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South Carolina wrestles with fee-free credit card property tax payments

April 1, 2014
Credit Cards
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One beautiful thing about having a rewards-based credit card is that when gigantic expenses roll around, you can charge them and earn equally gigantic amounts of points or miles. Alas, sometimes these gigantic opportunities come with a gigantic pitfall: The merchant may tack on a 2.5%-3.5% fee to cover the interchange fee they must pay with every transaction. Such is the case with credit card payments for things like property taxes or income taxes.

I’m generally not a fan of paying that fee to get the bonus points because the value of those points is often significantly less than the fee itself. Therefore, it’s a losing proposition.

South Carolina, however, is considering scrapping the additional fee its counties collect when property taxes are paid by credit card. Not every county is happy. Colleton County officials oppose the idea of absorbing the interchange fee and have expressed their displeasure to their representatives in the state legislature.

There are pros and cons for the county, but also a caveat for taxpayers.

A potential upside to the county is that people who cannot afford to pay their taxes in cash pay with a credit card. This would ease their burden a little bit. The caveat for these taxpayers, however, is that if they subsequently carry that balance under regular APR terms of their card, they’ll be paying a potentially hefty interest rate. Paying 11.9% or 22.9% on your property tax bill is not a great way to be paying one’s taxes. The same goes for paying income tax.

There’s a major downside, however, to the county in waiving the fee. The county then absorbs that 2.5% charge. In a time where many municipalities are struggling fiscally, adding yet another expense is not fiscally prudent. The waiving of this fee, however, might induce other people to charge their taxes on their credit cards. While the country’s credit card payments last year reportedly came to some $430,000, that number might theoretically rise. Although 2.5% of $430,000 may only be about $11,000 in fees, every dollar counts in a county’s budget. What might that $11,000 be used for?

The county might benefit from surveying its citizenry. The economy is not in great shape, and it may be that folks are struggling to pony up property taxes in cash. Any incentive to keep them current on their taxes may make sense, even if it’s only a 2.5% discount. Property taxes generally take priority over even mortgages when it comes to liens that can be placed on real property. If a homeowner defaults on their property taxes, they can be evicted and the county can seize the property. In some cases, counties sell off the lien at a discount to private specialty lending firms. Those firms then try to work out a payment plan with the owner, while still holding a first-position lien on the property.

This is likely tied to political theater going on behind the scenes in South Carolina. However, it is worth watching the news to see if this fee-waiver concept catches fire. If it does, then it becomes a particularly easy and valuable way to rack up bonus points on your credit cards.

 South Carolina state flag. Image via Shutterstock