The answer to your question is yes and no. Depends on your particular situation.
Per the PayPal User Agreement, merchants are not allowed to apply a "surcharge" however, they can apply a "handling" fee. If the web site is stating that they are charging you for their transaction processing fees and/or use the term "surcharge", this is clearly wrong and should be reported to PayPal. If the site is saying they are applying a "handling" fee to process your order, this would be considered OK and not violate the User Agreement.
There's one problem with using the "handling" variable with the actual Donation item button command, it won't work. It's only valid with Buy Now or Add to Cart item button commands. The PayPal system just ignores this variable if you include it with the Donation item button command.
A work around would be to use the Buy Now item button command and include the "handling" variable. Note, doing so displays the regular PayPal Checkout Screen, there is no indication that you are making a Donation. You would need to pass some extra info to the Checkout Screens by using the "option" variables so the donor knows they are making a Donation.
Here's some additional info, "non-PayPal" merchants including brick and mortor stores can pass the transaction processing fees (surcharges) to their customers. This is due to recent changes in accordance with Visa and MasterCard rules which became effective January 27, 2013. You must clearly indicate on your web site or near your POS station your policies and what additional charges may be applied to the total amount of the purchase.
Note, there are exceptions as some "states" prohibit merchants from applying a surcharge. These states include: California, Colorado, Connecticut, Florida, Maine, Massachusetts, New York, Oklahoma and Texas. Because PayPal's corporate office is based in California, they are prohibited from applying surcharges.
