Most Alabama retailers don't realize a new state law is about to change how they calculate sales tax on credit card surcharges.
Most Alabama retail owners assume that every dollar a customer pays—including any credit card surcharge you pass through to them—gets taxed the same way. That's about to change.
Starting September 1, 2026, Alabama retailers who charge customers a line-item surcharge to cover credit card interchange fees will no longer owe sales tax on that surcharge amount. The change is written into Senate Bill 221, a tax measure signed into law that quietly reshapes how the state's sales tax base is calculated for merchants who use this fee structure.
Under Section 1(b) of SB221 (found on Page 2 of the bill), credit card transaction fees that are passed through to customers as a separate, itemized charge are excluded from the sales tax calculation. In practical terms: if a customer's purchase totals $100 and you add a $3 credit card surcharge as a line item on the receipt, you now calculate sales tax only on the $100—not on the $103.
This is different from how surcharges are treated today. Currently, the surcharge is part of the total transaction amount subject to Alabama's sales tax rate. The new law strips it out.
This provision applies to retailers who already pass credit card fees to customers as a visible, separate line item on the transaction. If you absorb interchange fees into your pricing or don't currently charge surcharges, this change won't directly impact your tax filing.
However, if you do charge surcharges—whether for all credit card transactions or only certain card types—you'll need to adjust how you report sales to the Alabama Department of Revenue starting in fiscal year 2027.
The effective date is September 1, 2026, which gives you roughly 18 months to prepare. That's enough time to review your current surcharge practices and, if necessary, work with your accountant or bookkeeper to understand how the change affects your specific situation.
The fiscal note attached to SB221 confirms this is a genuine tax provision, not a proposal or pilot program. It's law, and it takes effect as written.
If you're currently charging surcharges, you may want to:
• Review your point-of-sale system to confirm it can separate surcharge amounts from taxable sales
• Talk to your accountant about how to report the change when filing sales tax returns after September 1, 2026
• Check whether your current surcharge disclosure complies with state law (disclosure requirements are separate from this tax change)
The law doesn't require you to change your pricing or surcharge practices—only how those surcharges are taxed. But understanding the shift now means you won't face surprises when the fiscal year turns over.
For a more detailed breakdown specific to your business structure, the Alabama Retail Association and your local chamber of commerce have resources available.