An act to add Division 25.5 (commencing with Section 100050) to the Financial Code, relating to service fees.
AB 1065 would create the Consumer Inflation Reduction and Tax Fairness Act in the Financial Code. The bill prohibits issuers, payment card networks, acquirer banks, and processors from charging interchange fees on the tax portion of an electronic payment transaction when a merchant identifies the tax amount during authorization or settlement. If the merchant does not provide the tax amount at the time of the transaction, the bill allows the merchant to later submit tax documentation within 180 days and receive a credit for interchange fees charged on that tax amount within 30 days.
The bill defines key terms such as interchange fee, payment card network, processor, merchant, electronic payment transaction, and tax. Its tax definition covers state and local taxes and fees that are separately stated on the invoice, including sales and use taxes, local sales taxes, tobacco taxes, alcohol taxes, and cannabis taxes. It also bars payment card networks and related entities from shifting fees onto the non-tax portion of a transaction to offset the prohibition on charging interchange fees on taxes.
AB 1065 would add a new division to the Financial Code governing how interchange fees are calculated for card transactions involving separately stated taxes and fees. It would effectively limit the portion of a card transaction on which interchange fees may be assessed, create a refund/credit process for merchants who later document the tax amount, and make violations enforceable under the Unfair Competition Law. The bill would primarily affect payment card networks, issuers, acquirer banks, processors, and merchants that collect and remit taxes, especially in retail sectors where taxes are itemized on receipts.
The bill appears to have mixed but generally active support in committee, with an initial do-pass-as-amended recommendation passing 7-3 on April 8, 2025. However, the later committee action on April 21 shows a do-pass motion failing 0-6, followed by a successful reconsideration vote of 7-2, suggesting the proposal was contentious and required further procedural recovery. The available record does not include transcript testimony, so the vote history is the main indicator of sentiment.
The main point of contention is likely the policy choice to exempt tax amounts from interchange fees, which would reduce revenue for card networks, issuers, acquirer banks, and processors while benefiting merchants that remit taxes. Another likely issue is implementation: the bill relies on merchants transmitting accurate tax data during authorization or later providing documentation, and it limits liability for errors caused by merchant or point-of-sale vendor mistakes. The anti-circumvention language, which bars fee increases on the non-tax portion of transactions, may also be controversial because it constrains how payment networks structure their pricing.