Sweeney Bill on ‘Interchange Fees’ Would Produce Savings for Small Businesses

Legislation Would Remove Sales Tax from Costs of Credit Card Transactions

TRENTON – Senate President Steve Sweeney has introduced legislation that would produce savings for small businesses by removing all state taxes from the calculations that determine the fees paid by businesses for credit card transactions. The bill would prohibit credit card companies from adding the amount of any sales tax or other state taxes on purchases to the costs used to determine the “interchange fees” charged to businesses and their banks for processing credit card sales.

Rates can vary by business type, but larger merchants often have lower rates because they have enough clout to successfully negotiate with banks and credit card companies; it’s the small businesses that pay more, Senator Sweeney noted.

“Small businesses should not be required to pay more on costs that are not part of the sale of goods or services they are providing,” said Senator Sweeney. “We should be doing all that we can to support small businesses so that they can thrive. They are one of the most significant parts of the economy, producing jobs and contributing to continued economic growth.”

Interchange fees, which the merchant’s bank account must pay whenever a customer uses a credit or debit card to make a purchase, are determined by a large number of complex variables, including a percentage of the total sales. The fees are paid to the customer’s card-issuing bank to cover handling costs, fraud and bad debt costs and the risk involved in approving the payment.

Removing the sales tax and other state taxes from the total will result in savings for the business.

“Small businesses should not be penalized because of their size and they should not be forced to pay a premium for the cost of doing business,” said Senator Sweeney. “These fees can add up and they can take away from the bottom line.”

In the U.S., billions of dollars are paid out by merchants to cover these fees every year, with the average rate coming out to about two percent of the purchase amount.

Under the bill, S-2577, the portion of the price paid by a customer that is associated with any state taxes may not be included in calculating an interchange fee in cases in which the fee is a percentage of the gross dollar amount of the transaction. Any merchant whose rights under the bill have been violated may maintain a civil action for damages or equitable relief.  Any person who violates the bill is subject to a civil penalty of $5,000 per violation