Restaurants press for ban on fees applied to tax and tips; payments industry warns of legal and technical risks
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Summary
Restaurant owners and industry associations urged passage of bills to prohibit interchange fees on tax and gratuity, contending that those fees impose a significant burden on small, low‑margin businesses.
Independent restaurants, regional operators and the Massachusetts Restaurant United coalition told the Joint Committee on Financial Services that Senate Bill 6‑88 and House Bill 12‑59 would stop card networks and issuers from applying interchange fees to the tax and gratuity portions of a transaction.
Jessica Moore of the Massachusetts Restaurant Association said the average Massachusetts restaurant pays around $50,000 annually in credit‑card processing and that, "Passing this legislation would save Massachusetts restaurants at least $64,000,000 annually in swipe fees." Owners testified with concrete examples: one restaurant group said it paid roughly $400,000 in card processing fees last year and that "$100,000 of that was not on any money that was ever ours," referring to fees charged on collected taxes and tips.
Restaurant witnesses described changes since the pandemic — more card‑not‑present transactions, tap‑to‑phone ordering and delivery — that raise processing costs further. They urged the committee to act to keep funds in local economies, protect server wages and prevent processing fees from applying to money that is remitted to government or paid to staff.
Payments‑industry representatives and networks disputed several factual premises and opposed the bills. Steve Rauschenberger of the Electronic Payments Coalition described the modern payments system as a multilayered process that enables small merchants to accept cards globally and defended the role of interchange fees in covering issuer costs and fraud protection. Industry witnesses also cited a pending federal court case from Illinois: a U.S. district judge issued a preliminary injunction holding that the Illinois law raising similar issues was likely preempted in part by the National Bank Act, meaning a state law could be ineffective against cards issued by national banks.
Other industry witnesses argued that while overall merchant fees have changed in recent decades, the largest element in many card transactions — the interchange — is set by card networks' published schedules and that state‑by‑state regulation could create complexity and litigation. Advocates countered that modern point‑of‑sale systems already capture line‑item data (subtotal/tax/gratuity) and that networks can adopt fee schedules that exclude taxes and tips.
Committee chairs said a commission on payment issues will convene to study these matters further; lawmakers did not vote on S6‑88 or H12‑59 at the hearing.
