The Pennsylvania House of Representatives is considering a bill that would bar interchange fees from applying to sales tax when merchants accept credit or debit cards for payment on goods and services.

The legislation may be coming to a head in the chamber, with a pack of 14 Democrats supporting the bill and opponents descending on the state to battle the legislation.

Illinois this month became the first state to pass legislation prohibiting the application of card ‘swipe’ fees to excise taxes, with Democratic Gov. J.B. Pritzker signing the bill into law on June 7, with an effective date next year. About a dozen other states are weighing similar bills in state legislatures across the country, according to a memo put forward by backers of the Pennsylvania legislation.

The Pennsylvania legislation, House Bill 2394, seeks to require retailers, restaurants and other merchants to deduct the amount of tax from calculation of the interchange fees, also known as “swipe” fees, that bank card issuers and networks charge merchants when consumers use their cards. Alternatively, the amount can also be rebated. The bill calls on the “payment card network,” which is typically either Visa or Mastercard, to make that happen or face a civil penalty of $1,000 per violation. 

The primary sponsor of the legislation is Democratic Rep. Greg Scott, who teamed with the chair of the House finance committee, Steve Samuelson, to build support for the proposal. The bill was referred to the finance committee earlier this month, and then to the rules committee of the House, which is controlled by Democrats.

“This legislation would return fairness to the state’s tax system by prohibiting swipe fees from applying to the Sales & Use Tax portion of those transactions,” Scott and Samuelson said in a December memo to all House members. “Merchants are merely performing their state-mandated duty to collect and remit taxes and should not have to pay an additional cost to do so.” 

While merchants may welcome the opportunity to avoid additional fees on the credit card transactions, payments players are less enthused about the state legislative trend. Indeed, members of the Electronic Transactions Association were in Harrisburg, the capital of Pennsylvania, this week fighting the legislation, said Scott Talbott, a spokesperson for that industry trade group.

“Obviously you’re talking about a massive change to an efficient system, and the Herculean effort is not worth the juice,” Talbott said in an interview on Monday. The cost of changing the system and the increased friction for consumers seeking to use credit cards would far outweigh the benefits, even for retailers, he argued.

The ETA, which represents Visa, Mastercard and bank card issues like Capital One, aims to reverse the effects of the new law in Illinois by working with legislators there, Talbott said, without providing specifics on what new legislation might make that happen. 

Asked whether the ETA might sue Illinois if the trade group is unsuccessful in the legislature, Talbott left options open. “Right now, the legislative approach makes the most sense, but all options are on the table,” he said.

Nonetheless, retail trade groups, including the Illinois Retail Merchants Association, supported the new Illinois law, as did national merchant organizations, including the National Association of Convenience Stores. 

“There’s a recognition that there’s a very fundamental unfairness going on here: The actual tax dollars that merchants are collecting on behalf of the state are being taken away by the credit card companies,” NACS General Counsel Doug Kantor said earlier this month regarding the Illinois law. He noted Texas and Florida are among other states considering such legislation.

If the Pennsylvania bill passes the House, it would be taken up by the Senate, but Republicans control that chamber so the legislation might face a different fate. If it were to pass the Pennsylvania Senate as well, it would land on the desk of a Democrat, Pennsylvania Gov. Josh Shapiro.

Correction: This story has been updated to correct the acronym for the Electronic Transactions Association.

 

By Lynne Marek on June 25, 2024
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