Colorado Slashes Merchant Costs: Understanding the New Credit Card Swipe Fee Law
For years, small business owners in Colorado have grumbled about “swipe fees”—those slicing percentages that banks and payment processors shave off every credit card transaction. While merchants can’t eliminate these fees entirely, a significant legislative win has arrived to soften the blow. Governor Jared Polis has signed HB24-1352 into law, a move designed to reduce the financial burden on merchants by removing sales tax from credit card interchange fees.
This isn’t just a technical accounting change; it’s a targeted effort to keep more capital in the hands of local entrepreneurs. By shifting how these fees are taxed, Colorado is attempting to lower the overhead costs of doing business in an increasingly cashless economy.
What Exactly Are “Swipe Fees”?
To understand why this law matters, you first have to understand the machinery of a payment. When a customer swipes a card, the merchant doesn’t receive the full purchase price. Instead, a portion—the interchange fee—is taken by the issuing bank. These fees cover the risk of fraud and the cost of maintaining the payment network.
For a small coffee shop or a boutique bookstore, these fees can eat into thin margins. When the state applies sales tax to the total transaction, the way those fees are handled can create an unnecessary tax drag on the merchant’s bottom line. HB24-1352 addresses this specific friction point.
Breaking Down HB24-1352: How It Works
The core of the new legislation is the removal of sales tax from the merchant discount fees (the “swipe fees”). Previously, the tax structure often resulted in merchants paying taxes on the gross amount before the fees were deducted, or failing to receive relief on the cost of the transaction processing itself.
By exempting these fees from sales tax, the Colorado General Assembly is effectively lowering the cost of accepting digital payments. This means that for every transaction, the “tax on the fee” is eliminated, allowing the merchant to retain a slightly larger slice of their revenue.
Why This Matters for Colorado Small Businesses
In a high-inflation environment, every basis point counts. While the savings per transaction may seem nominal, the cumulative effect for a high-volume business is substantial. Here is how this impact manifests:
- Improved Cash Flow: Reducing the tax burden on processing fees keeps more liquid cash in the business daily.
- Price Stability: When merchants pay less to process payments, they are less likely to pass those costs onto consumers through “convenience fees” or higher menu prices.
- Competitive Edge: This provides a modest but meaningful advantage to local brick-and-mortar stores competing against giant e-commerce platforms that have more leverage to negotiate lower interchange rates.
The Bigger Picture: A National Trend?
Colorado isn’t acting in a vacuum. There is a growing national appetite to rein in the power of the “duopoly” (Visa and Mastercard). At the federal level, the Credit Card Competition Act has been debated in Congress, aiming to give merchants more choices in how they route transactions to lower costs.
Colorado’s approach is a pragmatic, state-level solution. Rather than trying to cap the fees themselves—which often leads to protracted legal battles with banking lobbyists—Colorado is using the tax code to provide relief.
- The Law: HB24-1352 removes sales tax from credit card interchange fees.
- The Goal: Reduce operating costs for small businesses and merchants.
- The Result: Lower overhead for digital transactions and a reduction in “hidden” tax costs.
- Status: Signed into law by Governor Jared Polis.
Frequently Asked Questions
Will this lower the price of goods for consumers?
While the law doesn’t mandate price drops, it removes a cost driver. Merchants who were considering raising prices to cover processing fees may now find they don’t need to.
Do I need to change my Point of Sale (POS) system?
Most of the adjustment happens at the accounting and state tax filing level. However, merchants should consult with their accountants to ensure they are correctly applying the tax exemption under the new law.
Does this eliminate the swipe fee entirely?
No. The banks still collect their interchange fees. The law simply ensures that the state isn’t adding a sales tax burden on top of those fees.
What’s next for Colorado merchants?
As this law takes effect, the focus will shift toward implementation. Business owners should monitor communications from the Colorado Department of Revenue for specific guidance on how to report these transactions to maximize their savings.
HB24-1352 is a victory for the “Main Street” economy. By trimming the fat from payment processing, Colorado is making it slightly easier for local businesses to thrive in a digital-first world.