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Testimony for S.135: consultant and grocers back excluding taxes and tips from interchange fees; committee to seek legal advice
Summary
Witnesses urged the committee to pass S.135 language that would prevent interchange fees from applying to tax and tip amounts; witnesses and members raised implementation questions for small merchants and noted an ongoing Illinois court challenge that could affect state authority over card networks.
Dan Swanson, an attorney and consultant who has advised federal and state payment‑policy efforts, told the Senate Finance Committee that “the status quo is just unsustainable” for swipe fees and urged S.135 as a modest reform to exclude taxes and tips from the interchange fee calculation.
Swanson said the proposal would subtract tax and tip amounts from the transaction base before applying the interchange percentage set by card networks. He argued that the data required to separate tax and tip are already part of transaction flows and that processors and networks could implement the change; he also described options for merchants who cannot adjust point‑of‑sale software in real time to seek post‑transaction reimbursement or credits.
Wendy Lenz of the Vermont Region Grocers Association said the grocers support the credit‑card reform portion of the bill and are neutral on the bill’s cash‑acceptance language. Lenz said many members already accept cash and would like the option to pursue relief on interchange charges. She cautioned that implementation could favor large chains with sophisticated point‑of‑sale systems unless vendors and processors offer cost‑effective options that work for small merchants.
Legal and practical concerns: Members asked about the Illinois litigation challenging a similar state law. Swanson explained the Illinois federal court granted a preliminary ruling that the court is skeptical of arguments that Visa and Mastercard are federally preempted as banks; the court has not resolved all preemption questions and has rejected the argument that the networks are automatically preempted. Committee members said they would ask the attorney general for legal advice about interstate‑commerce and preemption risk before advancing the bill.
Implementation questions from small merchants and retailers focused on costs and recordkeeping. Swanson and the grocers’ representative said merchants with modern point‑of‑sale systems commonly have itemized tax and tip data that could be transmitted; for merchants without such systems, the draft provides for post‑transaction crediting mechanisms, but several senators said they were concerned about the burden and auditability for very small operators.
Committee direction: Members asked staff to invite the attorney general’s office for an opinion on legal risk, and to solicit feedback from restaurants and small merchants about implementation costs and processor support. Several senators said helping small restaurants was a key policy goal for the bill.
