Colorado Bill To Cut Sales Tax from Interchange Calculation Vetoed

Colorado’s SB 26-134, a bill that would have eliminated sales tax as part of the interchange-fee calculation, has been vetoed by Gov. Jared Polis.

SB 26-134, similar to the Illinois Interchange Fee Prohibition Act, would have taken effect Jan. 1, 2028, had Polis approved it. The contentious Illinois law, which has been delayed again to a July 1, 2027, implementation, differs in that it also excludes gratuities.

Proponents of such bills say they would provide cost relief for merchants, while the opposition says they will usher in a chaotic payment experience and could ultimately harm merchants and, in Illinois, place banks and credit unions at a disadvantage.

Polis, in a three-page letter explaining his veto, says he was open to “core concept in this bill and the problem it is trying to solve.” Polis says there was concern the Colorado bill would actually go into effect, citing the legal issues and delays surrounding the IFPA in Illinois.

“Even if the bill were to survive legal scrutiny and go into effect in our state, it is questionable whether this bill is fully implementable or operationally feasible,” Polis writes. “This would be a Colorado-specific carve-out to the national and global integrated payments system and it is unclear to me how the state would implement it. There are a range of possible outcomes, including potentially requiring consumers to swipe twice for the same transaction and requiring small businesses to update their payment systems. Worse outcomes could impact mileage and points cards, tourism, and possibly the availability of credit or financing products. This could create chaos for our business environment, our tourism-dependent economy, and consumers that want to make purchases easily and efficiently.”

Colorado sponsors also wanted to exempt small and midsize banks and credit unions, Polis says, but these organizations said because the payments systems is tightly integrated, “they would in practice not be exempt.”

Payments advocates praised the veto.

“His veto protects the payment systems Coloradans rely on every day and prevents a policy that would have increased costs and disrupted commerce across the state,” Jodie Kelley, Electronic Transactions Association chief executive, says in a statement.

“Industry stakeholders warned the legislation could have led to more declined transactions at the checkout counter, making it harder for consumers to complete purchases and disrupting everyday commerce,” says an ETA statement. “By vetoing SB 26-134, Governor Polis avoided payment disruptions that could have left consumers frustrated and businesses losing sales.”

The Electronic Payments Coalition was satisfied with Polis’s decision. “Governor Polis made the prudent and responsible decision for Colorado,” Richard Hunt, EPC executive chairman says in a statement.

Meanwhile, merchant advocate organization Merchant Payments Coalition was disappointed with the outcome.

“Colorado legislators stood up for small businesses and consumers, but this veto leaves them stuck paying inflated, price‑fixed swipe fees not just on their purchases but on top of sales taxes, too” says Doug Kantor, MPC executive committee member and general counsel at the National Association of Convenience Stores. “Coloradans deserved relief, and this decision denies them more than $200 million a year in lower prices. Eventually, common-sense reform of credit card swipe fees will win out over Wall Street misinformation and scare tactics.”