Colorado Legislature passes bill to eliminate credit card swipe fees on sales tax

The Colorado Legislature gave final approval this week to a bill that would lower the fees businesses need to pay credit card companies every time a customer swipes their card. It was one of the most heavily lobbied bills this legislative session.

Senate Bill 26-134 would exempt sales taxes from the “interchange” fees that banks charge merchants when a person uses their debit or credit card. That fee currently is applied to the entire transaction, including the base price and the sales tax. The fee can range from about 1.5% to 3%, and bill supporters say it is unfair to charge it on the sales tax, money the business collects on behalf of the government.

“They should not have to pay fees on the local or state taxes that they are collecting from that customer,” bill sponsor and House Speaker Julie McCluskie, a Dillon Democrat, said. “They are simply acting as a passthrough, a collector of those taxes to push those on to local and state governments.”

The bill passed the House on a 44-20 vote on Wednesday and the Senate on a 18-17 vote earlier this month.

It would allow credit card companies to comply with the policy by not charging the swipe fee on the sales tax at the time of sale or sending rebates back to the businesses. It would only apply to the largest credit card companies that have at least $60 billion in assets.

The bill was largely supported by restaurants, retailers and other businesses, who told lawmakers during the committee process that eliminating sales tax swipe fees would save them much-needed money, even into the thousands of dollars, that could go back to operations and employee compensation. It was amended in the Senate to clarify that any savings resulting from the policy would go towards reducing prices or investing in employee benefits and wages.

A survey of over 100 operators from the Colorado Restaurant Association found that restaurants could save around $26,000 annually with the bill.

“This is not an abstract line item,” bill sponsor and House Majority Leader Monica Duran, a Wheat Ridge Democrat, told lawmakers in committee earlier this week. “This is a raise for a dishwasher, health insurance for a server. This is the difference between a small business making pay roll or laying someone off.”

Big hitter opposition

The measure was also supported by large corporations like Target, King Soopers and Walmart, who stand to save large amounts of money if sales tax was exempt from swipe fees.

The bill was opposed by a deep bench of banks and credit card companies, such as Visa, Wells Fargo, JPMorgan Chase and the Electronic Payment Coalition. The latter bankrolled advertising on Instagram and Facebook against the bill, warning that the policy could disrupt credit card rewards programs and force separate transactions for an item’s base price and sales tax. Those groups also argued it would be expensive and complicated to change their payment systems to carve out sales tax from the automatic fee.

“The Colorado General Assembly ignored repeated warnings from tourism groups, community leaders, legal experts, and small businesses about the credit card chaos this bill would unleash,” Richard Hunt, Electronic Payments Coalition’s executive chairman, said in a statement. “The only way to prevent confusion at checkout, years of costly legal battles, and harm to Colorado workers and businesses is for Governor (Jared) Polis to veto this legislation.”

The banking industry points to a similar law in Illinois currently embroiled in legal challenges.

The measure now heads to the governor’s desk.