ISOs Hope To Influence Upcoming Merchant Reporting Regulations

It lost in Congress, so now the merchant-acquiring industry is looking to the bureaucracy to help soften the blow of a new federal reporting requirement that becomes effective in 2011. The requirement, part of the massive mortgage-relief bill President Bush signed into law a month ago, will force the card industry to report card sales for each merchant to the Internal Revenue Service (Digital Transactions News, July 31). Congress assigned the U.S. Treasury Department the task of writing the detailed rules to implement the requirement. Backers claim the provision could raise $9.8 billion over 10 years in previously unreported or underreported taxable sales through payment card networks and related systems such as PayPal Inc. Essentially, the annual total of such payments for each merchant must be disclosed to the IRS. The kicker is that sales need to be reported in a format the payment industry doesn't currently use, according to Mary Dees Griffith, government-relations committee chairperson for the Washington, D.C.-based Electronic Transactions Association, trade group of independent sales organizations and other merchant acquirers. The new reporting system will be based on taxpayer identification numbers. “Most systems just record by the merchant ID,” she tells Digital Transactions News. “Programs will have to be rewritten to pull and verify the right tax ID number is in there. That's the first step.” After that, the data themselves will have to be extrapolated and associated with the correct taxpayer IDs. That may not be easy because a merchant may be associated with more than one taxpayer ID. And then there is the issue of who will actually report the data to the IRS once they're ready. While ISOs originate a huge amount of payment card charge volume through the merchants they sign, they must funnel Visa and MasterCard transactions from their merchants into banks. So it's not clear yet whether ISOs and processors, or banks, will be the ones reporting to the IRS, says Dees. What is clear is that ISOs will need to be diligent about getting correct taxpayer IDs when they open new merchant accounts. It's also a sure bet that acquirers' computer programmers will be quite busy in the next two years. So will the acquiring industry's lawyers, lobbyists, and PR people. In a newsletter last week, the ETA promised its members it would stay on top of the rule-writing process. The ETA noted that while the reporting proposal ultimately passed Congress, the acquiring industry did succeed in delaying its passage for two years and raising awareness of the difficulties it would impose. Dees says “we will be involved” as Treasury officials shape the regulations. “We hope they will look to people in the industry,” she says. How fast the Treasury will grind out regulations is unknown at this early stage. The normal process for new financial laws typically includes a draft proposal, input from banks and other parties, and possible revisions before the regulatory agency adopts a final set of rules. All but the smallest merchants will be affected by the reporting requirement, which covers merchants generating more than $20,000 and 200 card transactions annually, Dees says.