Bipartisan House bill would exclude taxes from electronic payment fees.

Speaker of the Puerto Rico House of Representatives Carlos “Johnny” Méndez Nuñez

By THE STAR STAFF

In an effort to ease costs for consumers, Speaker of the Puerto Rico House of Representatives Carlos “Johnny” Méndez Nuñez announced on Thursday the filing of House Bill 1216, which would prohibit electronic payment processing fees from being calculated on the portion of a transaction corresponding to federal, state or municipal taxes within Puerto Rico’s territorial jurisdiction.

The bill is coauthored by Popular Democratic Party House Minority Leader Rep. Héctor Ferrer Santiago.

Interchange fees are commissions charged to merchants by financial institutions, issuing banks, acquiring banks, card networks, and payment processors for the authorization, clearing and settlement of electronic transactions. The fees, which typically range between 1% and 3% of the total transaction value -- and can be higher for rewards cards -- are currently calculated on the full amount charged to the consumer.

Under current practice, this calculation includes not only the actual value of the goods or services purchased, but also the portion corresponding to the sales and use tax (IVU by its initials in Spanish) and other applicable federal, state or municipal taxes.

“This means that merchants pay a percentage-based fee on funds that do not constitute their own income, but rather amounts they are legally required to collect and remit to the government,” Méndez said. “From both a legal and economic perspective, the merchant acts as a collection agent for the state when it comes to the IVU. They receive no profit or economic benefit from that portion. However, under the current model, interchange fees are also applied to that tax component, using a calculation base that includes amounts that are not merchant income.”

Méndez noted that the measure sets clear limits on the calculation base for the fees with respect to tax components. “Specifically, it establishes as a matter of public policy in Puerto Rico that electronic payment processing fees may not be calculated on the portion corresponding to federal, state, or municipal taxes in transactions carried out within Puerto Rico’s territorial jurisdiction, provided that the merchant electronically transmits that information through available technological mechanisms,” he added.

Puerto Rico would not be acting alone. Several U.S. jurisdictions have begun reassessing the interchange fee calculation model. In 2024, Illinois approved the Interchange Fee Prohibition Act, becoming the first jurisdiction to ban the charging of interchange fees on the tax portion of electronic transactions.

Filed on April 14, the legislation further states that “no financial institution, payment processor, credit or debit card network, acquiring bank, issuing bank, merchant service provider, or any other entity that facilitates, authorizes, processes, or settles credit and/or debit card transactions may receive or charge a merchant any additional fee -- whether in the form of a charge, commission, surcharge, interchange fee, or any other fee imposed directly or indirectly on the consumer or merchant per electronic transaction (swipe fee) -- on any amount corresponding to federal, state, or municipal taxes.”