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Committee hears bill establishing new B&O rate and deduction for payment card processors
Summary
House Bill 2020 would create a new B&O tax classification for payment card processing, set a 3% rate effective Jan. 1, 2026, and allow a permanent deduction for interchange and certain network fees; Department of Revenue provided a fiscal estimate and industry witnesses described negotiations to address fiscal impacts.
House Bill 2020, heard by the House Finance Committee on March 18, would establish a new business-and-occupation (B&O) tax rate specifically for payment card processing activities and allow a deduction for interchange fees, network fees and portions of fees retained by other processors.
Committee staff summarized the current B&O structure and surcharges, noting the service-and-other classification has different rates depending on gross income and that certain surcharges (an advanced computing surcharge and a financial-institution surcharge) may still apply. Rochelle Harris said: "Effective 01/01/2026, a B&O rate of 3% is applied to payment card processing activities." The bill excludes activities where the processor is affiliated with the payment network or is the card issuer; those activities would remain subject to existing service-and-other rates, with no deduction.
Testimony from industry representatives described the policy drivers and fiscal consequences. Kimberly Ford of Fiserv, a payment processor, testified in support and explained how merchant fees are split into processing fees (to processors), network fees (card networks) and interchange fees (to issuing banks). She said the bill would align B&O tax liability with the processing portion of merchant fees while establishing a higher specific rate for processors. Denny Elias described settlement discussions with the Department of Revenue aimed at addressing the fiscal note; staff provided an estimate that HB 2020 would increase general fund revenues by about $5 million in the first biennium and $7.8 million in the second biennium while reducing receipts to the workforce education investment account by $6.1 million and $9.4 million respectively, producing a four‑year net revenue loss estimate of $2.7 million and one-time system costs to the general fund estimated at about $384,000.
A prime sponsor spoke briefly on the bill as a response to litigation and fairness concerns around taxing processors for holding payments briefly; in the hearing record the sponsor characterized the change as addressing tax-parity concerns and avoiding further court adjudication. Multiple industry witnesses indicated ongoing negotiations with Department of Revenue to mitigate fiscal impacts. The committee closed the hearing segment; no committee vote or formal action appears in the transcript.
