New tax rate and classification for payment card processing activities

Intended audience: Payment card processors.

Effective Jan. 1, 2026, businesses must report income from payment card processing activities under the new Payment Card Processing business and occupation (B&O) tax classification. The tax rate for this classification is 3.1%. Income subject to this classification is considered apportionable income.

Additionally, gross income subject to B&O tax under the Payment Card Processing classification may be subject to the surcharge on Specified Financial Institutions and the Workforce Education Investment Surcharge on advanced computing businesses.

What are payment card processing activities?

Payment card processing activities means services related to directly or indirectly acquiring, processing, or routing electronic transactions for issuers, acquirers, payment networks, or merchants.

What are not payment card processing activities?

Payment card processing activities do not include:

• Issuing and authorizing the use of payment cards.
• Authorization, clearance, and settlement of electronic transactions by a payment network.
• Retail services or the retail sale of hardware or software.

Are there any deductions allowed?

Yes, businesses may deduct the following from the gross amount reported under the Payment Card Processing B&O tax classification:

• Interchange fees.
• Network fees.
• Portions of fees retained by other processors.

Are all payment card processing activities subject to the new classification?

No, businesses must report their gross income from payment processing activities under the Service and Other Activities B&O tax classification in either of the following circumstances:

• When the payment card processing company is also the issuer.
• When payment card processing activities involve credit, debit, or prepaid card transactions in which the processor both:
  • Operates the payment network or is affiliated with the operator of the payment network.
  • Makes related payments to an affiliated financial institution.

Interchange fees, network fees, and portions of fees paid to other processors are not deductible from the Service and Other Activities B&O tax classification.

Definitions

Acquirer means a person that contracts directly or indirectly with a merchant to provide settlement for the merchant's electronic transactions over a payment card network. An acquirer does not include a person who acts only as a processor for the services it provides to the merchant.

Affiliate and affiliated mean a person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with another person.

Interchange fee means the amount received by an issuer for the interchange of a transaction conducted by a merchant.

Issuer means any person who authorizes the use of a card to perform an electronic transaction.

Network fees are fees received by payment networks associated with processing a transaction or with accepting the payment network's brand.

Payment network means an entity that directly or indirectly provides the proprietary services, infrastructure, and software that route information and data to an issuer from an acquirer to conduct the authorization, clearance, and settlement of electronic transactions; and a merchant uses in order to accept as a form of payment a brand of card or other device that may be used to carry out electronic transactions.

Processor means a person, including an acquirer or issuer, that processes or routes electronic transactions for issuers, acquirers, or merchants.