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A Colorado bill that would eliminate sales tax as part of the interchange fee calculation has moved to Gov. Jared Polis’s desk for review following passage Wednesday in the Colorado House. It passed a state Senate vote last week.
Similar in some ways to the Illinois Interchange Fee Prohibition Act, which is scheduled to become effective July 1, the Colorado bill has important differences. Unlike the Illinois law, which prohibits interchange on sales tax and tips, the Colorado bill excludes only sales tax. Also, the Illinois law applies to all financial institutions; in Colorado, the bill applies to those with $60 billion or more in assets. The earliest the Colorado measure could take effect is Jan. 1, 2028, unless voters determine otherwise via a referendum. Both the Illinois and Colorado acts apply to credit and debit cards.
From an acquiring perspective, the Colorado bill would be disruptive, if approved.
“The bill would upend the complex, efficient, and global payments industry,” Scott Talbott, Electronic Transactions Association executive vice president, tells Digital Transactions News in an email. “All parties—from issuing and acquiring banks to processors, consumers, and merchants—would be adversely affected. It would force all players to divert critical resources away from innovation to implementation—with the costs outweighing any perceived benefits.”
As expected, merchants and card issuers differ on the bill.
The Merchant Payments Coalition praised the passage of the Colorado bill, while the Electronic Payments Coalition called on Gov. Polis to veto it.
“This is landmark legislation that will save Colorado small businesses and their customers millions of dollars each year and keep that money in the local economy rather than sending […] to out-of-state megabanks and global card networks,” Doug Kantor, MPC executive committee member and National Association of Convenience Stores general counsel, says in a statement.
The MPC says interchange fees on sales tax in Colorado total $217.5 million annually, raising prices for consumers.
In addition to the Colorado and Illinois measures, similar bills have progressed in the Pennsylvania and Delaware legislatures, the MPC says.
Conversely, the Electronic Payments Coalition says a veto would avoid confusion among Colorado consumers and would not disrupt credit cards rewards programs consumers like. It also would mean tourists would not face complexity at the point of sale.
“The legislation attempts to carve out the tax portion of a transaction from the overall amount processed on a credit or debit card. A system to do this does not exist and, because of the amendments added to the bill to flip votes, could mean cards issued by a handful of banks might not work in Colorado,” an EPC statement says.
“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, EPC executive chairman, says 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 Polis to veto this legislation.”
