Charge It : More Homeowners in Southern California Pay Their Property Taxes With a Credit Card

Kevin White didn’t exactly whip out his credit card when he arrived at the Ventura County Tax Collector’s office in Ventura last week. Nor did he give a lusty cry of “Charge it!” the way he might if he were splurging on a new CD player or a fine meal, as he handed a clerk his latest property tax bill.

Still, the Oxnard resident was as pleased as anyone might be after he finished paying his property taxes with a credit card for the first time, an option available to increasing numbers of Southern California homeowners. White had already made out an $800 personal check to cover his biannual bill when he noticed the black-and-orange Discover card stickers posted on the cashiers’ computer terminals and rethought his plans.

“It gives you 30 days longer to have that money in your bank account,” said White, 31, who is a maintenance worker for Ventura County. “I put everything I can on my credit card because it gives me a permanent record of everything I buy.”

Property owners like White who charge their taxes to a Discover card represent fewer than half of 1% of Ventura County taxpayers. But as another tax collection period ended yesterday, local officials saw in those tiny but growing ranks substantial proof that the county’s 16-month-old experiment was having its desired effect; namely, meeting public demand for more flexible payment terms.

“At least some of those people who are using a credit card are using it as a method of spreading out their payments without incurring the penalties we would charge,” said Harold Pittman, Ventura County’s treasurer-tax collector. “If the alternative is to be delinquent, there are advantages, both to them and to us, in having that payment made.”

Convinced that homeowners would welcome another way of relieving their tax burdens as well, Orange, Riverside and San Bernardino counties also recently began accepting credit cards for property tax payments. As in Ventura County, credit card users pay a small surcharge for the privilege, whether they pay in person, by mail or over the telephone. Los Angeles County hopes to go the same route next year with a fully automated system that would enable homeowners to make credit card payments over the telephone 24 hours a day.

“As far as technology, this is not a monumental breakthrough,” said Richard Larsen, the assistant treasurer in San Bernardino, where the county started accepting in-person credit card payments last month. “But as a matter of philosophy, we better start thinking about it because government has got to get better at collecting on its bills.”

So far the utility of such programs has been severely limited, however, because most governments can accept only the Discover card and not the more popular Visa or MasterCard. Under conventional circumstances, retailers who accept credit cards pay 2% to 4% user fees to credit card companies. California law, though, forbids governments from absorbing such costs--which would amount to a taxpayer subsidy--or raising tax rates across the board to cover them.

But Dean Witter, Discover & Co. has given county governments a way around the prohibition by allowing local tax authorities to charge Discover cardholders a processing fee of $1 to $5 when they charge their property taxes. But the Visa and MasterCard associations do not permit such surcharges, claiming they discriminate against credit card users.

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“We would like to be able to accept Visa and MasterCard. But I’m not a merchant. I can’t absorb those costs or raise my prices to cover them,” Ventura’s Pittman said.

An amendment to the Truth in Lending Act has been introduced in Congress by Rep. James P. Moran (D-Va.) that would compel credit card companies to allow government agencies to impose fees for honoring credit cards.

And what happens if taxpayers fail to make their credit card payments after charging their property taxes? The Discover card, which generates $3 billion a year in revenues for Dean Witter, Discover & Co., has to foot the bill, not the government agencies. The only exception is when the government has either knowingly accepted a stolen card, or failed to secure proper authorization for a charge.

Ventura County officials said there have only been a few cases of cards being rejected. “Sometimes we get one where it says the taxpayer is over their credit limit and they go down to the phone booth, call Discover and when they come back it has cleared,” said John McKinney, the county’s assistant tax collector. “The customers who use Discover here are upper middle-income and above.”

Of local counties, Ventura has been accepting credit cards the longest, since December, 1993, and taxpayers there can either mail or phone in their card numbers or pay in person. The first month, 376 people paid their property taxes that way. Last December, the number more than doubled to 797. County officials estimate they will collect about $2.5 million through 1,500 credit card transactions this fiscal year, McKinney said.

Even though the payment method has become more popular across Southern California, credit card users still represent less than 1% of all property owners. In Riverside County, 4,437 of the 650,000 tax bills sent out were paid by credit card between July and the end of March. Since launching its credit card payment system in October, Orange County has processed about 1,091 Discover transactions, or less than one-fifth of 1% of its 750,000 taxable properties.

Because the number of credit card charges remains so small, none of the local tax authorities has seen a reduction in delinquent property tax payments. That goal, however, was clearly part of the state Legislature’s thinking in 1992 when it authorized county governments to accept credit cards for tax payments.

Officials in both Ventura and Los Angeles counties hope that by moving to fully automated telephone systems within the next year or two, it will reduce the work involved in processing tax payments and boost the number of people selecting the credit card option. Until that happens, the main advantage of taxes-by-credit so far has been mainly a convenience to taxpayers, officials said.

Property owners like Ventura resident Mary Joe Coe said they like the Discover option because the credit card company has a policy of paying cardholders up to a 1% to 1 1/2% rebate on their purchases. In the case of Coe and her husband, who own several residential rental properties in Ventura and have tax bills that run into the tens of thousands, the cash they get back from Discover more than offsets the county’s credit card surcharge.

“We always pay off our credit card each month because of the high interest rate, so we really come out ahead,” Coe said.

Not everyone welcomes the proliferation of credit card use in government. Ken McEldowney, executive director of Consumer Action in San Francisco, said cardholders who are not as conscientious as the Coes about paying off their balances risk incurring 18% annual interest charges that may cut into their household budgets.

“It’s a very unfortunate trend,” McEldowney said. “You are talking about a very large hit on your credit card. Not only are you going more deeply into debt, you are making it that much harder to make your next property tax payment.”