A new Massachusetts bill caps processing costs by exempting tax and tip amounts from interchange fees—but only if you report the data correctly.
Most Massachusetts retailers don't realize that every time a customer pays by card, they're paying interchange fees not just on the purchase price, but on the tax and tip too. A new bill aims to change that.
Senate Bill 688, filed January 14, 2025, prohibits card networks, issuers, acquiring banks, and processors from charging interchange fees on the tax and gratuity portions of card transactions. For a typical retail business processing hundreds or thousands of transactions monthly, this can add up to real savings.
Interchange fees are the per-transaction charges that card companies and banks collect from merchants whenever a customer swipes, taps, or enters their card. These fees are calculated as a percentage of the transaction total—which currently includes tax and tip.
Under S688 (Section 37(b), Page 3 of 5), those fees are banned on the tax and gratuity components. In practice, this means your processing costs should drop slightly on every card transaction, since the fee base shrinks.
The catch: the exemption only applies if you do one of two things:
Option 1: Transmit the tax and gratuity amount data during authorization or settlement. This means your point-of-sale system or payment processor needs to separately report these line items when the transaction is processed. Most modern POS systems can do this, but you should confirm with your processor that they support it.
Option 2: Submit tax documentation within 180 days. If your system can't separate the data at transaction time, you can provide documentation of the tax amount after the fact—though this is more cumbersome and has a hard deadline.
Any Massachusetts retailer accepting card payments benefits, but the impact varies by volume and average transaction size. A coffee shop processing 200 transactions daily will see a more noticeable reduction than a low-volume business. Restaurants, which typically have higher tip percentages, may see proportionally larger savings.
Your payment processor or acquiring bank will handle the technical implementation, but you should verify they're compliant and that your POS is configured to report tax and tip separately.
The bill has no explicit effective date stated in the text, so implementation timing remains unclear. However, it's worth:
• Contacting your payment processor to confirm they support separate reporting of tax and gratuity amounts, or ask about their compliance timeline.
• Reviewing your POS settings to ensure tax and tip are being tracked and transmitted as line items.
• Keeping records of your current processing costs so you can verify the savings once the bill takes effect.
This is a straightforward cost reduction—no application required, no eligibility threshold. It simply lowers what you pay per transaction if your processor reports the data correctly.
For a detailed, business-specific guide to S688 and other Massachusetts retail regulations, contact your local chamber of commerce or retail trade association.