Tennessee retailers push for compensation for collecting sales taxes on credit card payments

Apr. 24—A Tennessee bill that would have created what some merchants say is fairness in what they pay credit card companies in swipe fees has led to talk of compensating businesses for collecting sales taxes.

The swipe fee fairness bill, which would remove a fee merchants pay that credit card companies put on state and local sales taxes when a consumer makes a buy, has stalled in the current legislative session, said Rob Ikard, president and chief executive of the Tennessee Grocers & Convenience Store Association.

With stiff opposition from banks and credit card companies, Ikard said the bill was put on hold, but plans are to regroup and press the issue again in 2022.

"We took a step back and will engage our grass roots between now and next January," he said.

However, during the discussion, the idea arose of compensating businesses for collecting state sales taxes, Ikard said.

He said most states provide such compensation to merchants, and Tennessee did so before that was phased out in 2000 amid a financial crunch.

Some in the banking community believe it would be more fair to restore vendor compensation, Ikard said. He said one influential state senator, whom he wouldn't name, suggested he'd champion the idea.

"It would be a big deal if Tennessee going forward would use the ongoing surplus in tax collections to compensate merchants in a significant way," Ikard said.

Tennessee Gov. Bill Lee has proposed using the state's surplus tax collections to fund a $100 million, two-week sales tax holiday on restaurants, bars and groceries to aid the hospitality industry hard hit last year by the pandemic. But the governor has not offered any proposals on credit card fees paid by merchants.

The Tennessee Bankers Association said it stands "very much opposed" to the swipe fee bill becoming law.

"It would affect any financial institution, banks and credit unions," said Amy Heaslet, the group's executive vice president and general counsel, adding that the bill would be impractical to implement.

State Rep. David Hawk, R-Greeneville, who introduced the swipe fee measure, has cited a 4% number as compensation to merchants for collecting sales taxes, Ikard said.

Hawk, who had raised the issue of fairness in the swipe fee measure, added that many businesses "are going backwards" in being able to meet their financial obligations particularly during the pandemic.

Ikard said a lower figure, such as 2.5%, also has been suggested, and it could be "a fair number to land at."

At the same time, the potential cost could be significant to the state budget in terms of several hundred million dollars to compensate vendors.

Ikard said conversations could start after the current legislative session ends.

"We haven't tried to advance the conversation. They've got so much on their plate this year," he said.

But Ikard said plans are to likely try to move both swipe fee fairness and vendor compensation on two different tracks.

"If there's significant enough vendor compensation restored, I could see that offsetting the pain that swipe fees cause Tennessee merchants," he said.

When a buyer makes a purchase using plastic, the credit card company or issuing financial institution charges a swipe fee, often 2% to 4%, to the merchant. Currently, the fee is charged not only on the cost of the goods but on the state and local sales taxes on the purchase.

The bill would remove the fee on the tax amount, or the financial institution would be required to issue a rebate back to the retailer, its backers said.

That measure has arisen as more people than ever are making purchases using credit cards during the pandemic.

Steve Smith, president and CEO of grocer Food City, said that well over 70% of transactions at retailers now are by consumers using credit or debit cards, up from 60% before the pandemic.

"It would let Tennessee businesses keep the money at home and it not going off to banks," he said. "It would help people reinvest in businesses to create more Tennessee jobs."

Contact Mike Pare at mpare@timesfreepress.com. Follow him on Twitter @MikePareTFP