Alabama removes credit card fees from the sales tax base

Alabama sellers no longer have to collect sales tax on credit card transaction fees passed through to customers.

Until now, merchants collecting those fees were required to include them in the taxable base under Alabama Department of Revenue policy. SB221 changes that permanently.

What changed

• Previous rule: Under Alabama Department of Revenue policy, credit card transaction fees charged by merchants were included in the taxable sales price and subject to Alabama sales and use tax.
• New rule: Credit card transaction fees charged for electronic payment transactions are excluded from the amount on which Alabama sales and use tax is calculated. The fee itself is not taxable.
• Enacted by: Alabama SB221, sponsored by Senator Arthur Orr, signed by Governor Kay Ivey on April 22, 2026.
• Effective date: September 1, 2026.
• Important context: No Alabama statute previously addressed this — the taxability of credit card fees existed only as a Department of Revenue policy position. SB221 resolves the ambiguity by statute for the first time.

Who this affects

• Alabama merchants who pass credit card processing fees through to customers. If you add a credit card surcharge or convenience fee to transactions and have been including that fee in your taxable sales total, you have been overcollecting Alabama sales tax on those amounts. Starting September 1, the fee is excluded from the taxable base.
• Ecommerce sellers with Alabama nexus who apply card processing fees to orders from Alabama customers, whether billed separately or rolled into the transaction total.
• Businesses using payment processors or POS systems that automatically calculate sales tax on the full transaction amount including fees. These systems will need to be updated before September 1 to exclude card fees from the tax base.
• Local and municipal tax filers. The exclusion applies to both state and local sales and use tax in Alabama. Local governments opposed the bill citing lost municipal revenue — but it passed regardless.

What sellers should do right now

• Confirm whether you currently charge credit card transaction fees to Alabama customers. If you do not pass processing fees through to customers, this change does not affect your tax calculation.
• Review your current tax calculation setup before September 1. If your system calculates sales tax on the full transaction total including card fees, you will need to update your configuration to exclude those fees from the taxable amount.
• Do not make changes before September 1. The new rule takes effect September 1, 2026. Until then, the existing DOR policy remains in place and card fees remain taxable under Alabama law.
• Check your payment processor and POS settings. Many systems automatically include all charges in the tax base. Confirm with your processor how card fees are currently handled and whether they can be separated from the taxable transaction total.
• Consult a tax advisor if you believe you have been overcollecting. Going forward, the exclusion is clear. Whether you have a basis to adjust for prior periods is a more complex question that requires professional guidance.

If you use TaxCloud: TaxCloud’s Alabama sales tax calculation will reflect the updated treatment of credit card transaction fees effective September 1, 2026. No manual changes are needed on your end.