Technology/Services

Illinois Swipe Fees Will No Longer Apply to Taxes, Tips

Interchange Fee Prohibition Act marks a notable victory for retailers seeking relief from swipe fees, NACS says
Credit card swipe fees
Photograph: Shutterstock

Swipe fees will be prohibited on sales tax, state excise taxes and gratuities in Illinois, according to the Interchange Fee Prohibition Act. The act was included in the state's budget, which the Illinois House passed Wednesday. Illinois Gov. J.B. Pritzker has indicated he will sign it, the National Association of Convenience Stores said. 

As part of Pritzker’s budget proposal, he included a provision to cap the tax discount claimed by retailers at $1,000 a month, which would generate more revenue for the state but at the expense of Illinois retailers. In response, the merchant groups negotiated inclusion of the Interchange Fee Prohibition Act, NACS said.

While other states have considered this type of legislation, this is the first time it has passed into law, marking a notable victory for retailers seeking relief from swipe fees, the convenience-store association said.

When retailers collect taxes for the state, they are charged swipe fees from credit card companies for the total amount, including taxes. In turn, retailers have to make up for the fees that were taken out of taxes and use their own money to provide those funds to the government.

Sen. Dick Durbin (D-Illinois), who proposed the Credit Card Competition Act, is in support of the Interchange Fee Prohibition Act.

“The Illinois state legislature took a major step forward in pushing back against the swipe fees that are charged by credit card companies—fees that are nonnegotiable for merchants and that big banks use to pad their already high profits. I’m encouraged to see the Interchange Fee Prohibition Act included in the state’s final budget, and I applaud our state leaders for working to bring down costs and eliminate fees that are plaguing every electronic transaction in Illinois,” said Durbin.

Durbin claimed that the “federal government should take a page out of Illinois’ book,” by enforcing the Credit Card Competition Act, which would direct the Federal Reserve to ensure that the largest credit card-issuing banks offer a choice of at least two networks over which an electronic credit transaction may be processed, instead of just Visa and Mastercard, who are currently the only networks in the game, therefore able to continuously raise swipe fees.

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