An effort to provide relief to small businesses from fees they pay to banks for the authority to use credit cards has been watered down from “relief” to a study, but even as a study it turned into a big fight on Wednesday. In the end, members of the House Finance Committee voted the bill down on a 2-9 vote, citing concerns expressed by the agency that was likely to do the study as the reason to kill the bill.

As introduced, House Bill 15-1154 would ban credit card companies and banks from assessing the credit card fees to the state and/or local sales tax portion of a transaction.

Current law requires businesses to send sales tax to the state or to local municipalities. When those businesses accept credit cards, they are charged a percentage, usually 2 to 3 percent, as a fee by the credit card companies and banks. That fee is charged on the sales tax as well as the goods purchased. But since the sales tax goes to the state, the business is in effect paying the credit card company to collect taxes for the state, according to bill supporters.

In 2014, the state collected $2.1 billion in sales tax revenues. Of that, about 60 percent came from credit, prepaid cards or debit cards. Assuming the low end of the credit card fee, at 2 percent, the credit card companies, banks and credit unions could have collected about $25 million in fees just on the sales tax.

Not surprising, HB 1154 drew strong opposition from the financial services industry, which wound up delaying the hearing for four weeks, and they arrived in force to fight the bill when it finally got into the House Finance Committee this week.

The opposition prompted the sponsors, Reps. Jon Becker, R-Fort Morgan and Alec Garnett, D-Denver, to strike the original bill and turn the issue into a study.

Garnett told the finance committee that the original idea was to help the state’s economy and small business. But once the bill was introduced, Garnett said, “my phone started to blow up” with calls from credit unions, banks and processors. Garnett realized there would have to be some technical changes made, especially with the advent of “chip” cards, also known as EMVs (Europay, Mastercard & Visa). EMV credit cards contain integrated circuits as protection against fraud; the chips have been used in Europe for nearly a decade. Most major U.S. credit card issuers are planning to migrate to EMVs within the next few years.

According to Becker, the bill, with its strike-below amendment, would try to answer questions about vendor fees, fraud, what happens when the EMVs come in, and how those fees affect small business. The study would not have committed the General Assembly to legislation.

The bill’s critics took aim at the study, calling it both overly broad and limited only to state-chartered institutions that issue credit cards.

Scott Earl of the Mountain West Credit Union Association said they would welcome the change to take a deeper look at the issue, but the study proposed in HB 1154 goes way beyond the vendor fee on sales tax (known as an interchange fee) and appears to be an attack on the mission of the state’s credit unions. The study “is shamelessly biased toward merchants” and wants to pick “winners and losers,” Earl said. He also claimed that since the study would be funded by “gifts, grants and donations” retailers would line up to pay for it, bringing in more bias. However, the bill does not say that retailers would pay for it, and Rep. Lois Court, D-Denver, the committee’s chair, pointed out that banks and credit unions also would have the opportunity to help fund the study.

But a larger problem seems to be just who the bill would apply to. According to Barbara Walker of the Independent Bankers of Colorado, the bill could not apply to out-of-state financial institutions, only to the 96 state-chartered banks. And only about 50 percent of those issue their own credit or debit cards, a “miniscule fraction of the debit and credit card transactions in Colorado,” Walker explained. Jennifer Waller of the Colorado Bankers Association noted that the credit card processors do not fall under the authority of the agency charged with conducting the study, the Department of Regulatory Agencies.

And Koger Propst of ANB Bank pointed out that the state does reimburse businesses for collecting sales tax, at about 3.3 percent. “This wouldn’t plow new ground,” he explained. “To me it’s a fairness issue. These are voluntary business contracts, and where does it stop?” He also questioned whether so complex a study could be done within the timeframe provided: Oct. 15, 2015. The short timeframe also concerned DORA. Brian Tobias of DORA’s Office of Policy, Research and Regulatory Reform said the study is likely not “doable” in seven months, the agency would struggle to find the funding to cover the costs, and more importantly, the strike-below as written did not guarantee confidentiality of information nor are the federal or state chartered banks required to participate, and the agency questioned whether it would even be able to get the data required.

On the other side of the issue, retailers lined up to support HB 1154. Loren Bauman, owner of Jared’s Nursery of Littleton, said his 35-year old business generates 100,000 transactions per year. While interchange fees are a necessary part of business, he loses 2 to 3 percent of every sale to those fees. HB 1154 as introduced would have saved his business about $4,000 per year, he said. “It does impact every small business.” Grier Bailey of the Colorado Wyoming Petroleum Marketers Association estimated the credit card companies made $11 million last year by charging the interchange fees on excises taxes for Colorado gas stations.

When it came time for amendments, things got messier. Rep. Jim Wilson, R-Salida, called it “the most convoluted bill of the session,” and he removed the requirement that it be funded by gifts, grants and donations or done within DORA’s existing resources.

It wasn’t enough to sway the votes to get it out of committee. Several committee members cited DORA’s concerns that they could not do the study in the time allotted. Court, however, said she believed the issue is important and encouraged the sponsors to keep at it.

— Marianne@coloradostatesman.com