Colorado Veto: Swipe Fees on Sales Tax and Credit Card Policy

Colorado Gov. Jared Polis rejected a proposal to bar payment card networks from charging interchange on the sales-tax line of card purchases, citing implementation risks and potential disruption, as industry coalitions split over the decision and federal preemption complicates similar efforts in other states.

Dive Brief

• Gov. Jared Polis vetoed Senate Bill 26-134, a measure designed to stop payment card networks from applying an interchange fee to the separately stated sales-tax portion of credit and debit transactions. Cards issued by banks with under $60 billion in assets would have been exempt, and the bill’s primary goal was to reduce swipe costs tied specifically to sales-tax amounts.
• Despite Democratic sponsors and majorities in both chambers, Polis declined to sign. In an explanatory letter, he said some aims were reasonable but questioned the net benefit, noting delays tied to litigation over a comparable Illinois statute.
• Risks for business climate.
• Risks for consumers.
• Potential confusion for small businesses.
• Potential confusion for tourism sector.
• Potential confusion for everyday card use.

Dive Insight: Implications for Small Businesses

The Democrat-led Colorado General Assembly advanced the measure last month. The Colorado House approved it 44–20 on May 6, and the Senate narrowly passed Senate Bill 26-134 by an 18–17 vote on May 1, according to legislative records. With the governor’s veto, the measure does not take effect unless lawmakers override it under the state’s legislative process.

CO HB1282 refers to a separate Colorado House bill designation and is not the same measure as Senate Bill 26-134, which was the interchange-fee bill Polis vetoed. In this episode, HB1282 did not become law through the vetoed Senate bill’s process.

Polis praised lawmakers’ work and said the payment card network sector is ripe for disruption, but he argued that a national fix would be more appropriate. He added the policy might never take effect, pointing to federal resistance to Illinois’s Interchange Fee Prohibition Act, which also sought to remove fees from the tip portion of transactions.

Last month, the Office of the Comptroller of the Currency issued an interim final rule intended to preempt the Illinois statute.

The governor also questioned how processors would implement a Colorado-only rule inside a global electronic payment ecosystem. He raised concerns about the technical challenge of separating taxable and non-taxable amounts consistently across card types, payment flows, and point-of-sale configurations.

Supporters framed the bill as a targeted way to stop swipe costs from being assessed on money that is ultimately remitted as tax, arguing that the change could reduce merchants’ acceptance costs and, in turn, ease price pressure for shoppers. Opponents said a state-specific rule could be difficult to execute at the network and processor level, create operational complexity for merchants at checkout, and trigger legal uncertainty given federal preemption questions.

Electronic Transactions Association chief executive Jodie Kelley said the veto preserves the payment infrastructure Coloradans depend on daily and averts higher costs and disruption statewide.

The Electronic Payments Coalition argued the proposal would have created unworkable mandates and required credit and debit cards to function differently in Colorado than almost anywhere else.

Banks and credit unions likewise praised the decision and faulted retailers for backing curbs on interchange. America’s Credit Unions chief executive Scott Simpson said eliminating such fees would tilt the payments system toward large retail chains at consumers’ expense.

The American Bankers Association used the veto to caution other states weighing similar measures, pointing to a federal court decision in Illinois this week as further evidence that such attempts are misguided, American Bankers Association President Rob Nichols said.

Interchange is a card-acceptance pricing component that is typically set on a schedule and varies by factors such as card type, transaction method, and risk controls. In a standard card purchase, the transaction moves through authorization, clearing, and settlement, with fees netted as funds are transferred among the participants in the payment flow.

Interchange is the pricing schedule embedded in card acceptance, and it shapes how costs and incentives are allocated across the payment process.

• Issuing banks collect interchange fees.
• Networks (e.g., Visa, Mastercard) collect routing fees.
• Merchants pay these fees.
• Merchants advocate for lower fees.
• Allegations of monopoly power by major networks.

Unsurprisingly, merchant coalitions expressed disappointment with Polis’s action.

Doug Kantor of the National Association of Convenience Stores, speaking for the Merchants Payments Coalition, said the veto leaves small businesses and consumers paying inflated, price-fixed swipe charges not only on purchases but also on top of sales taxes, denying Coloradans more than $200 million annually in potential lower prices.

The coalition estimates that residents pay $217.5 million each year in swipe costs tied to the sales-tax component of transactions. If the bill had taken effect as intended, merchants projected a reduction in swipe costs attributable to tax amounts, while opponents anticipated new compliance and systems costs that could offset or delay any pass-through to shoppers; the state, meanwhile, would have faced implementation and enforcement complexity without directly changing tax rates or tax collections.

The group has also decried the broader burden on retailers and restaurants, citing Nilson Report figures that combined credit and debit interchange added $198.25 billion to United States receipts last year, roughly 6% higher than $187.2 billion in 2024.

The Merchants Payments Coalition continues to push for federal legislation on card-fee policy, but the Credit Card Competition Act has stalled in Congress despite bipartisan sponsors and backing from President Donald Trump.

In Colorado, supporters have signaled they may revisit a revised approach in a future session, while opponents have urged lawmakers to avoid state-by-state requirements and focus on national standards. Beyond Illinois, similar swipe-fee and tax-line proposals have been floated in other states, with progress varying and legal questions—particularly around preemption—often shaping whether those efforts move forward.