The Complexities and Costs of Eliminating Interchange Fees on Sales Tax Portions
Illinois has become a pioneer by being the first state to ban interchange fees on tax and gratuity amounts of credit or debit transactions, through the Illinois Interchange Fee Prohibition Act (IFPA). This legislation stipulates new regulations to protect merchants from subsidizing these amounts, previously a burden that reduced their revenue margins. However, this change necessitates adjustments to technical specifications and systems to separate the components of each transaction. Penalties for non-compliance are severe, with violators subject to a $1,000 fine for each electronic payment transaction and obligated to refund the merchant the interchange fee calculated on the tax or gratuity amount.