Interchange fees discussed

The Banking, Commerce and Insurance Committee heard testimony Feb. 24 on a bill that would change the collection of sales tax on cards swiped for purchases at Nebraska retailers.

LB991, introduced by Omaha Sen. Jeremy Nordquist, would prohibit imposition of interchange fees by payment card networks on the sales tax portion of a purchase made using a debit or credit card.

Nordquist said Nebraska retailers and restaurant owners currently must pay a fee to the payment card networks based on the amount of a sale plus applicable sales tax. The result, he said, is that business owners are forced to remit approximately $8.4 million more per year than they collect on a net basis.

LB991 would allow a payment card network to deduct the sales tax portion of a purchase prior to calculating interchange fees. If a credit or debit card terminal is incapable of capturing and transmitting tax amounts to a payment card network, the bill would allow submission of monthly tax payment documents and sales data to the payment card network for a rebate of applicable interchange fees.

Nordquist said that in the past, Nebraska businesses were allowed to retain a small percentage of sales tax collected to offset the cost of interchange fees, but that provision was removed from state law in 2002.

Jim Otto, representing the Nebraska Retail Federation and the Nebraska Restaurant Association, testified in support of the bill. He said the proposal simply would shift the financial burden of collecting sales tax from retailers to credit card companies.

“The point of sale is becoming the popular place to collect everything,” Otto said.

Lincoln business owner Deb Evans-Olson also supported the bill.

“I don’t know of any other tax that businesses are required to collect and remit that results in a net loss for the business,” she said.

Jerry Stilmock of the Nebraska Bankers Association testified in opposition to the bill, saying reliable technology does not exist that would allow retailers and credit card companies to comply with the bill’s provisions.

“I’m not aware that there is any way to separate [the necessary information] at the point of sale now,” Stilmock said.

The bill also would authorize the state attorney general to bring action against payment card networks that have intentionally violated the bill’s requirements and to seek civil penalties of up to $5,000 for each violation. In addition, an individual who is charged interchange fees could bring action to recover actual damages.

The committee took no immediate action on LB991.