A fight over swipe fees may be coming to Wisconsin.
A bill that would exclude the tax paid on retail purchases in the state from being part of the swipe fee calculation has been drafted. If the bill is introduced to lawmakers, it will launch the latest battle between banks and retailers over fees merchants pay when they accept credit and debit cards from customers.
The possible move comes as consumers increasingly have used cards instead of cash during the coronavirus pandemic.
Rose Oswald Poels, president and chief executive officer of the Wisconsin Bankers Association, said her organization would oppose legislation that seeks to exempt the tax portion of a credit or debit card purchase from the interchange fee.
The interchange fee, which is a small percentage of the total amount of each purchase, is paid to the bank that issued the credit or debit card.
“The interchange fee revenue is important and necessary to the banking industry because we pay and spend a lot of money, both in terms of staff resources as well as technology, to help prevent fraud,” said Oswald Poels. “That already costs us a lot of money."
Matthew Hauser, president and CEO of the Wisconsin Petroleum Marketers and Convenience Store Association, said he couldn’t comment on the legislation because it hasn’t been introduced. But he said, generally speaking, the credit card fees retailers pay have been “rising at a dramatic rate for a generation.”
“Convenience retailers pay about as much in swipe fees each year as they make in total pre-tax profits,” Hauser said.
He said while swipe fees still trail labor among a retailer’s operating costs, swipe fees now exceed rent and utilities.
“The fees keep going up,” Hauser said. “Retailers are losing revenue collecting and remitting taxes to the state.”
An early draft of the legislation shows it would prohibit a “swipe fee" from being imposed against a merchant on the tax portion of a transaction when a purchase is made using a credit card.
Corey Miltimore, spokesman for the Electronic Payments Coalition, said if that bill is introduced it likely would include debit card transactions as well as credit cards.
Miltimore said what the retailers are seeking isn’t warranted or practical, and that similar legislation has been turned down in 28 states over the past 15 years, most recently in Tennessee.
“They say the swipe fees keep going up, but the rate is actually steady,” said Miltimore, who is managing partner of Rauschenberger Partners LLC. “When they say it’s going up, it’s because consumers are spending more on credit and debit transactions. But the rate is the same. It’s simply because their volume is increasing.”
Miltimore said to separate the tax portion of a total sale from the cost of the product in a credit or debit card transaction isn’t simple or inexpensive. He said current systems only recognize a final purchase amount and adapting them for the potential Wisconsin law would be costly to all businesses, including retailers.
“If something like this were to be implemented, what would have to happen is the merchant would bill the customers’ debit or credit card for the cost of goods sold, and then would have to do a separate transaction to pay the tax in cash or check,” Miltimore said. “The networks are not going to process free transactions for taxes.”
The law would make Wisconsin an island in the national credit card and debit card payment system and raise the question of whether a state law could be applied to businesses based outside the state, according to the Electronics Payments Coalition.
Exactly how much money is at stake in revenue for retailers is hard to say and made more difficult to ascertain by the heightened use of electronic payments since the pandemic began.
According to the Nilson Report, U.S. merchants that accepted credit, debit, and prepaid cards as payment paid $116.4 billion in processing fees in 2019, which was up 7.7% from the previous year. Interchange fees charged in the Visa and Mastercard systems are the largest component of total processing fees merchants pay, the Nilson Report said.
Banks and retailers have wrangled over interchange fees for years. In April, two lobbying associations representing merchants in North Dakota sued the Federal Reserve to win a reduction in the fees they pay to banks each time a consumer swipes a debit card, Bloomberg News reported.
In Wisconsin, a bill to prohibit interchange fees on the tax segment of a purchase would amount to an attempted use of government to shift costs from one industry to another, the Electronic Payments Coalition asserts.
The organization says similar bills that have been introduced to state legislatures in the U.S. have been rejected in committees “due to harm to consumers, loss of sales tax revenue, legal deficiencies, and operational hurdles.”
“It has met defeat everywhere,” Miltimore said.
Paul Gores is a journalist who covered business news for the Milwaukee Journal Sentinel for 20 years. Have a story idea? Contact him at email@example.com.