Alabama SB221: How Credit Card Surcharges Affect Your Sales Tax

Most Alabama retail owners assume that when they pass credit card processing fees to customers as a line-item surcharge, those fees get taxed just like the rest of the sale. They don't. And starting September 1, 2026, Alabama law will formally exclude those surcharges from the sales and use tax base—a distinction that directly reduces your tax liability on those amounts.

What the Law Does

Alabama's SB221, signed into law to address taxation of credit card transaction fees, contains a provision in Section 1(b) on Page 2 that excludes credit card surcharge fees from the taxable sales price. Here's what that means in plain terms:

When you charge a customer a separate, itemized fee to cover interchange costs or credit card processing expenses, that fee amount will not be included in the total sales price subject to Alabama sales and use tax. You'll still collect and remit sales tax on the actual merchandise or service price—but not on the surcharge itself.

For example: if a customer buys $100 in goods and you add a $3 credit card processing surcharge, you calculate sales tax on $100, not $103. The $3 surcharge is excluded from the tax base.

Who This Affects

This provision applies to any Alabama retailer who currently passes credit card processing fees to customers as a separate line item on the receipt or invoice. It's most common in:

• Convenience stores and gas stations
• Restaurants and bars
• Automotive and service businesses
• Specialty retailers with high-ticket transactions

If you absorb processing fees into your overall pricing rather than itemizing them separately, this change won't directly affect your tax calculation—but understanding the rule helps clarify your compliance obligations.

What You Need to Do

The effective date is September 1, 2026. Before that date, review your current point-of-sale system and accounting practices:

• Check your receipts: Do you itemize credit card surcharges separately from the sale price?
• Update your POS system: Ensure your software can exclude surcharge amounts from the taxable sales total when calculating tax due.
• Train staff: Make sure employees understand the distinction between taxable and non-taxable portions of transactions.
• Review your tax filings: Starting with returns filed after September 1, 2026, you'll report surcharge amounts separately on your sales and use tax return.

If you're unsure whether your current system handles this correctly, contact your POS provider or accountant now. The transition period gives you time to prepare without rushing.

The Bottom Line

This is a tax reduction, not a new requirement. For retailers already charging itemized surcharges, SB221 simply clarifies that those fees don't add to your tax burden. It's a modest but real benefit—and one worth understanding before the September 2026 effective date arrives.

Source: Alabama SB221, Section 1(b), Page 2. For detailed guidance specific to your business, consult your accountant or the Alabama Department of Revenue.