As more residents pay their tax bills with credit cards, the fees are adding up

Times are tight, and taxes are due. Wouldn’t it be convenient if you could just put your tax bill on your credit card?

From excise taxes to parking tickets, Maine municipalities are beginning to accept credit card payments for a variety of expenses. But convenience – and higher collection rates – come at a cost.

In Scarborough alone, the town loses about $108,000 annually in bank fees when residents use credit cards to pay excise and other taxes.

Credit card use is convenient, but it is also costly. Banks generally charge about 1.5 to 3 percent of a transaction’s value to process it, meaning that the party receiving the money doesn’t get the full value of the transaction.

In some cases, such as parking tickets in Portland, the cost of credit card processing is assumed and built into the ticket amount.

In other cases, however, a resident’s decision to use credit instead of cash means that the public coffers lose money.

In Cape Elizabeth, which accepts credit cards only at the Portland Head Light and online for payment of excise tax, the town loses about $8,000 a year in processing fees, said Town Manager Michael McGovern. If the town accepted credit card payment of property taxes, it would lose a lot more.

“We’ve had a committee looking at accepting credit cards, and we’ve done estimates on what the possible cost of that would be,” he said. “It has the potential of being a lot of money. If you look at real estate taxes alone, at $22 million, if half of them were paid by credit card it would be $11 million, and if (the fee) were 2 percent, say, that alone would be $220,000 a year.”

He said a committee is currently looking into the pros and cons of accepting credit card payment for items such as building permits and community services fees.

Portland began accepting credit cards about six years ago for some types of payments, such as parking tickets and boot fees, and currently budgets $72,000 in the treasury department alone for credit and debit card transaction-related fees. The city does not accept credit or debit-card payment of property taxes, but does accept credit card payment of motor vehicle-related items, which has improved the collection rate.

Accepting credit card payment of property taxes would pose financial, legal and ethical challenges, said Portland Treasury Director Richard Lagarde.

“With property taxes … we really have to treat everyone equally,” he said. “If someone pays cash versus someone paying with the credit card, the city has to realize the same tax for that.”

Portland has considered a system that would pass credit card transaction fees on to the payee via a “convenience fee,” but there are legal and ethical considerations associated with that as well, Lagarde said.

“If we could do a convenience fee to offset our fees, we could process property taxes,” he said. “(But) that’s only in the discussion stage at the administrative level.”

Many Maine towns have begun accepting credit card payment for items less costly than property taxes, said Michael Starn, communications director for the Maine Municipal Association, but MMA does not collect specific data about credit card use.

According to the Maine Treasury Division’s home page, Cape Elizabeth, Scarborough and South Portland all accept credit card payment of automobile excise taxes.

None of the three towns currently accepts credit card payment of property taxes, but that could change.

“It’s clear that the world is kind of a plastic world for transactions of all sorts,” Starn said. “Even your smallest companies now tend to have credit card capabilities. …(I)t avoids you having to worry about collection and so on. There’s a lot of positives related to it but … for many of the smaller communities where collection isn’t a really big issue for them, I don’t know that they’re quite ready to move into it.”

However, he said he believes more and more towns will begin taking credit cards as credit card transactions become more prevalent throughout the financial world.

“A lot of state government transactions are taking place online and a lot of that is spilling into … local government,” he said.

Maine state government accepts credit card payment of taxes if they’re overdue, although it encourages taxpayers to use their debit cards or use checks.

“Right at the moment we do (cover credit card fees) as part of our expenses,” said Claudette Jewell, an accountant with the Maine Revenue Service. “(A) lot of the time people … find it a lot easier to pay on their credit card (so) we just swallow up the fee as part of the business.”

She said the state treasury department is also looking at charging “convenience fees” to pass the cost of credit card transactions on to the people who use them, but hasn’t come up with a system that would do that yet.

“As people who work in the tax division we’ve all talked about that … If people want to use the credit card process, the convenience of using a credit card should not come on the taxpayers as a whole.”

Even though the state does not accept credit card payment of current taxes, Jewell said, their use is growing nonetheless.

“On average, we collect a lot during the month on credit cards, but not as much as we do (through) check, cash and (Electronic Fund Transfer),” she said. “We’d like to expand (credit card payment) to do it for the current taxes also.”

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