Legislature(2025 - 2026)BARNES 124
04/07/2025 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| SB50 | |
| HB171 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 50 | TELECONFERENCED | |
| *+ | HB 171 | TELECONFERENCED | |
| += | HB 70 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
HB 171-INTERCHANGE FEES: TAX & GRATUITY
3:32:19 PM
CO-CHAIR HALL announced that the final order of business would
be HOUSE BILL NO. 171, "An Act relating to interchange fees on
tax and gratuity; and relating to the Alaska Unfair Trade
Practices and Consumer Protection Act."
3:32:40 PM
REPRESENTATIVE BILL ELAM, Alaska State Legislature, as prime
sponsor, presented HB 171. He gave the prepared sponsor
statement [included in the committee file], which read as
follows [original punctuation provided]:
In an effort to reduce unnecessary costs for Alaska's
small businesses, House Bill 171 addresses how
interchange fees commonly known as swipe fees are
applied to electronic transactions.
Right now, when a customer pays with a credit or debit
card, businesses are charged fees on the entire amount
of the transactions. This includes not only the cost
of goods or services, but also any sales tax collected
on behalf of the government and gratuity intended for
employees. In both cases, that money is passed
through the business and not retained as revenue, yet
the business is still charged a fee for it.
HB 171 prohibits financial institutions from charging
interchange fees on the tax and gratuity portions of a
transaction when proper documentation is provided. It
also allows businesses a reasonable window to submit
that documentation after the transaction and receive a
refund for any related fees. The bill includes
penalties for violations and ensures payment data is
used appropriately and securely.
This legislation helps ensure that small businesses
aren't penalized for handling money they never keep.
It provides a level of fairness and transparency in
how fees are applied, without creating new programs or
expanding state bureaucracy.
Alaska's business owners already face rising costs and
tight margins. House Bill 171 offers targeted relief
by removing a hidden cost that adds up over time
making a real difference for the many small businesses
that power our local economies.
3:34:43 PM
KENDRA BROUSSARD, Staff, Representative Bill Elam, Alaska State
Legislature, on behalf of Representative Elam, prime sponsor of
HB 171, gave the sectional analysis [included in the committee
file], which read as follows [original punctuation provided]:
Section 1 adds a new section
a. Prohibits issuers, payment card networks, acquirer
banks, or processors from receiving or charging
merchants interchange fees on the tax or gratuity
portion of an electronic payment transaction if proper
documentation is provided during the authorization or
settlement process.
b. Allows merchants to submit tax or gratuity
documentation up to 180 days after the transaction if
it was not originally transmitted. The issuer must
refund the merchant within 30 days of receiving this
documentation.
c. Clarifies that documentation may be for individual
or multiple transactions, as long as it clearly shows
total transaction amounts and tax or gratuity
portions.
d. States that payment card networks are not liable
for the accuracy of the tax or gratuity documentation
submitted by merchants.
e. Prohibits raising interchange fees on the remaining
(non-tax/gratuity) portion of a transaction to
compensate for prohibited fees on tax or gratuity.
f. Establishes a civil penalty of $1,000 per violation
and requires refunding the improper fee to the
merchant.
g. Restricts use of electronic payment transaction
data to processing or legal requirements only,
safeguarding data privacy.
h. Defines key terms such as "acquirer bank,"
"issuer," "interchange fee," "electronic payment
transaction," "settlement," "tax," and others for the
purposes of this section
Section 2
Amends AS 45.50.471 (b) adding a new violation under
the Act for misuse of electronic payment transaction
data as described in section 1 (g)
3:36:39 PM
REPRESENTATIVE ELAM surmised that waiters, waitresses,
bartenders, and baristas are currently being charged additional
fees on their tips. He stated that a lot of money is going out
of state. He advised that the intent of the proposed
legislation was to create a "less restrictive ability to
maintain more of the profit within ... goods and services in an
already very competitive market" for service industries.
3:38:44 PM
SARAH OATES HARLOW, President & CEO, Alaska CHARR, as an invited
testifier, gave a prepared statement [included in the committee
file] in support of HB 171, which read as follows [original
punctuation provided]:
I have served as President & CEO of the Alaska
Cabaret, Hotel, Restaurant, and Retailers Association
(commonly known as Alaska CHARR) since 2018. Alaska
CHARR is based in Anchorage but has over 750 members
across Alaska communities and represents over 2,000
hospitality establishments that employ over 36,000
workers around the state.
You have heard me testify in this committee multiple
times that Alaska's hospitality industry continues to
face significant ongoing challenges to business
operations, including major increases to operating and
labor costs one of those being interchange fees. I
th
spoke specifically to this matter on March 24 in this
committee with a request to amend a separate bill, and
in response, I greatly thank Representative Elam for
introducing HB 171 as independent legislation on this
important issue.
Hospitality businesses are the cornerstones of our
communities and an engine of our economy. In 2024,
Alaska's restaurant industry exceeded $4.02 billion in
economic output and collected $254 million in taxes
for all levels of government.
However, this service for the government comes at a
significant cost for the business owner, because
credit card networks require businesses to pay
interchange fees (also known as "swipe fees") on the
taxes they collect. The same is true for tips left by
credit card for servers and bartenders. In both cases,
the operator collects the money, but 100% of the
amount is passed on to either the government or
hospitality employees. But the swipe fees (averaging
2-4% per transaction) must still be paid on the total
check amount, so those fees are coming out of
businesses' margins. Because of the power of the
credit card companies, our small businesses in Alaska
have no ability to negotiate these fees.
Restaurants alone in Alaska are paying over $6.2
million in credit card swipe fees annually just to
carry out their role in collecting taxes on behalf of
localities. This does not include all other Alaska
businesses across the state that collect and remit
taxes on behalf of governments. This figure is
certainly much higher for gratuities and tips given
that a conservative estimate for the typical
restaurant tip is 15% across the nation. Alaska
businesses should be protected from paying costly
interchange fees when collecting money on behalf of
the government or employees.
You heard me speak about one of our members who owns
stores around Alaska spent over $50,000 last year on
interchange fees just on the alcohol tax collected on
behalf of the Municipality of Anchorage. To be clear,
these are not the fees charged for the transaction of
the actual products purchased; these are fees charged
on the just taxes collected. That vendor, which is an
Alaskan-owned business, had to pay $50,000 to the
credit card processor to collect monies that the
business doesn't even get to keep. Dozens of
restaurants and other small hospitality businesses
have reported to the Alaska CHARR team that the money
they would save if the language in this legislation
passes would enable them to hire additional employee
positions on their teams.
HB 171 will help thousands of Alaskan-owned
establishments around the state that collectively
represent Alaska's largest private employer and
second-largest industry, in addition to all other
businesses that collect and remit sales or other taxes
on behalf of the government. This legislation would
keep millions of dollars in Alaska rather than sending
them to massive corporations in New York, meanwhile
supporting small and Alaskan-owned businesses,
increasing employment opportunities for Alaskan
workers, and further contributing to Alaska's economy.
If I make one small request for an amendment, it would
be to remove "issuers," "acquirer banks," and
"processers" from this legislation, and just have it
apply to payment card networks, as the networks are
the entities who set the fees. Illinois passed similar
legislation this year, which I believe this
legislation may be based off of, and that is being
litigated in court. We learned that this type of
legislation is best pursued by limiting the language
and the applicability to the actual payment card
networks. This will still result in the same impact on
small businesses.
As the voice of Alaska's hospitality industry, I urge
your support of HB 171.
3:43:35 PM
REPRESENTATIVE SADDLER asked what the average profit margin in
the hospitality industry is.
MS. OATES HARLOW replied that the average profit margin for
restaurants is between 3 to 5 percent pre-COVID-19 pandemic.
She further stated that post-pandemic, the profit margins for
package liquor stores are closer to 1 percent on average. She
reported that the estimated profit margins for restaurants were
1 to 2 percent because of increased operating and labor costs.
3:44:40 PM
REPRESENTATIVE COULOMBE asked how the interchange fees are
tracked in restaurants.
MS. OATES HARLOW replied that due to legislation passed in
Illinois, there is software currently being developed by
processing networks to automatically calculate fee application.
She noted that, as written, HB 171 would require businesses to
keep track of the interchange fees and spoke to a need for
itemization.
REPRESENTATIVE COULOMBE asked whether there was a concern about
burdens on small businesses. She noted that businesses keep
track of their taxes.
MS. OATES HARLOW reiterated that due to the legislation in
Illinois, there are big companies already developing software.
She stated that there was no concern about potential burden on
small businesses and noted that many small businesses are
already tracking these types of transactions, especially due to
slim profit margins. She asserted that the potential benefit to
the small business would outweigh the administrative burden of
tracking the fees.
3:47:50 PM
MS. OATES HARLOW, in response to a question from Representative
Saddler regarding how tips are differentiated from the total
cost of food service in a restaurant, said credit card
processing systems calculate that data with daily and monthly
reconciliations.
3:49:28 PM
REPRESENTATIVE BURKE questioned whether servers were receiving
the entirety of their tips or if those tips were being reduced
to cover the cost of the fees.
MS. OATES HARLOW replied that it varies drastically from one
business to another. She reported that some large businesses
are passing that fee onto the server, but that the majority of
businesses are "eating the cost."
3:50:39 PM
REPRESENTATIVE SADDLER queried how much commerce in Alaska is
conducted on credit cards that are subject to interchange fees.
3:51:12 PM
ROBERT SCHMIDT, Director, Division of Banking & Securities,
Department of Commerce, Community & Economic Development
(DCCED), replied that he has no hard data on the potential reach
of the proposed legislation. He noted that "lots of businesses
in Alaska use credit cards."
3:51:41 PM
REPRESENTATIVE COULOMBE referred to the legal memorandum
("memo") attached to HB 171, stating: "The U.S. Constitution
prohibits states from enforcing laws contrary to federal law.
Federal banking laws preempt state law if the state law prevents
and significantly interferes with the exercise by the National
Bank." She asked whether there was something that could be done
to remove the legal memo and whether the sponsor had discussed
the legal memo with any authorities.
3:52:23 PM
REPRESENTATIVE ELAM stated that there was federal law that
applied to national banking institutions. He noted that the
proposed legislation would apply to state institutions. He
noted that there would likely be litigation regarding similar
legislation in other states. He referenced the invited
testifier, noting that there might be language in need of
refinement.
REPRESENTATIVE COULOMBE requested the presence of Legislative
Legal Services for the next hearing on HB 171. She offered her
support for HB 171 but stated her desire to amend the proposed
bill to avoid legal complications.
3:54:16 PM
REPRESENTATIVE SADDLER asked the sponsor's thoughts on the
suggestion from Ms. Oates Harlow to eliminate "issuer",
"acquirer bank", or "processer".
REPRESENTATIVE ELAM opined that sometimes "less is more," but
ultimately deferred to Legislative Legal Services.
3:54:57 PM
REPRESENTATIVE COULOMBE, referring to terms on page 3, asked
whether HB 171 would provide brand new definitions or make
changes to existing definition in Alaska Statute (AS).
REPRESENTATIVE ELAM replied that they were mostly changes to
existing definitions in statute.
3:55:36 PM
REPRESENTATIVE SADDLER asked for the justification for
swipe/interchange fees. He further asked for confirmation that
the proposed legislation would not prevent interchange fees.
MR. SCHMIDT explained that interchange fees constitute 70 to 90
percent of all credit card fees. He confirmed that
Representative Saddler's understanding of HB 171 was correct and
used a scenario to illustrate that for a purchase of $20, with
$2 tax and a $5 tip, the interchange fee would be applicable
only on the $20, not on the tax and tip.
3:58:15 PM
CO-CHAIR FIELDS reported that two companies control 80 percent
of the market. He stated that credit card swipe fees have
doubled from $51 billion in 2012 to over $126 billion in 2022.
He asserted that there were a "small number of companies taking
advantage of a noncompetitive market to raise prices."
3:58:52 PM
REPRESENTATIVE COULOMBE referred to page 2, line 19, of the
proposed legislation, citing a civil penalty of "$1,000 for each
payment transaction in violation". She asked what might incur a
$1,000 civil penalty and who would be subject to the fee.
REPRESENTATIVE ELAM responded that a $1,000 fee would be imposed
on the cardholder network were a vendor to submit reimbursement
for interchange fees and be declined or if a vendor were wrongly
charged for interchange fees. In response to an additional
question from Representative Coulombe, confirmed that it was
$1,000 civil penalty per transaction.
4:00:03 PM
CO-CHAIR FIELDS thanked the bill sponsor.
4:00:34 PM
CO-CHAIR HALL announced that HB 171 was held over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 50 Sponsor Statement Version I 4.1.2025.pdf |
HL&C 4/7/2025 3:15:00 PM |
SB 50 |
| SB 50 Sectional Analysis Version I 4.1.2025.pdf |
HL&C 4/7/2025 3:15:00 PM |
SB 50 |
| SB 50 Explanation of Changes Version A to Version I 4.1.2025.pdf |
HL&C 4/7/2025 3:15:00 PM |
SB 50 |
| SB 50 Version I SL&C CS 4.1.2025.pdf |
HL&C 4/7/2025 3:15:00 PM |
SB 50 |
| SB 50 version N SCRA CS 4.1.2025.pdf |
HL&C 4/7/2025 3:15:00 PM |
SB 50 |
| SB 50 Version A 4.1.2025.pdf |
HL&C 4/7/2025 3:15:00 PM |
SB 50 |
| SB 50 Letters of Support - Received as of 3.19.2025.pdf |
HL&C 4/7/2025 3:15:00 PM |
SB 50 |
| SB 50 Fiscal Note DCCED DCRA 01.31.25.pdf |
HL&C 4/7/2025 3:15:00 PM |
SB 50 |
| HB 171 Sponsor Statement V. A 4.6.2025.pdf |
HL&C 4/7/2025 3:15:00 PM |
HB 171 |
| HB 171 Sectional Analysis Statement V. A 4.6.2025.pdf |
HL&C 4/7/2025 3:15:00 PM |
HB 171 |
| HB 171 V. A.pdf |
HL&C 4/7/2025 3:15:00 PM |
HB 171 |