ISSUE: Should retailers and other sales tax collectors be required to subsidize the state of Florida by paying credit card transaction / interchange fees on sales taxes collected as part of a credit card purchase transaction.

DISCUSSION: A commercial entity may not charge a surcharge to any customer electing to use a credit card instead of cash. Therefore, all commercial credit card transactions are subjected to the transaction / interchange fees, which can be as high as 2.5 percent of the entire amount of the transaction processed – the fees are usually calculated on the total transaction, which includes any applicable sales taxes.

When the credit card transaction is settled and funds are distributed to the merchant’s account, the transaction processing fee is subtracted from these funds, causing the net distribution to be reduced by the transaction fee charge, usually a percentage of the entire amount of the transaction. However, when the merchant files his or her sales and use tax return, the entire amount of the sales tax collected on the sale of the item is expected to be remitted to the state -- even though the sale was made by credit card and the assessed percentage of the transaction processing fee has been deducted from the tax collected. This results in retailers and other sales tax collectors having to make up the difference between the actual amount of tax dollars collected, and the total amount of tax due to the state on the sales transaction. The state receives 100 percent of taxes due, even though the retailer only has 97.5 percent of the actual cash received for the tax collection. This situation results in a cash subsidy to the state of Florida on all sales taxes collected as a part of a credit card transaction.

Currently, the state of Florida authorizes a governmental entity to accept credit cards for the payment of taxes or fees with the addition of a “convenience fee” surcharge. This surcharge is imposed to offset the transaction / interchange fees associated with processing the transaction, which guarantees that the governmental entity receives the total amount of the tax or fee, not a discounted amount resulting from the transaction fee assessment. The provision in the credit card companies’ master processing agreement which allows for this treatment, however, does not allow a commercial entity to implement the treatment.

POSITION: The Florida Retail Federation supports legislation that would allow a retailer or other sales tax collector to be held harmless for any credit card transaction fees that may be applied to any sales tax collected as part of a credit card transaction.