Senate Bill 221 sparked debate in the Alabama Senate on Thursday over whether credit card transaction fees should be exempt from sales and use tax in the state.
The bill’s sponsor, State Senator Arthur Orr, R-Decatur, explained on the Senate floor that Alabama currently lacks an official law dictating whether credit card transaction fees—charged by some merchants to offset interchange fees when making sales—should be subject to state or local sales and use tax. Orr argued that while some localities currently charge sales and use tax on such fees under the policies of the Alabama Department of Revenue, they should be barred from doing so moving forward under SB221.
“What this bill does is bring law to an area where there is no law,” Orr said. “Currently, there is no administrative law or rule—there’s no statute that gives [municipalities] this authority to tax the service fee. They’re just doing it under policy of the Department of Revenue, which doesn’t pass muster when you get audited.”
“So I would tell all the municipalities out there that are so bent out of shape about this bill, that when your auditor comes, you really don’t have a leg to stand on,” Orr added.
Senator Rodger Smitherman, D-Birmingham, went on to challenge Orr’s bill, arguing that localities who apply sales and use tax to credit card service fees have done nothing wrong in operating under ALDOR policy, and that they should not be stripped of a significant revenue stream.
“We have cities who are operating, getting the revenue from this procedure, and [there is] nothing wrong with that because that field has not been addressed,” Smitherman said. “Now we want to come back and exclude them, where they’ve been able to get revenue to provide for their budgets in the cities.”
“That’s what this bill does, it takes revenue away from the cities—and the counties, I’m sure,” the senator added.
Smitherman also argued that it was hypocritical of Republican lawmakers to demand that cities like Birmingham increase their budgets for law enforcement while simultaneously stripping them of the revenue needed to implement those increases. To that end, Smitherman introduced an amendment that would exclude Class 1 municipalities from the bill—Birmingham being the only Class 1 municipality in Alabama.
“Leave Birmingham alone,” Smitherman declared.
Smitherman continued to rally against the bill before the body for around 15 minutes, arguing that it would also be unfair to strip municipalities of one revenue stream without finding an alternative source of revenue to replace it with.
Orr ultimately relented and asked for SB221 to be carried over so that he could try to reach a compromise with Smitherman, with neither the bill nor Smitherman’s amendment receiving a vote. It is unclear when SB221 could return to the Senate calendar for a potential vote in the future.
