Illinois Passes Bill Eliminating Swipe Fees on Taxes and Tips

The Interchange Fee Prohibition Act is a victory for retailers.

May 30, 2024

The Illinois state legislature passed its budget bill this week, and it includes a provision that prohibits swipe fees on sales taxes, state excise taxes and gratuities. While other states have considered this type of legislation, this is the first time it has passed into law, marking a notable victory for retailers seeking relief from swipe fees.

The Interchange Fee Prohibition Act was included as part of the state’s budget, which was passed by the state’s legislature earlier this week. Illinois Governor J.B. Pritzker has indicated he will sign the bill.

As part of Pritzker’s budget proposal, he included a provision to cap the tax discount claimed by retailers at $1,000 a month, which would generate more revenue for the state but at the expense of Illinois retailers. In response, the merchant groups negotiated inclusion of the Interchange Fee Prohibition Act, as explained by Crain’s Chicago Business reporter Leigh Giangreco, who has been covering the bill, on WGN Radio’s Your Money Matters segment.

The Interchange Fee Prohibition Act will allow retailers to receive reimbursement for swipe fees paid on taxes and gratuities. Retailers provide a service to the state by collecting taxes, yet the swipe fee system penalizes them for providing this service. When a customer uses a credit card in a store, the bank that issued the card collects a swipe fee from the retailer off the total amount, including the sales tax. However, the tax portions are not funds that the retailer pockets but fully remits to state or local government. This means retailers must go into their own pockets to make up for the taxes that the credit card industry takes away from them during the transaction process. Illinois retailers will finally see some relief given the new law.

On the federal side, Senator Dick Durbin of Illinois has been leading the charge on swipe fee reform, championing debit reform in 2010 and introducing the Credit Card Competition Act, which would introduce needed competition on credit card payments. NACS continues to work with him and our other champions to push for passage of the legislation. NACS members are encouraged to reach out to their members of Congress and ask that they support the Credit Card Competition Act. NACS makes it easy for retailers and suppliers to send a message to their legislators via the NACS Grassroot Portal.