A provision in Alabama's SB221 lets merchants reduce taxable sales when they pass card fees to customers—but only if structured correctly.
Most Alabama retail owners don't realize that how they handle credit card fees can directly shrink their sales tax liability. A provision buried in SB221 makes this official starting September 1, 2026, but the mechanics matter.
Under Section 1(b) of SB221, when a merchant charges a customer a separate, line-item surcharge to cover credit card interchange fees, that surcharge amount is excluded from the sales price used to calculate sales and use tax. In plain terms: the fee doesn't count toward your taxable sales base.
This is significant because it directly reduces the dollar amount on which you owe state and local sales tax for every card transaction where you pass the fee through.
The provision applies to merchants who currently charge customers a separate surcharge for paying by credit card. If you absorb card fees into your regular pricing, this doesn't change your situation. If you itemize the fee as a distinct line item on the receipt or invoice, this law gives you a tax advantage starting in fiscal year 2027.
The exclusion applies to both sales tax and use tax calculations.
Credit card interchange fees have grown steadily over the past decade. For high-volume retailers—restaurants, gas stations, quick-service operations, and e-commerce businesses—these fees represent a real cost. Being able to exclude a separately charged surcharge from your taxable sales base reduces your overall tax remittance without changing your revenue or customer pricing structure.
The tax savings compound across thousands of transactions. A retailer processing $100,000 in monthly card sales with a 2.5% surcharge would exclude $2,500 monthly from the taxable base—reducing tax owed by roughly $150 to $200 per month, depending on your local rate, or $1,800 to $2,400 annually.
Effective date: September 1, 2026 (Fiscal Year 2027)
Legal reference: SB221, Section 1(b), Page 2
The law is clear that the surcharge must be presented as a separate, identifiable charge to the customer. Bundling the fee into your listed price doesn't qualify. The distinction matters for compliance.
If you're already charging card surcharges, make sure your point-of-sale system and accounting records clearly separate the surcharge from the base sale price. When you file sales tax returns after September 1, 2026, you'll need to document which portion of your sales revenue is surcharge and exclude it from your taxable sales calculation.
If you're considering implementing a surcharge to offset card processing costs, this provision makes the math work better. Consult your accountant or tax advisor to ensure your system captures the data correctly for tax reporting.
The Alabama Retail Association and your local chamber of commerce have published detailed compliance guides for members. Your tax professional can also walk you through the mechanics specific to your business structure.
Source: Alabama SB221, Section 1(b); Alabama Department of Revenue fiscal notes.