The key part (or at least, the part I'm interested in) has nothing to do w/ what the merchant does, and pertains only to the user's gains (or loss, possibly) of btc's fiat value, which is what the govt requires reporting on for tax purposes.

Until your comment, I hadn't even considered the additional headache that the merchant would get if they kept whatever btc they received in these sales -- imagine that accounting nightmare, where every candy bar's worth of sats needs to be tracked for gain / loss! But since all this is automated by Square, maybe it's less bad than it seems, e.g., it's all aggregated.