Credit card transaction fees: tax payments: Consumer Inflation Reduction and Tax Fairness Act.

Assembly Member Ortega's Consumer Inflation Reduction and Tax Fairness Act aims to modify how credit card companies calculate interchange fees by excluding state and local taxes and gratuities from fee computations. The legislation adds Division 25.5 to California's Financial Code, establishing new requirements for payment processors, banks, and credit card networks.

Under the proposed rules, merchants must report tax and gratuity amounts during transaction authorization or settlement to avoid interchange fees on these portions. Merchants who do not initially transmit this data may submit documentation within 180 days of the transaction to receive credit for fees charged on tax and gratuity amounts. Payment processors must then issue refunds within 30 days of receiving valid documentation.

The bill prohibits payment networks and processors from manipulating fee calculations to offset these exclusions. Violations incur a $1,000 civil penalty per transaction, and processors must refund any incorrectly charged fees to merchants. While payment networks bear no liability for the accuracy of merchant-reported tax data, they must maintain systems that properly exclude reported tax and gratuity amounts from fee calculations.

The legislation applies to a broad range of state and local taxes, including sales tax, fuel taxes, and special taxes on cigarettes, alcohol, and cannabis. The provisions cover transactions made with credit cards, debit cards, and prepaid cards, but exclude paper checks.