Senate Bill 221 (SB221), recently passed by the Alabama Legislature, will exclude certain credit card transaction fees added to a customer’s purchase, from the amount subject to sales and use tax. Meaning, taxpayers will no longer pay sales tax on the extra processing fee charged for using a card. The bill defines a “credit card transaction fee” as a fee charged to offset interchange or processing costs imposed on the merchant by credit card companies or payment networks. The bill also defines electronic payment transactions to include debit cards, credit cards, prepaid cards, and similar electronic payment methods. The new rules are scheduled to become effective on September 1, 2026.
The Alabama Department of Revenue has also been directed to issue guidance and administrative rules explaining exactly how the law will work in practice. Many businesses will likely wait for that guidance before making any system changes. However, businesses that charge separate credit card processing fees may want to review their invoicing system, point-of-sale setup, and sales tax calculations before the effective date. Properly separating and identifying these fees could become important to ensure they are excluded from the taxable sales price under the new rules.
Supporters of the bill believe the change is a matter of fairness. They argue that sales tax should apply to the actual product or service being sold, not to the extra banking transaction costs tied to electronic payments. As card payments continue to replace cash transactions, lawmakers say businesses have increasingly felt the burden of rising processing fees. Retailers should monitor the guidance issued by the Alabama Department of Revenue and confirm whether their systems can separately track and report credit card transaction fees. Businesses that bundle these charges into the product instead of separately stating them may not automatically receive the same tax treatment.
(Alabama Senate Bill 221, Act #2026-587, Alabama Legislature, Passed April 08, 2026)