In a party-line vote, a House panel approved legislation on June 12 to exempt Pennsylvania sales taxes from so-called swipe fees — the fees assessed to process transactions involving credit cards.
Fourteen Democrats on the committee voted for the legislation, House Bill 2394, while 11 Republicans were opposed.
The exemption would mean that on a $1 purchase in Pennsylvania, the swipe fee would not apply to the extra 6 cents in sales tax.
The fees typically range from 1% to 3% of a transaction. But they have been grating on retailers as credit card usage proliferates.
Credit cards accounted for 32% of all consumer payments in 2023, up from 31% in 2022, according to an annual report by the Federal Reserve. Their share was 18% in 2016.
The debate: Banks and credit unions are against the exemption. Retailers are for it.
Banks and credit unions argue that segregating sales taxes for special treatment will needlessly complicate the electronic payment system. Retailers, for example, may have to collect sales tax in a separate transaction using cash or check, financial companies warn.
“Proposals like this one would completely disrupt the system that safeguards our credit cards, while inconveniencing consumers and forcing small businesses to pay a fortune to try to comply,” Duncan Campbell, president of the Pennsylvania Bankers Association, said in a statement yesterday.
Retailers, who have been pushing for the sales-tax exemption since last fall, say they are performing a service for the state by collecting sales taxes. They should not have to pay transaction fees on that money, since they are not holding onto it.
Further, they argue, the technical details should not be hard to figure out.
The Pennsylvania Food Merchants Association, whose members include grocery and convenience stores, applauded the House panel’s passage of the exemption. “This is a win for Main Street businesses,” the association wrote yesterday in a Facebook post.
Who’s in the middle: Small-business group NFIB, which is neutral on the proposal, according to the group’s Pennsylvania state director, Greg Moreland.
In a memo to House members, Moreland noted that the bill is likely to benefit large companies that collect the most sales tax.
It’s unclear how the legislation would impact small businesses, and whether the cost of new hardware and software would outweigh the savings from lower swipe fees.
“If we were starting from scratch, NFIB tends to believe that the legislature would not authorize sales tax to be subject to the swipe fee,” Moreland wrote. “But we have the system we have and must work within those parameters.”
How: Small businesses, he argued, would benefit from separate legislation that would allow them to take a bigger discount on their sales tax remittances.
The discount is intended to offset the cost of collecting and remitting the tax to the state, provided the taxes are remitted on time. It is based on the amount of sales tax a business collects. But the discount has been capped at $300 per year since 2016.
House Bill 2378, introduced last month, would remove the cap.
“This approach not only reduces the burden on businesses but also reaffirms the state’s commitment to a mutually beneficial tax collection partnership with the private sector,” state Rep. Paul Friel, a Chester County Democrat, wrote in a memo seeking support for the legislation.
