Colorado Advances a Measure to Eliminate Interchange Fees on Sales Tax

Why It Matters

If enacted, the law could shift millions of dollars back to Colorado’s local economy but also force the payments ecosystem to redesign transaction flows, creating uncertainty for issuers, acquirers, and consumers.

Key Takeaways

• Colorado bill targets $217.5M annual sales‑tax interchange fees.
• Applies only to banks with $60B+ assets, not all institutions.
• Implementation could wait until 2028, unless voters approve referendum.
• Merchants cheer; processors warn of costly system overhaul.

Pulse Analysis

The United States has long grappled with the opaque nature of interchange fees, the charges that merchants pay to card‑issuing banks each time a consumer swipes a credit or debit card. Colorado’s latest proposal seeks to carve out the sales‑tax component of a transaction, effectively eliminating the portion of the fee that is calculated on tax dollars. By targeting only institutions with $60 billion or more in assets, the bill narrows its reach compared with Illinois’ statewide ban, which applies to all banks and also excludes tips. The legislation is slated for possible implementation on Jan. 1, 2028, subject to a future voter referendum.

Supporters, led by the Merchant Payments Coalition, argue that the $217.5 million in annual interchange fees tied to sales tax is an unnecessary cost passed to consumers, and that redirecting those funds to local businesses could boost Colorado’s economy. Small‑business owners see the measure as a way to keep more revenue in‑state, while consumer‑rights groups highlight the potential for lower checkout prices. Conversely, the Electronic Payments Coalition warns that the required system changes do not exist, risking transaction failures, higher operational expenses for banks, and possible disruptions to rewards programs that many shoppers rely on.

The Colorado effort reflects a growing wave of state‑level attempts to regulate card‑network fees, with similar bills emerging in Pennsylvania and Delaware. While the intended savings are clear, the practical challenges—such as re‑engineering payment gateways and ensuring compatibility with out‑of‑state cards—could spark legal battles and delay adoption. Industry analysts caution that diverting resources toward compliance may stifle innovation in contactless and digital‑wallet technologies. Stakeholders will be watching Governor Polis’ decision closely, as his response could set a precedent for how other jurisdictions tackle interchange fee reform.