<PAGE>
 
                                                                    EXHIBIT 10.6

                        TAX ALLOCATION AGREEMENT BETWEEN
                       BAC AND BA MERCHANT SERVICES, INC.


     This Tax Allocation Agreement ("Agreement"), made this 3rd day of December
1996, by and between BankAmerica Corporation ("BAC") and BA Merchant Services,
Inc. ("BAMSI").

     Whereas, a consolidated U.S. federal income tax return ("Consolidated
Return") is filed which includes BAC and all domestic, Canadian and certain
Mexican subsidiaries ("Consolidated Group").  BAC will include BAMSI in its
consolidated federal income tax return relating to periods during which the
members of the Consolidated Group own 80 percent of the voting power and 80
percent of the value of the stock of BAMSI within the meaning of section 1504 of
the Internal Revenue Code.

     Whereas, consolidated, combined, joint or unitary income tax and franchise
tax returns on income ("Combined Returns") are also filed, as required by
certain state and local jurisdictions, including California.

     Whereas, certain direct and indirect subsidiaries of BAC join in filing
Consolidated and/or Combined Returns (the "BAC Group")

     Whereas, there will be periods during which BAMSI will join BAC in filing
either Consolidated or Combined Returns or both ("Affiliation Periods").

     Whereas, BAMSI anticipates that it will sell 14,000,000 shares of its Class
A Common Stock to the public in an initial public offering (the "IPO")
(16,100,000 if the underwriters exercise their over-allotment option) and that
as a result, BAMSI will thereafter cease to be included in the Consolidated
Group (although BAMSI may continue to be included in certain Combined Returns);

     Whereas, the parties wish to set forth in this Agreement the agreement
between BAC and BAMSI with respect to the allocation and settlement of the
federal, state and local taxes of the BAC Group and the agreement between BAC
and BAMSI with respect to the resolution of tax controversies;

     Now, therefore, in consideration of the mutual covenants contained herein,
the parties agree as follows:
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1.   Filing of Returns
     -----------------

     With respect to each Affiliation Period, BAC shall file, and BAMSI shall
agree to join in the filing of, Consolidated Returns and/or Combined Returns on
behalf of the BAC Group.  BAMSI shall execute and file such consents, elections
and other documents as BAC reasonably requests with respect to the filing of the
BAC Group's Consolidated and Combined Returns and shall timely provide to BAC
such information as may be necessary for the filing of such returns or for the
determination of amounts due under this Agreement.  BAMSI acknowledges and
agrees that the rights conferred upon BAC in connection with the filing of the
BAC Group's returns include, without limitation, the right to reasonably
determine the allocation of income (or loss) of BAC and BAMSI between the last
Affiliation Period and the next taxable period (including the allocation of tax
liability with respect to the date of the IPO).  BAMSI shall file all required
federal, state, local and foreign tax returns with respect to all periods for
which BAMSI is not includible on a return of BAC, and BAMSI shall be responsible
for the payment of all taxes in connection therewith.  BAMSI shall file any such
tax returns in a manner consistent with the manner in which BAC filed its
returns for Affiliation Periods (except as required by law or to the extent any
inconsistency would not adversely affect the returns of the BAC Group).

     For purposes of any Affiliation Period and any taxable period for which
BAMSI is included in any Consolidated Return or any Combined Returns, BAC and
BAMSI will settle taxes on income in the manner described below.  BAC and BAMSI
will use the same settlement procedure for payments made between BAC and BAMSI
after BAMSI ceases to be a member of the BAC Group, which are attributable to
adjustments made to Affiliation Periods.

2.   Allocation and Settlement of U.S. Federal Consolidated and Combined State
     -------------------------------------------------------------------------
     Income Taxes
     ------------

     BAMSI will determine and settle its share of the Consolidated/Combined
income taxes based upon income taxes currently payable on a separate return
basis as modified below.

     BAMSI will receive tax payments in the current year for its net operating
loss, its net capital loss, and its excess foreign tax credits and general
business credits (hereinafter referred to as "Tax Benefit Items"), as computed
on a separate return basis, provided these Tax Benefit Items can be carried back
on a separate return basis.

     If BAMSI's Tax Benefit Items cannot be carried back on a separate return
basis, but are utilized in the Consolidated/Combined Returns, BAMSI will receive
a tax payment equal to the reduction of the Consolidated/Combined tax liability
relating to the utilization of BAMSI's Tax Benefit Items.

                                                                              2.
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     If more than one corporation has Tax Benefit Items which cannot be carried
back on a separate return basis and the full amount of such items are not
utilized in the Consolidated/Combined Returns, each corporation receives a pro-
rata tax payment equal to the reduction of the Consolidated/Combined tax
liability relating to the utilization of the corporation's Tax Benefit Items.
Any such Tax Benefit Items not utilized in the Consolidated/Combined Return are
carried forward.  The specific ordering rules prescribed by the taxing
authorities are applied in computing the utilization of Tax Benefit Items.

     Tax Benefit Items utilized in the Consolidated/Combined Returns for which a
tax payment was received by BAMSI will be excluded from the computation of
BAMSI's tax liability on a separate return basis for any succeeding year.

3.   Controlled Group Tax Benefits
     -----------------------------

     Controlled group tax items, including apportionment of rate brackets,
minimum tax exemption, environmental tax exemption, and other similar items, are
determined on a Consolidated/Combined basis.  The controlled group tax items are
allocated to each corporation in the BAC Group on an equitable and consistent
basis if such items are claimed on a Consolidated/Combined return.

4.   Alternative Minimum Tax ("AMT") and Alternative Minimum Tax Credit ("AMTC")
     ---------------------------------------------------------------------------

     AMT is determined on a Consolidated/Combined basis and allocated to each
corporation on an equitable and consistent basis.  The allocation is based upon
each corporation's tax preferences, tax adjustments and other items causing the
AMT in the Consolidated/Combined return.  AMT is not allocated to any
corporation that does not have any tax preferences, positive tax adjustment
items or other items causing AMT.  The total amount of AMT allocated to each
corporation cannot exceed the Consolidated AMT and the Combined AMT, for any
given state, in any tax year.

     In future years, as any Consolidated/Combined return AMTC is utilized, AMTC
is allocated to each corporation on an equitable and consistent basis.  This
allocation is based upon the amount of AMT that had been previously allocated to
each corporation. To the extent that AMTC would otherwise be allocated to BAMSI,
if BAMSI had not left the BAC Group, due to an allocation of AMT to BAMSI during
an Affiliation Period, BAMSI shall be entitled to a payment from BAC in an
amount equivalent to such AMTC.  The total amount of AMTC allocated to each
corporation cannot exceed the consolidated AMTC claimed in any tax year.

                                                                              3.
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5.   Combined State and Local Income and Franchise Taxes on Income
     -------------------------------------------------------------

     The tax liability of Combined Returns is calculated by applying BAMSI's
apportionment factors, as computed on a separate return basis, to BAMSI's
separate return taxable income using the tax accounting method applicable to the
state or local tax jurisdictions.

6.   Tax Settlement Payments
     -----------------------

     In addition to settlements required by paragraphs 7 and 8, tax settlement
payments between BAC and BAMSI are made as follows:

     (a) BAMSI will pay or receive its current year estimated tax liability or
refund, as computed on a separate return basis, at the respective quarterly
installment due dates, including the original return due date.

     (b) BAMSI will pay BAC the amount of taxes or receive tax overpayments, as
computed on a separate return basis, (less previous settlements, if any) on the
extended due dates of the Consolidated/Combined Returns.

     (c) BAMSI will receive a refund from BAC in the current
Consolidated/Combined year of previously paid taxes for Tax Benefit Items that
can be carried back on a separate return basis.

     (d) BAMSI will receive a payment from BAC in the current year for the
reduction in the Consolidated/Combined tax liability that results from the
utilization of its Tax Benefit Items not utilized previously on a separate or
Consolidated/Combined basis.

     (e) Federal and Combined taxes attributable to or from each foreign
subsidiary or branch of BAMSI will be settled directly with BAMSI.

     (f) BAMSI will settle all taxes of separately filed tax returns directly
with the individual tax jurisdictions.
 
7.   Restructuring Taxes
     -------------------

     Notwithstanding any other provision of this agreement, any amount payable
with respect to Restructuring Taxes and any related costs imposed upon any
member of the BAC Group shall be allocated in the year determined between the
BAC Group and BAMSI in accordance with Schedule A.  "Restructuring Taxes" shall
mean any taxes resulting from transactions contemplated by the transfer of
assets to BAMSI by other BAC Group members or the

                                                                              4.
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assumption by BAMSI of liabilities of such other BAC Group members in connection
with such transfers.

8.   Subsequent Return Adjustments
     -----------------------------

     In the event the Consolidated or Combined Returns are amended or adjusted
(whether by reason of the filing of an amended return, a claim for refund, or
otherwise) the liability of BAMSI will be redetermined, adjusted and settled on
a separate return basis consistent with the above provisions.

     In the event the Consolidated or Combined tax liability is redetermined or
adjusted pursuant to an audit or challenge by the taxing authorities, or if a
voluntary tax payment is made to limit the accrual of interest on audit issues,
the tax liability of BAMSI will be redetermined, adjusted and settled, as
appropriate.  Payments reflecting such redeterminations or adjustments shall be
made when (a) a settlement (evidenced in writing or by the payment of taxes) is
entered into with the taxing authority, (b) a decision of a court having
jurisdiction in the matter becomes final and is not subject to appeal, or (c)
BAC makes a voluntary tax payment on behalf of the BAC Group with respect to the
Consolidated or Combined Returns.

     BAC may allocate the liability for any redetermination or adjustment on a
tentative basis among the member corporations and BAMSI in accordance with its
estimate of each corporation's liability on a separate return basis.  The
tentative allocations will be revised and settled when return adjustments are
finalized.

9.   Penalties and Interest
     ----------------------

     If penalties or interest are imposed by the taxing authorities, or if a
voluntary interest payment is made, the payment is allocated to and made by each
responsible corporation.  If any interest from the taxing authorities is
received by BAC or its subsidiaries included in the Consolidated or Combined
Returns, such interest shall be allocated and refunded to the attributable
corporation.

10.  Billing
     -------

     The Tax Department of Bank of America NT&SA determines the tax settlements
and provides written notification of the tax payments and refunds at the
respective installment due dates for estimated tax payments and at the original
and extended due dates of the Consolidated/Combined Returns.

     In addition, written notification of any tax payment or overpayment for
adjustments reflected in amended returns and tax audits and of any Restructuring
Taxes will also be provided by the Tax Department, as appropriate.

                                                                              5.
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     Payments of income taxes, penalties and interest are payable within thirty
(30) days of billing.  If payment is not made within the thirty-day period,
interest is charged from the date of billing to the date of payment.  Interest
accrues on the late payment at the same rate used by the taxing authorities on
late payments during such period.

11.  Determinations and Disputes
     ---------------------------

     Subject to section 12 of this Agreement, in the event that any dispute must
be settled under this Agreement, the parties hereto agree to submit the issue in
writing to the Tax Advisory Committee ("Committee") for its review and
recommendation, with the final decision to be made by the Chief Accounting
Officer.  The Committee consists of the Director of Tax and representatives from
Corporate Finance and Corporate Treasury.  The Committee shall permit a
representative of BAMSI to participate in the review as appropriate.  In the
event that reasonable mutual satisfaction cannot be reached between BAC and
BAMSI with respect to a final decision of the Chief Accounting Officer, the
dispute may be submitted to arbitration as described below.

     Any dispute, controversy or claim between BAC and BAMSI arising out of or
relating to this Agreement, or any agreements or instruments relating hereto or
delivered in connection herewith, will be resolved by arbitration conducted in
San Francisco, California under the auspices and according to the Commercial
Arbitration Rules of the American Arbitration Association.  The arbitration
shall be conducted in accordance with the United States Arbitration Act (Title
9, U.S. Code), notwithstanding any choice of law provision in this Agreement.

12.  Procedural Matters
     ------------------

     (a) To the extent that BAMSI remains part of the Consolidated Return for
federal income tax purposes or part of a Combined Return, the Tax Department
will prepare and file Consolidated and Combined Returns, along with any other
documents or statements that are required to be filed with the taxing
authorities for the U.S. federal, state or local purposes, related to
Consolidated and Combined Returns.  In its sole discretion, with respect to any
Consolidated/Combined Return which it has filed or will file, BAC has the right
to

          (i)  Determine:

               1) The manner in which such returns, documents or statements are
prepared and filed including, without limitation, the manner in which any item
of income gain, loss, deduction or credit shall be reported;

               2) The manner in which the Consolidated or Combined tax liability
will be allocated for the purpose of

                                                                              6.
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determining the taxable earnings and profits of each corporation;

               3)   Whether any extensions may be requested; and

               4)   The elections that are made by any corporation included in
BAC's Consolidated/Combined Returns.

          (ii) Except as otherwise expressly provided in (b) and (c), contest,
compromise or settle any adjustment or deficiency proposed, asserted or assessed
as a result of any audit of such returns by the taxing authorities;

          (iii) File, prosecute, compromise or settle any claim for refund; and

          (iv) Determine whether any refunds to which BAC and its subsidiaries
may be entitled are paid by way of refund or credited against the tax liability
of BAC and its subsidiaries.

     Without limiting its rights and obligations, BAMSI hereby irrevocably
appoints BAC as its agent and attorney-in-fact to take such action (including
the execution of documents) as BAC may deem appropriate to effect the foregoing.

     Filing positions taken in the Consolidated/Combined Returns may adversely
impact the computation of separate return tax liabilities of certain
corporations.  Accordingly, the Tax Department will calculate each corporation's
separate return tax liability or refund using the different filing basis that
would be available to the corporation had it filed a separate return, if it
results in a material difference in computing the corporation's separate tax
liability.

     (b) If any party receives notice of a tax examination, audit or challenge
involving amounts subject to this Agreement, such party shall timely notify the
other party of the information and shall provide the other party with a written
copy of any relevant letters, forms or schedules received from any taxing
authority or otherwise in its possession and shall provide notice and
information relating to all material proceedings in connection therewith.  In
any audit conference or other proceeding with any taxing authority or in any
judicial proceedings concerning the determination of the tax liabilities of the
BAC Group or any of its members, including BAMSI, the BAC Group and each of its
members shall be represented by persons selected by BAC, except that BAMSI shall
select its own representative; provided however, the settlement and terms of
settlement of any issues relating to such audits shall be in the sole discretion
of BAC. In the event that BAMSI can show, by clear and convincing evidence, that
any such settlement or the terms of such settlement unreasonably and adversely
affects BAMSI, the resulting dispute between BAC and BAMSI may be submitted to
arbitration as described above in Section 11.

                                                                              7.
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     BAC shall have the right to review BAMSI's separate returns and records
relating thereto with respect to issues which are relevant for BAC's returns.
Such access shall be provided on a reasonable basis.  BAC shall have a right to
participate in audits of BAMSI's separate returns with respect to issues which
are relevant for BAC's returns; provided however, the settlement and terms of
settlement of any issues relating to such audits shall be in the sole discretion
of BAMSI.  In the event that BAC can show, by clear and convincing evidence,
that such settlement or the terms of such settlement unreasonably and adversely
affect BAC, the resulting dispute between BAC and BAMSI may be submitted to
arbitration as described above in Section 11.

     (c) Notwithstanding (b), so long as any proposed deficiency solely involves
a tax issue of BAMSI, BAC shall contest such issue to the extent requested in
writing by BAMSI and shall permit BAMSI, at BAMSI's expense, to participate in
all conferences and meetings with taxing authorities with respect to the issue;
provided, however, that if (and so long as) the controversy also involves a tax
issue of BAC or member of the BAC Group other than BAMSI (whether for the
taxable year in question or another taxable year), BAC shall be entitled to the
choice of forum for the proceedings and shall have the right to make any
decision as to settlement of the contest or any issue; further, in no event
shall BAC be required to take any action requested by BAMSI unless and until (i)
BAMSI shall have given BAC an indemnity in a form satisfactory to BAC for any
liability, expense or loss arising out of or relating to BAMSI issues involved
in the dispute or contest (including, without limitation, all out-of-pocket
expenses solely of BAMSI (including internal computation costs of BAC Group
employees), costs, losses, reasonable disbursements, penalties, interest and
additions to tax relating to such issues, but excluding any expense of BAC
incurred for the purpose of monitoring the BAMSI issues) and (ii) if such
contest is to be conducted in a manner requiring payment of a proposed tax
deficiency, BAMSI shall have advanced to BAC on an interest-free basis an amount
attributable to the issue, together with any required interest or penalties.

13.  Termination
     -----------

     This Agreement between BAC and BAMSI shall terminate if BAC and BAMSI
agree, in writing, to terminate this Agreement.  In addition, BAC shall have the
right to terminate this Agreement at any time upon 30 days' prior written notice
to BAMSI, if BAC and its affiliates beneficially own less than a majority of the
voting power of the outstanding common stock of BAMSI.

     With respect to BAC and BAMSI, notwithstanding the termination of this
Agreement, the provisions herein remain in effect for any tax year in which
Consolidated/Combined Returns have been filed.

                                                                              8.
<PAGE>
 
     Upon the departure of BAMSI from the BAC Group, BAC will pay BAMSI for any
previously unpaid tax benefits relating to Tax Benefit Items that were utilized
in the Consolidated/Combined Returns.

14.  Indemnity
     ---------

     BAMSI will be indemnified by BAC for any joint and several federal income
tax liability incurred during an Affiliation Period which is not attributable to
BAMSI.

15.  Miscellaneous Provisions
     ------------------------

     This agreement embodies the entire understanding and agreement of BAC and
BAMSI with respect to the allocation and settlement of income taxes.


16.  Effective Date
     --------------

     This agreement is effective for 1996 and all subsequent years.


     In Witness Whereof, the undersigned parties have caused this Agreement to
be executed as of the date first above written.


                                    BankAmerica Corporation


                                    By /s/ Barry L. Pyle
                                       ----------------------------------
                                         Barry L. Pyle
                                         Senior Vice President



                                    BA Merchant Services, Inc.


                                    By /s/ Sharif M. Bayyari
                                       ----------------------------------
                                         Sharif M. Bayyari
                                         President and Chief
                                           Executive Officer

                                                                              9.