Bill targeting interchange fees could harm small businesses, consumers

Businesses scramble to keep up with consumer shifts.

A measure that supporters say will stick it to “woke” banks may end up benefiting big business at the expense of mom and pop institutions.

Sponsored by Sen. Travis Hutson and Rep. Mike Caruso, the bills (SB 564, HB 677) target the processing fees credit card issuers charge retailers every time a card is swiped.

Processing fees, known in the financial industry as “interchange fees,” are levied by credit card issuers against vendors to cover the costs of a transaction. They typically range in size between 1% and 3% of the transaction total.

That includes sales taxes, which has caught lawmakers’ attention. Hutson described it as a “tax on a tax,” and his bill would block card issuers from charging interchange fees on the sales tax portion of a transaction.

The Northeast Florida Republican has pitched the bill as a way to put money back in the pockets of small-business owners.

However, some small businesses say the proposal would do more harm than good.

The hurdle comes when comparing the amount a business would save with the amount it would cost to implement a system informing card issuers of what portion of the transaction is exempt from interchange fees.

Assuming a 7% sales tax — the state average — and a 3% interchange fee, a retailer would need to sell $500 in taxable merchandise to save a dollar. If a business recorded $1 million in taxable sales over the course of a year, it would save $2,100. If the interchange fee were closer to 1%, they’d save about $700.

That may not be an insignificant sum, especially for businesses selling low-margin products. But according to small business owner and First Commerce Credit Union Chief Information Officer Justin Hof, the implementation cost would be substantial. The burden would be borne either by small businesses through reduced profits, or the consumer through higher prices.

“We’ve spent … some $100,000 in sales tax. I went and calculated back how much we would save with this bill and it equates to about $400 a year,” he told members of the House Commerce Committee this week.

“In order for us to change out the code we have for our online storefront, it is going to cost thousands, plus on top of that, the annual maintenance fee that’s going to be used to maintain it. So, from that perspective, not only will it hurt on the consumer side, it will hurt on the small business side as well, where the only real benefits of this bill would be on the large retail, big box chain.”

Hof’s committee testimony lines up with reports that Walmart is pushing the interchange fee exemption in statehouses across the country. And Walmart would save millions if successful.

Some barstool math: using the company’s $420.5 billion in U.S. sales last year, the national average sales tax of 5.1% and an interchange fee of 3%, the company would save more than $600 million a year if sales taxes were exempt from the fee nationwide. In Walmart’s case, the implementation cost would be a pittance.

Coincidentally, the GOP-controlled Legislature’s assent to this proposal would provide a multimillion-dollar boon to one of the largest corporate backers of “diversity, equity and inclusion” programs. DEI, like ESG (environmental, social, and corporate governance) and CRT (critical race theory), is one of the three-letter boogiemen that lawmakers and the Governor say is driving their action on culture-war issues.

Reports claim Walmart has approached public schools (including those in its home state of Arkansas) about hosting diversity training for teachers. The curriculum allegedly emphasizes that “all our systems, institutions, and outcomes emanate from the racial hierarchy on which the United States was built.”

Florida Republicans have OK’d legislation during the DeSantis era that bans workplace training that could make any employee feel guilty about their race, under the auspices that acknowledging the racial components of chattel slavery makes White people feel bad.

It appears the retail giant will get its wish, however.

Caruso’s bill cleared the Commerce Committee last week and is teed up for a vote on the House floor. Hutson’s bill is awaiting a hearing in Rules, its final committee reference before it heads to the full Senate.