Colorado Senate Advances Bill to Prohibit Credit Card Swipe Fees on Sales Tax

DENVER — The Colorado Senate advanced a bill this week that would prohibit credit card companies from charging interchange fees on the sales tax portion of transactions, a move aimed at providing financial relief to merchants across the state. The bill, SB26-134, passed a key procedural vote and now heads to the full Senate for final consideration. Interchange fees, commonly known as “swipe fees,” are charges that merchants pay to payment card networks and issuing banks every time a customer uses a credit or debit card. These fees typically range from 2% to 4% of the total transaction value. Under current practice, this percentage is calculated on the entire bill, including the state and local sales tax that businesses are legally required to collect and remit to the government. 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. For many small and mid-sized businesses, this proposal addresses a long-standing operational headache: paying a private fee on public tax money. In our experience, business owners often view this as an unfair cost of doing business, where they act as an unpaid tax collector for the state only to see their margins shrink further from fees levied on those collected funds. While eliminating these specific fees offers direct cost savings, it also introduces complexity. Payment processors and merchant systems will need to be updated to segregate the tax amount from the base transaction, which could require significant technical adjustments. This highlights the need for robust financial oversight and operational planning. Proactive business process reengineering is critical to ensure that companies can actually realize these savings without creating new accounting or compliance burdens. At C&S Finance Group LLC, we guide clients through exactly these kinds of regulatory-driven operational shifts; learn more at csfinancegroup.com. The bill’s proponents argue that businesses should not have to pay processing fees on money that is not theirs. “The core issue here is simple: merchants are required by law to collect sales tax on behalf of the state, but when a customer pays with a card, the network and issuing banks take a percentage of the entire transaction, including the tax portion,” said Sen. Iman Jodeh, an Aurora Democrat and one of the bill’s sponsors, in a statement. “In other words, merchants are paying higher swipe fees for performing the service of collecting taxes for the government.” The legislation would apply to credit card companies with more than $60 billion in assets. It offers several compliance pathways, including allowing companies to adjust their fee formulas to automatically exclude sales tax or to issue direct rebates to merchants for the fees charged on the tax amount. Bill sponsor Sen. William Lindstedt, a Broomfield Democrat, dismissed potential technical hurdles, stating, “Executives from the industry themselves have acknowledged that their systems can distinguish tax and tip amounts within transactions. So the question is not whether it can be done, it’s simply whether the networks are willing to do it.” A related bill in the Colorado House, HB 1282, also seeks to exempt tips from swipe fees. Advocacy groups for small businesses have been vocal in their support, framing the issue as a Main Street versus Wall Street battle. “Small businesses are collecting sales tax for Colorado and then turning around and paying millions of dollars to big banks on Wall Street. And that’s not right,” said NFIB Colorado State Director Michael Smith. He noted that for many small businesses, swipe fees have become one of their largest operating expenses, often trailing only labor costs. “I’ve members who are paying $8,000 a month, and they’re telling me, ‘I could hire two employees this year for that amount,’” Smith added. The financial pressure is particularly acute in industries with thin profit margins, such as food service and retail. The Colorado Brewers Guild and the Colorado Restaurant Association have both testified in support of the legislation. Chi Chi Andasola, a Denver business owner, told lawmakers that ballooning costs, including 4% swipe fees that amounted to thousands of dollars per month, contributed to his decision to close his business on Colfax Avenue. However, the bill is not without its critics. Opponents, including credit unions and other financial groups, have raised concerns that the measure creates favoritism for certain industries and could lead to unintended consequences. They argue that the costs absorbed by the payment networks could be passed on to consumers or small businesses in other forms, potentially negating the intended benefits of the legislation. The bill now awaits a final vote on the Senate floor. If it passes, it will move to the House for consideration. Business owners and financial institutions across Colorado are closely watching the proceedings, as the outcome could significantly alter the cost structure of accepting electronic payments in the state.