Illinois may have been the first state to pass a law requiring the elimination of tax from the calculation of card interchange fees, but several other states have made at least one step in the same direction.

In Pennsylvania, a similar bill was introduced earlier this year and passed by that legislature’s House Finance committee in June before being tabled in September. A similar bill was also introduced in both chambers of the Tennessee General Assembly last year, but made little headway this year.

In the meantime, the state of Illinois was sued by a group of bankers in August who are seeking to overturn the state law, which is scheduled to take effect next year. That case is making its way through federal court, with U.S. Sen. Dick Durbin backing the law and the Office of the Comptroller of the Currency arguing against it.

The Illinois law, passed by the legislature in June, would bar “a payment card network, an acquirer bank, or a processor” from receiving or charging fees on the tax amount or the gratuity associated with the sale of goods and services, according to the legislature’s summary of the bill.

The restriction would be contingent on the merchant informing the bank acquirer accepting the payment of the tax and gratuity amounts as part of the authorization or settlement of the electronic payment, the legislation said.

The law, which was backed by the Illinois Retail Merchants Association, was considered a potential template for other states that might seek to do the same.

In all the states that have followed suit, the battle seems to be the same. The legislative proposals pit bank card issuers and their electronic payment allies against major merchants eager for a reprieve on the payment of fees that typically amount to between 2% and 3% of every transaction.

Despite the legislative push-back to such proposals, other states have begun to study the approach. The Georgia General Assembly’s House passed a bill this year to create a committee to study such credit card fees related to state taxes and their impact on Georgia merchants and consumers. In Florida, Gov. Ron DeSantis in June reportedly shot down a legislative proposal to study the issue. 

In Congress, bankers and retailers are engaged in a related battle over legislation aimed at reducing interchange fees by increasing competition among card networks.

Durbin, an Illinois Democrat, and Sen. Roger Marshall, a Republican from Kansas, have been pushing a bill to require card issuers to make an alternative credit card network that isn’t one of the two industry heavyweights, Visa or Mastercard, available to merchants for processing credit card transactions.

That Credit Card Competition Act proposal is due for a hearing before the Senate Judiciary Committee on Tuesday.

By Lynne Marek on Nov 18, 2024
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