Carpeperdiem,
I'm 99.99% positive that Amspcs is right about the sales tax being a non-issue as related to your processor's raising their rates. Follow with me, and I'll try my best to explain. When a request for a credit card authorization is made, the total amount of the charge, along with the card number, expiration date, address info, and CVV # are all submitted to your credit card issuing bank for the authorization, and later the authorization number is supplied to a second bank (called the acquiring bank) who converts the debt in cash for you. I simplified it, but that's it in a nutshell. Notice I didn't mention sales tax? The card issuing bank doesn't ask about tax because they don't care how much tax you're charging, only that their client can pay the total you are requesting.
As amspcs said, it all comes down to risk. All credit card transactions have a certain amount of risk associated with them. Risk varies based on many factors. For convenience, most credit card processors group all transactions into 3 or 4 tiers (categories). From lowest risk to highest, you have the following:
- Qualified Debit - this group includes debit cards processed without a PIN (like a credit card). Some processors don't recognize this group.
- Qualified Credit - this group includes all "ordinary" credit cards, not downgraded for any reason.
- Mid-Qual. Credit - this group normally includes all hand-keyed transactions and all rewards cards (where cardholder gets free gas, airmiles, etc.)
- Non-Qual. Credit - this group normally includes business, corporate, and gov't purchasing cards.
As you progress through these categories, the transactions have higher risks, so the discount rates increase. You and I (ie, normal, honest people) probably assume corporate card transactions would be safe and less costly. But corporate cards have a higher chargeback rate. We've all heard of the disgruntled employee who flies to Vegas and runs up a huge credit card bill before quitting his job. Believe it or not, those kinds of things actually happen, and they result in "corporate-sized" chargebacks. As business owners, we all pay the bill.
Carpeperdiem, some credit card processors are notorious for using V/MC's regular rate increases as an excuse to pad their own rates. For example, V/MC's interchange rates might go up by 4 or 5 basis points for a single, specific type of transaction, but a processor might choose to raise their rates for the entire category. (As long as there's a legitimate rate increase happening, some processors will use it to their advantage.) That's
probably what happened to you. Your processor can identify your B2B customers just because they're paying with corporate cards. It sounds like they devised a complicated-sounding excuse to raise rates, and hoped you wouldn't question it.
Like amspcs, I'm happy to help if you have more questions. You can click my profile for contact information.
Neil Moncrief
www.CreekFinancial.com
