What is the proposed Alabama sales tax change for credit card fees?

The proposed bill would exclude credit and debit card transaction fees, often called swipe fees, from the sales and use tax base. This means tax would only apply to the actual price of goods or services, not the additional processing fees.

When would the Alabama sales tax change take effect?

If the bill is adopted and enacted, the changes would take effect on September 1, 2026.

How are credit card fees currently treated under Alabama sales tax rules?

Under current rules, the total amount subject to sales tax includes both the price of the goods or services and any credit card processing fees charged as part of the transaction.

What types of payment methods are covered under the proposed bill?

The bill broadly defines credit cards to include traditional credit cards, debit cards, prepaid cards, and other electronic payment methods linked to payment networks, while excluding paper checks.

Who will provide guidance on implementing the new tax rules?

Alabama’s Department of Revenue will issue detailed rules and guidance on how businesses should calculate tax, report transactions, and comply with the new requirements.

Is the Alabama sales tax bill on credit card fees already finalized?

No, the bill is still in the early stages of adoption, and it is not yet clear whether it will be passed. Businesses are encouraged to monitor developments closely.

Alabama Sales Tax Reform on Credit Card Fees 2026

As part of Alabama’s 2026 Regular Session, an Alabama Senator proposed a Bill to change how sales and use tax is applied to credit and debit card transaction fees, commonly referred to as “swipe fees” or convenience fees. If adopted and enacted, the Bill will take effect on September 1, 2026.

Proposed Changes to Sales and Use Tax Calculations

Under current rules, when a customer pays by credit card, the total amount subject to sales and use tax includes not just the price of the goods or services, but also the credit card processing fee charged as part of the transaction. The Bill proposes changing this treatment by excluding credit or debit card transaction fees from the taxable base. From a practical standpoint, if enacted, the sales tax would be calculated only on the goods' or services' actual price, not on the additional payment processing fee.

Additionally, the Bill broadly defines key terms, making it clear that credit cards include not only traditional credit cards but also debit cards, prepaid cards, and other electronic payment methods linked to payment networks, while excluding paper checks. Furthermore, the Bill defines what counts as an electronic payment transaction and clarifies that a credit card transaction fee is the fee charged to merchants to cover interchange or processing costs.

Notably, the Bill underlines that Alabama's Department of Revenue will issue detailed rules and guidance on how the exclusion of credit card transaction fees from sales and use tax should work in practice, including how businesses calculate tax, report transactions, and ensure compliance.

Conclusion

The Bill is still in the early stages of adoption, and it is unclear whether it will be adopted. Based on the Bill's text, it establishes the principle, while the Department of Revenue will handle the practical details needed to apply and enforce it consistently. Nonetheless, taxable persons operating in Alabama should monitor for further developments regarding this legislative change.

Source: Bill SB221