SB 5070
In CommitteeSenate
Interchange fees on tips
Concerning prohibiting fees on certain acts of commerce to protect tipped wages for workers while reducing the financial burden on employers.
This status may be delayed. See Action History below for the latest updates.
How does a bill become law?
- Introduced: The bill is filed and assigned a number.
- Committee: A subject-matter committee holds hearings, takes public testimony, and decides whether to advance the bill.
- Floor Vote: The full chamber (House or Senate) debates and votes on the bill.
- Opposite Chamber: The bill repeats the committee and floor vote process in the other chamber.
- Governor: The Governor reviews the bill and decides whether to sign or veto it.
- Signed: The bill has been signed into law.
AI Analysis
This bill prevents banks and credit card networks from charging merchants interchange fees on the tax and gratuity portions of credit or debit card transactions—ensuring tipped workers receive full tips and reducing merchant costs tied to state tax collection. It also strengthens enforcement with civil penalties and updates Washington’s wage laws to protect tips from fee deductions.
- Prohibits payment card networks, banks, and processors from charging interchange fees on the tax or gratuity portions of credit or debit card transactions—provided the merchant reports those amounts during authorization or settlement.
- Requires merchants to submit tax documentation (e.g., receipts, invoices) within 180 days if they fail to report tax/gratuity amounts upfront; issuers must then refund any interchange fees charged on those amounts within 30 days.
- Bars payment card networks and processors from increasing interchange fees on non-tax/gratuity portions of transactions to offset the loss from excluding fees on tips and taxes.
- Amends RCW 49.46.020 to explicitly prohibit employers from reducing employee tips or service charges by the amount of any interchange fees.
- Mandates that payment card networks develop a system for merchants to transmit tax and gratuity data within two years of the bill’s effective date.
- Imposes civil penalties of $1,000 per transaction for violations, with refunds required to merchants, and makes violations of data-use rules subject to the Consumer Protection Act.
Who is affected
- Tipped workers — Tipped workers (e.g., restaurant servers, baristas, hair stylists) will receive the full amount of tips and gratuities without deductions for card processing fees, ensuring they are paid all earned compensation.
- Employers (especially small businesses in food service and hospitality) — Restaurants, bars, salons, and other businesses that collect tips or service charges will no longer be able to pass interchange fees on to employees and may need to adjust internal accounting practices to comply with new transparency and reporting requirements.
- Payment card networks, banks, and processors — Banks and payment processors (e.g., acquirer banks, credit card networks, processors) must change how they calculate and apply interchange fees—specifically by excluding tax and gratuity amounts—and may face penalties for noncompliance.
- State and local tax authorities — State and local governments will benefit from reduced administrative burden and improved compliance with tax collection, as merchants can now exclude tax amounts from interchange fees—though the state does not directly fund or manage this program.
Pro/Con Analysis
Stronger case for benefits
Potential Benefits (5)
Tipped workers are guaranteed full receipt of tips and service charges without reduction for card processing fees—closing a widespread loophole where employers deducted 2–5% per transaction, which disproportionately affected low-wage workers (median hourly wage $15.20 in WA) who rely on tips for basic income.
Rights & LibertiesPeopleRef: Sec. 4(2)(a)(ii); Sec. 4(2)(c)Merchants will no longer pay interchange fees on tax amounts—estimated at 1.5–2.5% per transaction—reducing operating costs for small food service and hospitality businesses, which typically operate on 3–6% net margins; this improves cash flow and may support modest price stability.
Business & EmploymentPeopleRef: Sec. 3(1); Sec. 3(2)Prohibition on fee-shifting (e.g., raising fees on non-tax portions to offset lost revenue) prevents payment networks from undermining the bill’s intent, preserving the net cost reduction for merchants and ensuring the policy delivers its intended economic relief.
Business & EmploymentPeopleRef: Sec. 3(3); Sec. 3(4)Civil penalties and inclusion under the Consumer Protection Act provide meaningful enforcement teeth, deterring bad-faith fee practices and giving merchants legal recourse—especially important where tip theft and fee overcharging have been historically under-enforced.
Rights & LibertiesPeopleRef: Sec. 5(1); Sec. 5(2)(b)By requiring real-time tax data transmission, the bill supports better compliance with state sales and use tax laws (Ch. 82.08, 82.12, 82.14), potentially improving state and local tax collection accuracy and reducing underreporting over time.
Local GovernmentPeopleRef: Sec. 3(5); Sec. 2(15)
Potential Concerns (5)
Merchants—especially small, low-tech, or cash-based businesses—will face new compliance burdens: they must either (1) modify point-of-sale systems to report tax/gratuity amounts in real time during authorization/settlement, or (2) submit documentation within 180 days and wait 30 days for refunds, increasing administrative complexity and potential errors.
Business & EmploymentPeopleRef: Sec. 3(1); Sec. 4(2)(a)(ii)Merchants bear the risk of noncompliance: if they fail to transmit tax/gratuity data at authorization or within 180 days, they lose the fee refund and may be subject to $1,000 penalties per transaction—even for minor or unintentional errors—creating disproportionate liability for small operators without legal or technical resources.
Business & EmploymentPeopleRef: Sec. 5(1); Sec. 3(2)Payment card networks must build new infrastructure within two years to support real-time tax/gratuity data transmission; this may lead to short-term system instability, integration failures, or temporary fee miscalculations that disrupt small merchants first and most severely.
Business & EmploymentLean peopleRef: Sec. 3(4); Sec. 3(5)While employers cannot deduct interchange fees from tips, the bill does not require them to absorb those fees themselves—some may respond by reducing tip pooling, eliminating service charges, or cutting hours to offset lost revenue, indirectly harming tipped workers.
Business & EmploymentLean peopleRef: Sec. 4(2)(a)(ii)Enforcement of $1,000-per-transaction penalties will require staffing and oversight by L&I, diverting limited resources from other wage theft or safety investigations—particularly burdensome for small agencies in rural counties.
Local GovernmentLean peopleRef: Sec. 5(1)
Who Is Most Affected
Tipped workers—especially women, immigrants, and people of color in food service, hospitality, and personal services—will receive 100% of tips without hidden deductions. This directly increases take-home pay, reduces wage theft, and strengthens labor rights. However, if employers reduce service charges or tip pooling in response, some may see indirect harm.
Small, independently owned restaurants, cafes, and salons benefit from reduced interchange fees on tax and tip portions—potentially saving $500–$2,000/year per business—but face new compliance costs (e.g., POS upgrades, staff training). Large chains with existing integrated POS systems will adapt more easily, creating a relative advantage for well-resourced firms.
Large payment networks (Visa, Mastercard), banks, and processors will need to overhaul fee structures and build new data infrastructure. While compliance costs exist, they are manageable relative to their scale and may be passed to merchants in other ways. The $1,000 penalty per transaction is a risk, but unlikely to be material for national players.
State and local tax authorities benefit from improved data transparency and potential compliance gains, but must allocate L&I staff to enforce penalties and investigate violations—a modest administrative cost with uncertain ROI. No direct funding is provided for this enforcement.
Low- and moderate-income consumers who tip regularly benefit indirectly from more stable tipping practices and potentially lower menu prices (if merchants pass savings through). However, if merchants reduce service quality or hours to offset costs, service quality may decline for these same customers.