Inspired by an Illinois law, legislators in multiple states are working to ban card swipe fees on sales tax and gratuities, with proposals pushed by retailers and restaurateurs gaining momentum.

In recent years, merchants of all sizes have decried rising fees for customers’ credit and debit card transactions, propelling the efforts to curb interchange application to portions of consumer payments. Illinois enacted a law in 2024 to eliminate swipe fees on taxes and tips beginning July 1, 2025.

This year, 11 states including California, Colorado, Nevada, Texas and Vermont, are considering bills that carry “the highest threat of enactment,” according to the Electronic Transactions Association, which is hustling to block them. The ETA counts card issuers, processors and networks as members, including Bank of America, Fiserv, Mastercard and Visa.

“We are operating on high alert in all these states,” Scott Talbott, the ETA’s executive vice president, said Thursday. “Bills move quickly in state legislatures so we have to move even quicker.”

This year, lawmakers in 10 other states have effectively scuttled bills seeking to ban swipe fees on taxes and tips, according to the ETA.

“With Illinois passing (a law), that sort of opened the gates and a lot of the state restaurant associations wanted to capitalize on legislation that would help their members,” Brennan Duckett, director of technology and innovation policy for the National Restaurant Association, said Thursday in an interview.

Most of the interchange fee bills remain at the nascent stage of their legislative journey. The most movement, thus far, has been in the Colorado General Assembly. A bill called the “Swipe Fee Fairness and Consumer Safeguards Act,” passed the Colorado House on March 19, moving to the Senate.

Interchange fees “act as an inflation multiplier” by adding as much as 4% in extra cost to consumer transactions, according to the text of the Colorado House bill, or $1,100 per year for the average family. The bill, unlike most of its peers elsewhere, also limits the amount of interchange that can be applied to charitable contributions.

In Illinois, a federal judge has enjoined the Interchange Fee Prohibition Act for national and state banks not based in Illinois and federal savings associations, pending further litigation. The preliminary injunction means that about 90% of card transactions in Illinois won’t be subject to the new law, according to the ETA, which is working to repeal it.

Other states are watching to see how the law fares in court, Duckett said. “Some states have been wary and want to see how Illinois plays out,” he said.

The law will save individual Illinois merchants only about $6 annually in fees but require them to spend “hundreds of dollars for equipment, testing and reprogramming to comply,” according to a sheet the ETA has distributed to Illinois legislators. 

The restaurant association disputes the contention that ending swipe fees on sales tax and gratuities will cost merchants large sums and require new point-of-sale or other equipment. Any necessary changes to accommodate new laws, “can be solved by Visa and Mastercard and other payment card networks” and likely require modest investments by merchants, Duckett said.

The introduction of swipe-fee bills hasn’t followed any particular pattern. The bills have emerged in large states and small ones, urban and rural, and so-called “red” and “blue” states. They’ve also drawn bipartisan support in many state legislatures.

“There isn’t any real kind of partisan divide on where these bills are being introduced,” Duckett said.

Some of the state bills have also removed banks – owing to that industry’s argument in Illinois that federal banking laws preempt state acts – and focus on compelling card networks to achieve the same result, Talbott and Duckett noted, separately.

Swipe fees on sales tax represents “a form of double taxation,” Arizona Rep. Jeff Weninger wrote last month in an article announcing his bill.

“In 2023 alone, Arizona businesses paid over $217 million in swipe fees on sales taxes — a fee on a fee that never should have existed in the first place,” wrote Weninger, a Republican who owns several restaurants in suburban Phoenix. His bill failed a vote in the House March 6. 

The ETA is closely tracking swipe-fee bills in California, Colorado, the District of Columbia, Massachusetts, Nevada, New York, Pennsylvania, Rhode Island, Tennessee, Texas and Vermont, Talbott said.