BILL NUMBER: S5587
SPONSOR: SKOUFIS
 
TITLE OF BILL:
An act to amend the general business law, in relation to the calcu-
lation of interchange fees charged by credit card networks
 
PURPOSE:
This bill would establish a new Article 42 of the general business law
to exclude certain taxes and gratuities from being included in the
interchange (swipe) fees charged by payment card networks.
 
SUMMARY OF PROVISIONS:
Section 1: Amends the general business law by adding a new article 42-a
to establish which taxes and gratuities are to be excluded from calcu-
lating interchange (swipe) fees by payment card networks. Such taxes
include sales and compensating use taxes, hotel, motel, and occupancy
taxes, taxes on alcoholic beverages, gasoline, motor fuel, and petroleum
businesses, and rental vehicle taxes. This section also requires that a
payment card network shall rebate or deduct the amount from taxes from
the calculation of interchange fees.
Section 2: Sets Effective Date.
 
JUSTIFICATION:
The COVID-19 pandemic significantly accelerated New Yorkers' transition
from cash to credit and debit card payments. While this shift offers
convenience, it imposes substantial financial burdens on small busi-
nesses, the state, and tipped workers. Each time a payment card is used,
merchants are charged transaction fees, which have risen sharply due to
increased utilization and inflation. Because these fees are calculated
as a percentage of the total transaction cost, they escalate with every
price increase.
For many retailers, interchange fees are their second-largest operating
expense, surpassing only labor costs, rent, and utilities. On Visa and
Mastercard credit transactions, the average interchange rate in the
United States is approximately 2.25% of the transaction amount. This
rate is more than seven times higher than what merchants pay in Europe
and five times higher than the fees in China.
Interchange (swipe) fees are currently applied to the full transaction
amount, including state and local sales taxes. Sales tax revenue is
remitted to the government and does not constitute business income;
however, credit card companies continue to charge processing fees on the
entire amount, effectively diverting funds away from merchants and the
state.
This bill seeks to alleviate these financial pressures by exempting
state sales taxes and gratuities from calculating interchange fees.
Under this proposal, the net sales amount-calculated by subtracting
sales tax and gratuities from the total transaction-would determine
processing fees.
In the 2021-2022 fiscal year, New York State collected $18.6 billion in
state sales tax and $22 billion in local sales tax. According to a study
by the Federal Reserve Bank of San Francisco, approximately 58% of tran-
sactions in the U.S. are conducted via credit, debit, or app-based
payment methods, with an average interchange fee of 2.25%. Removing
sales tax from the swipe fee calculation could save businesses and
consumers nearly $529.7 million annually.
Nine states-Florida, Georgia, Idaho, Maine, Mississippi, North Dakota,
Tennessee, Texas, and Washington-have introduced legislation to exclude
sales tax from interchange fee calculations. Illinois enacted legis-
lation in 2024 to exempt sales taxes and gratuities from such fees.
This bill extends similar relief by including gratuities in the
exemption. It recognizes that imposing processing fees on tips directly
impacts tipped workers' earnings. By ensuring that gratuities remain
fully intact, this legislation safeguards employees' financial well-be-
ing who rely on tips as a significant portion of their income.
This measure represents a crucial step toward reducing unnecessary
financial burdens on businesses, protecting workers' earnings, and
ensuring that excessive processing fees do not erode state and local tax
revenues.
 
PRIOR LEGISLATIVE HISTORY:
Senate
2023: N/A
2024: S7973, Referred to Consumer Protection
Assembly
2023: No Assembly Same-As
2024: No Assembly Same-As
 
FISCAL IMPLICATIONS:
None to the state.
 
EFFECTIVE DATE:
This act shall take effect on the first of July next succeeding the date
on which it shall have become a law.