharge: Definition, Meaning & Importance

KEY TAKEAWAYS

• A surcharge is an extra money cost that a business levies on top of the value of an existing good or service.
• Governments often add surcharges to goods and services when they’re purchased at a point of sale.
• Surcharges can be common in the cable, travel, and telecom industries. This helps offset other regulatory fees or other high costs.
• Surcharge fees can either be a percentage of the purchase price or a fixed amount.

What Is a Surcharge?

A surcharge is an extra cost that gets added on top of a purchase you make. This can be something such as a tax or a fee, and it increases the initially stated price that was listed. Oftentimes, surcharges get added to an existing tax.

Surcharges can get implemented for any number of reasons and the total amount can significantly vary. For example, a governmental agency or body might want to explore ways to generate additional revenue.

How Surcharges Work

When you purchase a product or service, you might be required to pay an additional surcharge payment on top of the listed price. The seller adds the surcharge to your total purchase price when the consumer gets to the point of sale.

Surcharges can be fixed prices that get added or they can be a percentage of the total purchase price. Percentage surcharges often work out to be a small fraction of the cost. As well, surcharges are not taxable amounts, meaning sellers can only add surcharges to the retail price. 

How Are Surcharges Calculated?

Many products and services don’t automatically include surcharges, which means the proper amount must get calculated. The total amount of the surcharge is based on a customer’s purchase of an item. The calculated fee would appear in the sales and purchase agreement (SPA) or contract. There are surcharge assessments to help determine the various surcharge amounts. 

Examples of Surcharges

There can be a broad range of businesses and industries that add surcharges to the total purchase price. This can include service provider professionals, governments, mobile telecommunications service companies, and retailers. Two examples would be credit card surcharges charged by credit card companies and surcharges in a retail transaction.

Fuel surcharge 

Another example is a taxi driver and fuel surcharges. As a service professional that has to balance fluctuating fuel prices, there can be times when a surcharge can come in handy. The taxi driver might decide to add a $1 surcharge to their fares to offset high fuel costs.

Summary

Surcharges are extra fees or costs that get added to the retail price of a purchase you make. The purchase can be for a product or service. Plus, surcharges can be either a fixed amount or a percentage of the purchase price.

The amount of the surcharge will be listed on its own line on your receipt and it will be outlined in a sales and purchase agreement. Surcharges can be common across industries, such as professional services, telecommunications, retail, and government.

Written by Grant Gullekson

Grant Gullekson is a CPA with over a decade of experience working with small owner/operated corporations, entrepreneurs, and tradespeople. He specializes in transitioning traditional bookkeeping into an efficient online platform that makes preparing financial statements and filing tax returns a breeze. In his freetime, you’ll find Grant hiking and sailing in beautiful British Columbia. Learn more about Grant’s services at viccityaccountant.com.

Written by Grant Gullekson

Grant Gullekson is a CPA with over a decade of experience working with small owner/operated corporations, entrepreneurs, and tradespeople. He specializes in transitioning traditional bookkeeping into an efficient online platform that makes preparing financial statements and filing tax returns a breeze. In his freetime, you’ll find Grant hiking and sailing in beautiful British Columbia. Learn more about Grant’s services at viccityaccountant.com.