How can I change our business's merchant category code?

Your Business Credit columnist Elaine Pofeldt
Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of, a website for independent professionals. She writes "Your Business Credit," a weekly column about small business and credit, for

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Question Dear Your Business Credit,
I work for a hotel company, and when we book group business and they pay with a credit card, sometimes the purchase shows up as "real estate" instead of "hotel" or "hospitality." Why? How can we avoid this? Many times, our guests pay with a corporate card, and corporate cards deny charges for "real estate," but not for "hotel." Thank you! -- Jennifer

Answer Dear Jennifer,
I can understand why you're confused! This is a tricky area for merchants.

The Internal Revenue Service gives payment card organizations the option to issue merchants who accept their cards Merchant Category Codes (MCCs) or the equivalent. These four-digit numbers help your customers determine if they must report what they paid you to the IRS on the 1099-MISC (miscellaneous income) form. The IRS requires businesses to report payments made for services but not for goods.

The IRS publishes a list of MCCs, but each card network -- MasterCard, Visa, American Express and Discover -- has its own as well. As you've discovered, a company that uses corporate cards may block employees from making certain categories of purchase, based on corporate expense policies.

If it looks like your business has been misclassified, contact your merchant processor. Ask what code you have been assigned for each payment card organization, such as Visa or MasterCard, and what those codes designate. That will help you pinpoint the transactions where the misclassification is occurring.

But before you do, it's helpful to understand how MCCs work, so you can make a good case for why it should be reclassified. Your processor may require you to submit some evidence that the original coding was wrong.

When you first set up a merchant processing account, the acquiring bank assigns you an MCC, tailored to the card network's system. The card networks each have their own spin on using the codes, so you may have a different code with Visa than with MasterCard, for instance.

The MCC is based on your main line of business. When reviewing your application, the acquiring bank -- also known as the underwriter -- may consider several factors when coding your business.

"The underwriter takes a look at their business, website, marketing collateral, and terms and conditions," explains Scott C. Tivey, president of CNP-Solutions, a consultancy in Weston, Connecticut, that helps merchants improve their card processing efforts. "It makes a determination of what kind of business they really are."

Underwriters don't automatically give you whatever category you want. Sometimes merchants in industries that are considered "high-risk," such as those selling adult products, may provide misleading information to avoid the code for that category, explains Tivey. High-risk categories often translate into higher merchant fees, he says. Merchants with such codes may also be required to put reserve funds into the merchant account, to cover potential charge-backs.

It's possible there are gray areas in how you could be coded. If your business does more than one thing -- for instance, sells both services and products -- Visa's guidelines have noted that the code you get will be based on the pursuit that "generally reflects the greater percentage of the supplier's business."

Now let's look at the hotel industry. Certain large hotel brands in major chains get individualized MCCs, according to Erika Cain, executive vice president at Merchants Bancard Network in Valencia, California. This is to differentiate them from many other types of lodging businesses, like bed and breakfasts, inns and motels, she says.

Hotels also sometimes get classified as real estate brokers or timeshares, which are considered higher risk categories, Tivey says. An issuing bank for a customer's card may opt to decline the transactions in those cases. To get to the bottom of what's happening, ask your merchant processor to run a transactional response code report, Tivey recommends.

It will take longer if you are trying to switch codes. Say you want to be coded under a major brand like Hyatt. In that case, you may need to provide paperwork and legal documents, according to Cain. It's also possible there are other reasons you are being listed under a category other than the one for hotels, so you may have to do some digging to find out.

Your situation may take some time straightening out, but there's some good news with regard to the transactions that aren't getting accepted: "Once the code has been amended through all systems, the business should no longer receive these types of denied transactions," Cain says.

See related: MCC codes unveil consumer shopping habits

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Updated: 03-18-2019