BankAmerica Corp. and Electronic Data Systems Corp. have developed a system for taking state and local tax payments over the phone.

The service goes by its phone digits, 1-888-ALL-TAXX. People paying tax bills and fees for drivers' licenses, building permits, and traffic violations could call the number and punch in their card numbers.

Cardholders would be charged 2% to 3% of the transaction amount as a convenience fee.

"Customers love payment options," said Steven Bohn, business manager at Plano, Tex.-based EDS. "We are a touch-tone society when you look at how we do transactions."

Officials said the option became possible last year under the Taxpayer Relief Act of 1997. It let individuals charge taxes, provided the collecting government entity does not pay a merchant discount fee, as is customary at retail points of sale.

The customer convenience charge would make up for the lack of a discount from the payee agency.

Officials said MasterCard International, American Express Co., and the Discover Card organization recently changed their rules to permit these variable convenience fees.

Visa U.S.A. lets third parties charge a fixed rate, but not variable- rate fees, which could become a sticking point for developers of any similar tax payment services.

For instance, if a fixed-rate fee were charged, taxpayers would have more of an incentive to make large-dollar payments, such as property taxes, as opposed to small-ticket items, such as parking tickets.

Visa officials could not be reached for comment, but bankers are awaiting a possible liberalization by the California-based card association.

"It's a very strict rule," said a banker who requested anonymity. "Visa is thinking it over, but they haven't said whether they would allow a tiered rate."

"As in many emerging markets, the regulatory guidelines for Visa and MasterCard are silent," said Lynetta "Stevie" Carnes, assistant vice president at BA Merchant Services, BankAmerica's transaction processing subsidiary. "We believe we are working within the regulations and have full intention of working within the regulations."

Meanwhile, BankAmerica and EDS officials said demand is growing from government entities that want to simplify collections.

Hundreds of millions in tax payments are made at the state and local level and are processed in a multitude of ways, Mr. Bohn said.

BankAmerica and its transaction processing subsidiary, BA Merchant Services, will be selling the payment service to customers and routing payments to the card networks.

"We have a large number of government clients that have asked us for this service," Ms. Carnes said.

EDS will manage the interactive telephone systems, network services, electronic data interchange communications, and customer service.

EDS has hired PhoneCharge Inc. of Glen Cove, N.Y., to provide direct marketing support.

Mr. Bohn said the service has been sold to several agencies, whose names have not been disclosed. He said the first transactions should begin this spring.

"We think this will be a real crackerjack product for us," Mr. Bohn said.

"I think this has enormous market potential, as long as the fee is reasonable and rational," said William Capps, executive vice president of Imperial Bancorp, Los Angeles, and head of its merchant card operations. "People will always need and always want payment alternatives."

To make a payment, individuals would simply dial into an automated voice response system and follow the prompts, entering credit card data and other information on the phone pad. The transaction would be complete, with confirmation, in a matter of seconds.

EDS has developed an EDI-electronic data interchange-file format that agencies can use to link payments with an accounts receivable system and other, related information.

Industry officials noted that many state and local governments are rapidly moving to accept credit cards, changing laws where necessary to allow it.

At the federal level, the Treasury's Financial Management Service "doesn't have a program up and running, but we are evaluating the feasibility for such programs within the Federal government," said Melody Barrett, an agency spokeswoman in Washington.

Nebraska passed a law last year that permits credit card payments.

"The state will see reduced administrative costs plus increased cash flow, which ultimately will benefit the taxpayer," said David Heineman, Nebraska's treasurer.

The state does not yet allow tax payments but is considering it, said Elias Eliopoulos, president of First of Omaha Merchant Processing, a unit of First National Bank of Omaha.

First National recently won a five-year card processing contract from Nebraska.

William Kilmartin, comptroller of Massachusetts, attributed the apparent explosion in state and local interest to the fact that card and phone interaction is easy and can spare payers from taking time off from work.

Mr. Kilmartin said he is not aware of state acceptance of tax payments this way but "we'd consider it. I think a lot of governments would consider credit cards for taxes."

Frank O'Leary, treasurer of Arlington County, Va., said he played a role in persuading government entities to accept credit card payments. Over the last two years, he lobbied vigorously in Congress and to Visa and MasterCard for policy changes.

"The principal benefit is to the taxpayers," Mr. O'Leary said. "They can call in at any time of the day."

Mr. Kilmartin described Mr. O'Leary as an "evangelist on this issue."

Arlington County has already launched its own telephone-based service, 1-888-2PAY-TAX. The service, managed by US Audiotex of San Ramon, Calif., collects about 10 payments for Arlington daily. The average value is $330, excluding a cardholder fee.

US Audiotex officials agreed that credit card payment services have rapidly expanded in recent months. It processes payments for several states, totaling several hundred transactions a day, although company officials would not be more specific.

Craig White, account executive at US Audiotex, said he is working with Arlington County officials to develop a proprietary electronic data interchange system over the Internet.

"Instead of a fax, we'll just e-mail it to them, and their program will take the information and update their data base," Mr. White said.

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