Colorado Just Vetoed a Bill That Would've Saved Merchants $217 Million in Swipe Fees

Colorado merchants pay an estimated $217 million a year in credit card swipe fees on money that was never actually theirs to begin with — the sales tax they collect on behalf of the state and hand straight over to the Department of Revenue. Lawmakers passed a bill to stop it. Governor Jared Polis vetoed it anyway.

The story is a useful case study for small business owners anywhere in the country, because the underlying problem — card networks charging interchange fees on the tax portion of a transaction — isn't unique to Colorado. It's just the state where the fight over fixing it got the furthest before hitting a wall.

What the Bill Would Have Done

Senate Bill 26-134, known as the "Payment Card Networks' Fees" bill, would have prohibited covered card networks from calculating their percentage-based interchange fees on the sales tax portion of a credit or debit transaction. In plain terms: when a customer pays $107 for a $100 item because of 7% sales tax, the card network currently charges the merchant a swipe fee on the full $107 — even though $7 of that was never revenue for the business at all, just tax being passed through to the state.

The bill applied to card networks with more than $60 billion in assets, and it included a consumer-protection provision requiring businesses with more than 500 employees to pass any savings from the change on to customers through lower prices or to employees through higher wages and benefits. Smaller businesses would have kept the savings directly.

According to figures cited during the legislative fight, Colorado merchants paid roughly $217 million in swipe fees on sales tax alone in 2024. That's money leaving small business margins for a transaction cost that has nothing to do with the actual product or service being sold.

How the Bill Made It So Far, So Fast

SB 26-134 had a genuinely difficult path through the legislature. It scraped through the Colorado Senate by a single vote, 18-17, on May 1, 2026, before passing the House 44-20 on May 6. Business advocacy groups, including the National Federation of Independent Business's Colorado chapter, backed the bill as direct relief for merchants squeezed by rising card processing costs — one of the fastest-growing line items in small business overhead nationwide. The bill then headed to Governor Polis's desk facing what reporting at the time described as an intense lobbying blitz from national card network and banking groups.

Why Polis Vetoed It

In June 2026, Polis vetoed the bill. He said he agreed with the "core concept" behind it and the underlying problem it was trying to solve, but he cited concerns about whether the law would ever actually take effect as written. His hesitation traces back to Illinois, which passed a similar first-in-the-nation law in 2024 banning interchange fees on sales tax and tips. That law has been tied up in litigation and delay ever since — an Illinois rule originally meant to apply broadly has already seen its effective date pushed back once, and the fight over whether federal banking law preempts state swipe-fee rules entirely is still unresolved in court.

Adding to the uncertainty, the Office of the Comptroller of the Currency released an interim federal rule this year that gives national banks and their card-processing partners latitude to set swipe fees largely as they choose — a rule critics argue is designed specifically to undercut state-level efforts like Colorado's and Illinois's. Polis's veto message pointed to exactly this kind of federal-state conflict as a reason the Colorado law might get struck down in court even if signed, leaving businesses with false hope and legal chaos instead of real savings.

What This Means If You Run a Business in Colorado — or Anywhere Else

For Colorado business owners, nothing changes immediately: swipe fees continue to apply to the full transaction amount, tax included, just as they did before the bill was introduced. If you sell in Colorado, that $217 million in aggregate annual cost is still coming directly out of merchant margins, split across every business that accepts cards.

For business owners outside Colorado, this fight is worth watching closely. Illinois and Colorado are the two states furthest along in trying to solve this problem, and both have run into the same wall: national banking law and federal regulators pushing back against state-level swipe fee rules. If you're budgeting for card processing costs, it's worth assuming this expense isn't going away soon in most states, and building it into your pricing and margin planning rather than betting on legislative relief.

In the meantime, there are still concrete ways to manage the cost. Review your merchant processing agreement for hidden markups beyond standard interchange rates, ask your processor directly whether sales tax is excluded from any fee calculations, and compare at least two processors before renewing a contract — rates and structures vary more than most owners realize. If you're just getting your business bank account and payment processing set up for the first time, negotiating these terms up front is far easier than renegotiating later. And if card fees are eating meaningfully into your margins, it should show up clearly on your profit and loss statement — a good early warning sign of how much this issue is actually costing you versus how much it feels like it's costing you.

What Happens Next

Colorado lawmakers could attempt to override the veto or bring back a revised version in a future session, though neither is guaranteed. Illinois's litigation over its own swipe-fee law remains the bellwether case to watch — however that resolves will likely determine whether any state can successfully regulate interchange fees on sales tax, or whether it will take federal legislation like the long-stalled Credit Card Competition Act to fix the problem nationally.

Photo by Blake Wisz on Unsplash