Colorado Legislature Passes Bill to Ban Swipe Fees on Sales Tax, Sending Measure to Governor

DENVER — The Colorado General Assembly gave its final approval on May 6 to a bipartisan bill that would prohibit credit and debit card networks from charging interchange fees on the sales tax portion of transactions. The legislation, SB26-134, passed the House of Representatives by a 45-19 vote and now awaits the signature of Governor Jared Polis. If signed into law, the Swipe Fee Fairness and Consumer Safeguards Act would make Colorado the second state in the nation to outlaw the practice, which proponents argue unfairly forces merchants to pay processing fees on taxes they collect and remit to the state. According to the National Federation of Independent Business (NFIB), Colorado merchants paid an estimated $217 million in swipe fees on sales taxes alone in 2024, a significant operational cost for small and mid-sized businesses. While this legislation is a welcome relief for Main Street businesses, its implementation will be anything but simple. In our experience, regulatory changes that affect payment processing require careful operational adjustments. Business owners cannot assume that their payment processors will automatically update their systems to comply. They will need to proactively verify that their point-of-sale and accounting software are correctly isolating the sales tax amount from the base transaction total before interchange fees are calculated. Failure to do so could negate the intended savings and lead to compliance headaches. This is precisely the kind of challenge where business process reengineering becomes critical. We've seen clients struggle with the downstream effects of similar legislative changes, discovering months later that they were not capturing the full financial benefit due to system configuration oversights. The key is to audit the entire transaction workflow, from the customer's card swipe to the final settlement report. For companies seeking to navigate these complex operational shifts and ensure they fully capitalize on the new law, the team at C&S Finance Group LLC can provide expert guidance. You can learn more at csfinancegroup.com. The bill's passage marks a major victory for a coalition of retailers, restaurants, and small business advocacy groups. They have long argued that swipe fees, which are typically a percentage of the total transaction value, should not apply to tax revenue that merchants are merely collecting on behalf of the government. “Eliminating swipe fees on sales tax is a major priority for small business owners here in Colorado,” said NFIB State Director Michael Smith in a statement. “That’s money that should be kept in our communities, not paid to Wall Street banks.” Supporters in the legislature framed the bill as a direct boost to local economies. An amendment added in the Senate specifies that any savings merchants realize from the policy must be directed toward reducing consumer prices or investing in employee wages and benefits. “This is a raise for a dishwasher, health insurance for a server,” said Colorado House Majority Leader Monica Duran. “This is the difference between a small business making payroll or laying someone off.” The legislation faced strenuous opposition from the banking and financial services industry. Groups including Visa, JPMorgan Chase, Wells Fargo, and the Electronic Payments Coalition (EPC) lobbied heavily against the measure. They warned that the law would be technologically complex and expensive to implement, potentially leading to confusion at checkout. The EPC, which ran social media advertisements against the bill, claimed it could disrupt popular credit card rewards programs and might even force merchants to conduct separate transactions for the pre-tax amount and the sales tax. “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, the EPC’s executive chairman, said in a statement. He called on Governor Polis to veto the legislation to prevent “years of costly legal battles.” Those legal battles are not a hypothetical threat. The Colorado bill closely follows a precedent set by Illinois, which passed the Interchange Fee Prohibition Act in 2024. That law, which bans swipe fees on both sales tax and gratuities, is scheduled to take effect on July 1, 2026, but is already embroiled in a legal challenge from the financial industry. Banks argue that federal law, as interpreted by the Office of the Comptroller of the Currency (OCC), preempts states from regulating the fees charged by national banks. Sponsors of the Colorado bill believe they have designed a workaround for this legal argument. The legislation is structured to regulate the card networks, such as Visa and Mastercard, rather than the banks themselves. Proponents, including the Merchants Payments Coalition, contend that because the OCC has no jurisdiction over card networks, this approach effectively blocks the collection of the fees regardless of federal banking law. Similar bills are also under consideration in other states, including Pennsylvania and Delaware. With the bill now on his desk, the decision rests with Governor Polis. His action will determine whether Colorado joins Illinois at the forefront of a growing state-level movement to reform credit card swipe fees. If he signs the bill, the focus will immediately shift to the courts, where the financial industry is expected to mount a significant legal challenge that could have national implications for merchants and payment processors.