Georgia Takes Aim At Interchange Levied on Sales Tax

Georgia has joined a small but growing number of states that have introduced legislation to ban the portion of credit and debit card transaction fees that apply to sales tax. The Georgia bill, introduced late last week by Georgia state senator Billy Hickman (R-Statesboro), proposes prohibiting the fees from being charged on sales and excise taxes, such as the state’s tobacco, alcohol, and motor fuel taxes.

The bill, known as the Consumer Inflation Reduction and Tax Fairness Act, was introduced as a way to restore what the bill’s sponsors see as fairness to the collection of sales tax and reduce the impact of inflation on Georgia merchants’ businesses, according to The Georgia Alliance for Inflation Reduction. The group represents retailers, small businesses, supermarkets, independent grocers, convenience stores, and other Georgia merchants that accept credit card debit cards.

The legislation would limit the card networks’ ability to levy swipe fees, also known as merchant-acceptance fees, to the total purchase amount on basic goods and services in the state. Swipe fees on alcohol, tobacco, and state motor fuel taxes would be prohibited.

If the bill becomes law, violators would pay a fine of at least $1,000 per incident to the retailer, not the state, and be required to refund any swipe fee collected on taxes. The proposed legislation would collectively save Georgia merchants millions of dollars annually, according to supporters of the bill. 

“The bill is a way to restore fairness in the state tax system when collecting sales tax. We don’t feel it’s fair to merchants to be charged swipe fees on sales tax they have a duty to collect,” says Ben Cowart, vice president of government affairs for Georgia Retailers, a merchant trade association that supports the bill and is a member of The Georgia Alliance for Inflation Reduction. “The bill is also a way to reduce the impact of inflation on merchants’ business and their customers, Georgia’s consumers.”

Several states, including North Dakota, Tennessee, and Florida have proposed similar bills. In North Dakota, the legislation has passed in the state senate, Cowart tells Digital Transactions News. In Mississippi, a bill has been introduced to get the state to refund the cost of swipe fees, composed largely of interchange assessed by card brands, on sales tax.

According to The Federal Reserve System, about one-third of purchases made in the United States are paid for by credit cards. Based on Georgia tax revenues, merchants in the state pay an estimated $123.8 million in transaction fees on sales tax and another $16.6 million on excise taxes on average each year, according to The Georgia Alliance for Inflation Reduction.

In general, these swipe fees are one of the highest operating costs for merchants, after labor, and are typically built into pricing, which drives up the cost of goods and services for the average family by about $1,000 a year, according to the Merchants Payments Coalition.

“Swipe fees on everyday purchases drive up costs each year for the average Georgia business and charging these fees on the tax portion of a receipt costs us even more,” Anthony Waters, owner of LA Waters Furniture in Statesboro, Ga. says in a prepared statement. “With supply-chain disruptions, workforce shortages and rising inflation, ending swipe fees on the taxes would remove one of the endless pressures that small businesses are facing.”

To encourage passage of the bill, sponsors have included the option of allowing merchants to separate the sales and excise tax from the amount on which swipe fees are applied at the point of sale or allowing the card networks to rebate the cost of the swipe-fee charges on the tax portion of each transaction at the time of settlement, Cowart says.

Cowart adds that while there has been pushback by the banking industry to similar legislation introduced elsewhere, supporters see no indications as of now that the bill would face court challenges should it be signed into law.