Asm. Liz Ortega Introduces Bill to Ban Banks and Credit Card Companies from Charging Fees on Sales Taxes

SACRAMENTO - Assemblymember Liz Ortega (D–San Leandro) today joined with small business owners to announce 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.

SEE VIDEO OF PRESS CONFERENCE HERE.

“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.”

Asm. Ortega and the bill’s sponsors, the California Grocers Association, California Fuels and Convenience Alliance and the American Petroleum and Convenience Store Association, hosted a press conference at the Capitol today to announce the bill, which will be heard in the Assembly Judiciary Committee on Tuesday.

State law requires businesses to collect and remit sales taxes, at their own expense, as a condition of doing business. Credit and debit card companies charge businesses a “swipe fee”—on average 3%—for using their network, including on sales taxes. “Restaurants are the single largest source of sales taxes in California. 3% of what they collect funds local public safety and K-12 education. Asking them to collect the taxes that fund our local services―and then absorb another 3% on top of that is absurd, and the added expense often gets passed on to customers,” 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 bill will be heard in the Assembly Judiciary Committee on Tuesday. The savings can’t come soon enough for some business owners.

"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.

SEE VIDEO OF PRESS CONFERENCE HERE.

Asm. Ortega can be available for comment in both English and Spanish. Contact MV Watson: 210-667-5046 or Veronica Lopez at 951-520-7386.