Alabama just stopped taxing credit card surcharges. It won't be the last state to change the rules.
As of September 1, 2026, credit card surcharges are not taxable in Alabama as long as the surcharge is listed separately on the receipt.
Until now, Alabama treated a card fee as part of the taxable sales price, like many other US states. In summary: add a 3% surcharge, and you owe sales tax on the surcharge too. A new state law changes that, and the Alabama Department of Revenue has now confirmed how it works. It’s also the latest sign that card fees have become a state-by-state fight.
What changed
The Alabama Department of Revenue’s FAQ spells out the rule:
- Separately stated fee: if the receipt shows the fee on its own line, sales tax applies only to the merchandise. The fee is not taxed.
- Bundled fee: if the fee is rolled into one total with no breakout, sales tax applies to the whole amount.
- The name doesn’t matter: the rule covers fees called a swipe fee, credit card surcharge, processing fee, service charge, or convenience fee.
The law defines the fee as one charged to offset interchange or processing costs that card companies or payment networks impose on the merchant. Even though it covers the “bundled fee” exception, keep in mind that surcharges must be listed separately on a receipt to be compliant with card network rules.
Customer experience at checkout
Example: take a $200 purchase with a 3% card surcharge, at an example combined state and local rate of 9%:
| Receipt setup | Taxable amount | Sales tax | Customer total |
|---|---|---|---|
| Fee on its own line (from Sept 1, 2026) | $200.00 | $18.00 | $224.00 |
| Fee bundled into one price | $206.00 | $18.54 | $224.54 |
Fifty-four cents may not make or break one sale, but across thousands of transactions, it adds up for your customers.
For merchants, the to-do list is short:
- Break the fee out. Show it as its own line on receipts and invoices, not baked into item prices.
- Stop taxing it. Update your POS, checkout, or billing system so tax is calculated on the pre-fee subtotal.
- Track it separately. Keep fee revenue distinct in your records so your sales tax returns match what you collected.
What the new rule doesn’t change
The tax exclusion is only one piece of compliant surcharging. A few things stay the same:
- Card network rules still apply. Visa, Mastercard, and the other networks set their own surcharge caps, notice requirements, and disclosure rules. The new law doesn’t override them.
- Debit is still treated differently. The law’s tax exclusion reaches debit and prepaid fees, but network rules bar surcharging debit cards. The tax rule doesn’t make a debit surcharge allowed.
- Cash discount and dual pricing programs need a closer look. When the card price is simply a higher shelf price, with no separate fee line, the full amount is likely taxable. Talk to your tax advisor before assuming these programs qualify.
- Other states set their own rules. If you sell across state lines, Alabama’s treatment doesn’t carry over.
The Department of Revenue has said more guidance and administrative rules are coming, so we expect details to firm up over the next few months.
Alabama isn’t the only state rewriting the rules
Card fees have become a state legislative issue, and every state is taking a different angle.
Illinois passed a first-of-its-kind law in 2024 banning interchange on the sales tax and tip portions of card transactions. It has been fighting in court ever since: federal regulators declared it preempted, a judge blocked it for national banks, out-of-state banks, and card networks in June, and the effective date has been pushed back again, now to July 1, 2027. Colorado passed a similar interchange bill this spring, and the governor vetoed it in June, pointing to the Illinois fight. Oklahoma legalized surcharging in November 2025, and Massachusetts is weighing whether to do the same.
Some states are deciding whether you can surcharge at all. Others are deciding how the fee is taxed, or what the banks can charge you underneath it. The card networks keep their own rules on top of all of that. If you sell in more than one state, you’re working through a patchwork that changes every legislative session.
Keeping up with it isn’t a one-time setup. It’s ongoing work, and most finance teams don’t have time for it.
How Yeeld helps
Alabama’s rule rewards the setup Yeeld already uses. Yeeld’s automated surcharging calculates the fee in real time and shows it as its own line item, which is exactly what Alabama now requires for the fee to stay out of the taxable total. We also track state and card network surcharge rules as they change, so your team doesn’t have to.
Yeeld doesn’t calculate or apply sales tax. That stays with the tax configuration in your billing or tax system. So the change to make is on the tax side: set your system to treat the surcharge line as non-taxable for Alabama sales, and confirm the treatment with your tax advisor. For reference, Colorado also excludes surcharges from its sales tax base; most other states tax a surcharge the same way they tax the product it’s attached to.
If you’re surcharging in Alabama, or thinking about it, now is a good time to check that your setup matches the new rule. Get in touch with our team and we’ll walk through it with you.
This post is for general information and isn’t tax or legal advice. Talk to a qualified tax professional about your specific situation.
