Following a public hearing Wednesday, the Alabama House Ways and Means Education Committee voted to advance Senate Bill 221, legislation that would exclude credit card transaction fees from sales and use tax in the state.
Currently, merchants who charge credit card transaction fees to offset interchange fees when making sales must pay sales and use tax on those fees under Alabama Department of Revenue policy. But the Legislature has never passed a law clarifying whether those fees should be taxed. Under SB221, sponsored by Senator Arthur Orr, R-Decatur, those fees would be exempt from sales and use tax moving forward.
Rosemary Elebash, Alabama director of the National Federation of Independent Business, spoke in favor of the legislation at Wednesday’s public hearing, arguing that the bill would provide needed statutory clarification.
“Our position is there should be no sales tax [on credit card transaction fees],” Elebash told the committee. “No statute has been passed, no rule has been implemented. We don’t operate on policy, so there should be no sales tax on the transaction fee of a credit card.”
Neal Morrison, a former member of the Alabama House of Representatives and current director of governmental and legislative affairs for the Petroleum and Convenience Marketers of Alabama, also spoke in favor of the bill, calling it a measure that would reduce costs for both small businesses and consumers.
“We probably have less than 3 percent of our association members that even [charge transaction fees], but it’s just a precedent that’s being set and we want to back all small business people in the state of Alabama,” Morrison told the committee.
“But I would just ask for you to think about not only the small business people, but your constituents because they are the ones that have to pay that extra money, and they’re struggling right now and it’s very tough on them,” he added.
Morrison also echoed Elebash’s concerns about the lack of statutory clarity and the fact that the Department of Revenue, not the Legislature, currently dictates transaction fee policy.
“The other thing that bothers me as a former member is, be cautious when a state agency starts doing things on their own without getting y’all’s blessing,” Morrison said. “Y’all are the ones being elected by the people of the state of Alabama.”
Baker Allen, director of governmental affairs for the Alabama League of Municipalities, was the only opponent to speak against SB221. Allen argued that the bill would harm municipal revenue and frustrate the functions of local government.
“The league and its members are opposed to Senate Bill 221,” Allen told the committee. “This bill would provide that the credit card transaction fee is excluded from sales and use tax calculation on the price of goods purchased by credit card or debit card.”
“A concern, notably, is that the fiscal note isn’t able to provide an estimate,” he continued. “However, an estimate from Huntsville shows that fiscal impact could be up to $4.6 million based on fiscal year 25 revenues. The state doesn’t allow for any other expenses to be deducted from sales tax calculation, such as check cashing fees.”
Allen also said no other state has such an exemption for credit card transaction fees and argued that a tax on those fees should not be considered a labor or service tax because “you can’t go into a store and buy a credit card transaction fee.”
“It’s expensive to provide essential services such as providing resources to first responders, investing in economic development projects, and facilitating quality of life programs,” Allen added. “Whittling away sales tax revenue decreases the opportunities to provide those services.”
After the public hearing, the committee sided with the bill’s supporters and passed SB221.
The Senate already passed the bill, so it now needs only House approval before it can go to Governor Kay Ivey’s desk. If signed into law, SB221 would take effect September 1, 2026.
