A buried provision in S05587 forces payment networks to stop charging interchange fees on tax and tip portions of every card transaction—potentially lowering your per-transaction costs.
Most New York retail owners don't realize they're paying interchange fees on sales tax and customer tips. When a customer buys a $100 item, pays 8.875% tax, and adds a 20% gratuity, Visa or Mastercard calculates their interchange fee on the full $128.75—not just the $100 merchandise sale. That difference compounds across thousands of transactions yearly.
S05587, a bill in the New York State Legislature, contains a provision that changes this calculation. Section § 1121 (found on Page 2 of the bill) requires payment card networks to exclude the amount of state and local taxes and fees—as well as gratuities—from the transaction amount used to compute interchange fees.
Under current rules, a payment card network charges interchange as a percentage of the total amount swiped. If that total includes sales tax and tip, the merchant pays the interchange fee on those amounts too, even though the retailer doesn't keep the tax (it goes to the state) and often doesn't keep the full tip (it may go to employees).
Once this provision takes effect, the networks must strip out those portions before calculating the fee. Using the earlier example: instead of calculating interchange on $128.75, the network would calculate it only on the $100 base sale. For a typical interchange rate of 1.5–2.2%, that's a meaningful reduction per transaction—and a significant one across a year of sales.
The bill also prohibits payment card networks from altering or manipulating how they compute and impose these fees, which prevents workarounds that might otherwise offset the savings.
This applies to all retailers in New York who accept credit or debit cards—grocery stores, restaurants, boutiques, pharmacies, and any other business processing card payments. The provision covers transactions processed by any payment card network (Visa, Mastercard, American Express, Discover, and others).
The provision takes effect on July 1 of the first year after the bill is enacted into law. Retailers should monitor the bill's status and plan to review their payment processing statements after that date to confirm the networks are complying with the new calculation method.
Because interchange fees are set by the card networks themselves—not by individual processors or banks—this change applies uniformly across the industry, regardless of which payment processor a retailer uses.
Retailers interested in understanding how this change might affect their specific business should review their current interchange fee statements with their payment processor and track the bill's progress through the legislature. The New York Retail Council and other trade associations tracking S05587 can provide updates as the legislative process continues.
For detailed guidance on how S05587 may affect your business, consult your payment processor or a business accountant familiar with card processing costs.