Retailers, Restaurants and Processors Clash Over Bill to Bar Card‑Networks from Charging Fees on Sales Tax

A contested bill to stop card networks from charging interchange fees on the sales‑tax portion of transactions drew hours of testimony March 14 from retailers, restaurant owners, credit unions, bankers and payments trade groups.

What lawmakers heard: Supporters — including the Connecticut Packaged Stores Association, the Connecticut Restaurant Association, grocery retailers and a string of cultural and tourism organizations — said removing interchange fees on taxes would give financially strained small businesses immediate relief and keep tax‑collection dollars in Connecticut. Opponents — including the Electronic Transactions Association, the Electronic Payments Coalition, state and national banks and the Office of the Comptroller of the Currency (cited by witnesses) — argued the bill would create compliance costs, be difficult to implement in practice, and would likely be held preempted for federally chartered banks.

Supporters’ case: Small businesses and trade groups displayed sample merchant statements and told the committee interchange fees are charged on the full transaction amount, including the state sales tax. Maureen Abrahamson, owner of Moe’s Wine & Spirits (Fairfield), described a contract dispute with a processor and argued the bill would end what she called “a fee on a tax.” Restaurateurs said savings would be meaningful: one restaurant estimated about $5,000 in annual savings; statewide advocates cited figures in the low‑tens of millions of dollars in potential merchant relief.

Opposition and legal questions: Witnesses from national payments trade groups and financial institutions said most interchange revenue flows to card issuers and noted a U.S. district court in Illinois blocked a similar law there on preemption grounds; they cited the National Bank Act and an ongoing legal record. Several witnesses emphasized that the U.S. market has many technical participants — issuers, networks, and processors — and that operational change would be complicated and could favor large national banks over Connecticut chartered banks.

Implementation and technical details: Committee members asked how merchants would be reimbursed (front‑end fee schedule change by networks versus a monthly reimbursement mechanism), whether Apple Pay or debit transactions differ, and whether federal preemption would spare national banks. Industry witnesses said debit interchange rates are lower than credit, and experts noted robust competition in the payments market while warning of substantial transition costs.

Committee reception and next steps: Members pressed both sides for concrete implementation options and legal analysis; supporters asked for a path that either requires networks to exclude taxes on the front end or compensates merchants on the back end. Witnesses said Illinois litigation remains pertinent; committee staff was asked to obtain more detailed cost estimates and legal analyses before further action.

Ending: The hearing closed with requests for follow‑up: (1) state attorneys’ office review of federal preemption risk, (2) more granular merchant statements, and (3) modeling of implementation alternatives (monthly merchant reimbursements vs. network fee schedules).