May 1, 2023
For close to 40 years, The James Madison Institute has championed free-market principles working on important issues such as keeping the economy open, education reform, the future of technology and innovation, and healthcare.
It is with this mission and charge in mind that we oppose Senate Bill 564 and House Bill 677. These are complex bills that take some explaining, but fundamentally, if enacted, they would herald an unwarranted government intervention in the workings of the free market in Florida, with few winners and many losers.
The issue at question is the cost of “interchange” – the fees that a merchant pays to a customer’s bank to cover the costs of issuing credit and debit cards. This has been the subject of contention between banks and retailers for years, and federal government intervention has already placed price caps on interchange for debit cards with what JMI considers to be disastrous consequences.
In this case, the bills seek to artificially prohibit interchange on the sales tax element of a transaction. If passed, this would mean that Florida banks and credit unions would be expected to collect sales tax on electronic payments for free, or, viewed in another way, pay the retailers’ costs for the collection of the sales tax on electronic payments.
This is clearly unfair and is a classic example of government picking winners and losers, when in fact, that’s the market’s job. Banks and credit unions would lose in that they’d be on the hook for collecting retailer’s taxes, but smaller merchants are likely to be negatively affected too, and – no surprise here – eventually we can expect Florida consumers and their families to have to pick up the tab.
This mainly stems from the costs of developing and implementing the new technology needed to make these bills work, as it currently does not exist in the global payments’ ecosystem. Separating sales tax out from a transaction is likely to be a complex endeavor, requiring new software, hardware, and ways of doing things. This will be expensive to research and develop and expensive to deploy and operationalize. Someone will have to pay, and though financial institutions are first up, retailers will also have to shoulder some of the cost, perhaps through increased processing fees and even increased levels of interchange.
For the Big Box retailers, these up-front costs might not be too problematic, but for smaller retailers’ software upgrades and new technology will cost thousands they might not have to spend. Whichever way you slice, it, increased costs for financial institutions and increased costs, at least in the short term, for retailers, will translate to increased costs for the consumer. As always, it’s Florida families that will bear the burden of this government interference.
If banks decline to collect sales tax on electronic transactions under the new conditions, as is their right, it is possible that Florida becomes the first place in the world to require two transactions at the point-of-sale – one electronic, for the cost of goods and services, and one in cash or by check, for the sales tax attached.
Throughout the years, we’ve remained a constant conscience of Florida’s leaders and a champion for hardworking Floridians who have made this state what it is today. While Floridians pursue their dreams, we work to protect them. And it is with that in mind that we ask you to set this idea aside and instead continue to focus on measures that business in Florida thrive.
