Asm. Liz Ortega Introduces Bill to Ban Banks and Credit Card Companies from Marking Up Sales Taxes and Tips

SACRAMENTO - Assemblymember Liz Ortega (D–San Leandro) today introduced Assembly Bill 1065, which would close a loophole that allows credit card companies to charge extra fees on the sales taxes that every other business is required by law to collect, account for, and remit at no cost to the state.

“It’s absurd to require businesses to collect and track taxes at their own expense while allowing credit card companies to mark up those same taxes for a profit,” said Assemblymember Ortega. “AB 1065 will close that loophole and provide some economic relief to our small businesses and their customers. And while we’re at it, we should stop them from making a profit on the tips customers give to workers who serve them.”

State law requires businesses to collect and remit sales taxes and tips, at their own expense, as a condition of doing business. Credit and debit card companies charge businesses a “swipe fee”—usually 2 to 4%—for using their network, even on taxes and tips. “Businesses must absorb these fees, and the added expense often gets passed on to customers, even when the customer leaves a tip for good service,” says Assemblymember Ortega.

“Every time you swipe your credit card, financial institutions get a percentage,” said Assemblymember Ortega. “But Visa and Mastercard also get to take a percentage of funds that the business isn’t even keeping. It’s like businesses are paying a private tax for collecting the government’s taxes. It’s both an inequity and absurdity.”

Those little charges add up. In 2023, California merchants paid $1.7 billion in swipe fees on sales tax alone.

AB 1065 closes this loophole by prohibiting swipe fees on taxes and tips, saving retailers and other merchants money. The savings can’t come soon enough for some business owners. 1 "As an independent grocer, I can tell you that every cent counts for both us and our shoppers,” said Michel LeClerc, Chief Administrative Officer of North State Grocery – an independent, employee-owned grocer – and California Grocers Association Board Chair. “Swipe fees are a particularly egregious example of the many hidden costs that make sustaining a small business and affording daily life a serious challenge in California. The grocery community urges legislators to take a stand against junk fees that favor Wall Street over working Californians."

The average profit margin for US retailers is 3 to 9 percent. For grocers, the margin is only 1.6%. By contrast, profit margins for Visa and MasterCard are near 50%. The two companies effectively control the US market, accounting for over 80% of payment processing. In 2021, retailers paid a total of $137.8 billion in credit and debit card processing, a 25% increase from the previous year.

The impact of high swipe fees on small businesses has been a focus of national bipartisan concern over the impact of monopoly power in the US economy. Last November, in a U.S. Senate hearing about a proposed law to break up the credit card monopoly, Sen. Josh Hawley [R-Missouri] noted that while large retailers like Walmart can negotiate lower fees, small businesses have little power when setting terms with the big credit card monopolies. The exchange, captured on C-SPAN, went viral.

The state of Illinois recently passed a law similar to AB 1065, the Interchange Fee Prohibition Act, which prohibits credit card companies and banks from charging swipe fees on the portions of transactions that include state or local taxes and gratuities. That law takes effect July 1, 2025.

Asm. Ortega and the bill’s sponsors will be hosting a press conference on Tuesday, March 4th at 10 AM at the State Capitol. A press advisory with more details will be shared soon.