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Wisconsin Legislation To Exempt Taxes From Credit Card Fees

By Misha Lee, MHA Wisconsin Lobbyist

A long overdue debate over credit card swipe fees and taxes has quickly garnered the attention of retailers in Wisconsin. The Midwest Hardware Association (MHA) has joined with several other statewide Main Street merchant groups in support of legislation that would exempt credit card swipe fees on the collection of state and local taxes. Senator Dan Feyen (R-Fond du Lac) and Representative Tyler Vorpagel (R-Plymouth) will be introducing legislation in the coming weeks to try and address some of the inequities that are forced upon the retail sector when it comes to card fees.

Increased online shopping during the COVID-19 pandemic has made swipe fees a much bigger cost burden on retailers. Credit card swipe fees, often referred to as interchange fees, continue to grow unchecked and are now the second largest expense for most retailers, behind only labor costs. Swipe fees in the U.S. are among some of the highest in the world; seven times higher than the average European rate and four times higher than Australia. These swipe fees are invisible to consumers, but glaring to merchants who often end up paying fees of 2 percent or more of their customer’s credit card purchases.

The Merchant Service Charge (MSC), known in the U.S. as the Merchant Discount Rate, is a term given to fees levied on a merchant when accepting a card transaction. The MSC consists of the Interchange fee, Network fee and Processor Margin that are all unavoidable for any merchant accepting payment cards (credit, debit, or prepaid). The interchange fee and network fee are both passed on to the merchant which when added to the processor margin gives the total Merchant Service Charge. The average MSC for retailers in Wisconsin is estimated at 2.29% and interchange fees account for 1.54%, costing Wisconsin merchants approximately $1.2 billion, according to CMSPI, a global retail payments consulting firm that tracks merchant data.

Credit card companies are making more money on every card transaction because the swipe fee is also applied to the tax the retailer is required to collect and remit. Wisconsin merchants collect and remit taxes to the state not because they want or choose to, but because by law as a retail business they are required to. For retailers, it costs money to be the state’s tax collectors and the credit card companies are directly profiting on those collections causing retailers to lose more money because the swipe fee in Wisconsin is included in the collection of state and local taxes.

The legislation being proposed by Sen. Feyen and Rep. Vorpagel would prohibit a swipe fee from being imposed against a merchant on the tax portion of a transaction when a purchase is made from the merchant using a credit card. The bill would also prohibit a swipe fee from being imposed on the portion of any transaction that is a fee imposed by a city, village, town or county. The legislation is a small step in providing some relief to Wisconsin Main Street retailers when they are already overburdened with rising card fees.

The Legislature is expected to hold hearings on the bill sometime following passage of the state budget which will happen either later this summer or in the fall.

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