Integrators Pursue Promising Online Tax Projects

By Steve LeSueur, Staff WriterOnline tax filing is a cresting wave that systems integrators plan to ride as state and local tax agencies use the Internet to streamline operations and improve their image with the public.Tax collection agencies interact directly with more citizens than any other government offices, except perhaps motor vehicle departments. That makes those agencies prime candidates for Internet technology that can make interaction with citizens as pleasant and efficient as possible.An ever-growing number of government officials see online tax filing as a true benefit to those citizens. It offers immediate payment of taxes and quick refunds for citizens, while reducing paperwork and improving accuracy within the agencies."We expect that the majority of state agencies will want to implement e-filing in the near future," said David Wilkins, a partner heading up the compliance portfolio for state and local government with Andersen Consulting of Chicago. Andersen in December signed up Ireland's Revenue Commission as the first government customer for its new EasyTax solution. EasyTax incorporates e-filing, electronic payments and other electronic innovations to give taxpayers rapid and easy access to tax agencies.Anderson officials said EasyTax has the potential to generate tens of millions of dollars in revenue in the United States and abroad."Electronic tax filing is a hot application," said James Macaulay, a government analyst with Dataquest Worldwide IT Services, a research arm of the GartnerGroup, Stamford, Conn. Dataquest does not track growth in electronic filing, but the company estimates that spending on tax and revenue systems by state and local governments will grow from $552 million in 1999 to $972 million in 2004, an annual growth rate of 12 percent.E-filing includes both online filing and telephone filing. The latter also enables citizens to file taxes electronically but does not provide the flexibility or sophistication of Internet filing. Some states, such as Kansas and Hawaii, are adopting telephone filing first with the option to add online filing later.In order to spur e-filing, President Clinton's 2001 budget proposal will include a $10 tax credit for taxpayers who file their returns online and a $5 credit for those who file using the telephone, Treasury Secretary Lawrence Summers announced Jan. 14.Approximately 2.5 million taxpayers filed their tax returns online via their home computers last year, and that number is expected to increase dramatically this year, Summers said.Like Andersen, other large systems integrators also are implementing their first Internet tax filing solutions:? American Management Systems Inc. of Fairfax, Va., will go live in February with a pilot project to allow Virginia businesses to e-file their withholding and sales taxes. The company anticipates that up to 2,000 businesses will use e-filing during the project, which runs through June, said George Mitchell, AMS vice president and engagement manager for the Virginia tax project. ? IBM Corp. of Armonk, N.Y., recently completed installation of a new system, known as Pelican File, that allows beer wholesalers in Louisiana to file and pay monthly excise taxes over the Internet. This is the first phase of a project that will expand to other types of taxes throughout the state, said Bryan Barton, a finance solutions executive for IBM.? Unisys Corp. of Blue Bell, Pa., is implementing an online filing system for income taxes for the city of Pittsburgh, said Faye Farrington, director of marketing for the company's tax, revenue and labor practice. Unisys' tax and revenue unit is the second largest revenue producer for the company's public-sector service accounts, she said. These efforts are part of a larger push by many tax agencies to automate their information systems and improve customer service, said industry officials."This goes beyond simple filing," said Sean Shine, who oversees Andersen's revenue practice worldwide. Andersen's EasyTax, for example, includes integrated customer management tools that provide online help and more personalized customer service.In Virginia, AMS is teaming with Siebel Systems Inc., San Mateo, Calif., a leading provider of customer relationship management software, to redesign tax forms, improve call centers and install other customer service enhancements. The Virginia contract, awarded in 1998, is worth $122.9 million over five years.In order for electronic tax filing to succeed, governments must find a way for citizens to pay taxes online without paying large credit card fees. Credit card companies usually charge a transaction fee of about 2 percent when people use their cards to make payments.In the private sector this fee is paid by businesses, but in the public sector existing laws prohibit many state governments from paying this fee. Governments can pass this cost onto citizens, but many citizens are reluctant to pay the fee, especially when it comes on top of an already large tax bill."Credit card fees are a huge barrier to e-filing right now," said Farrington.Some state officials want the credit card companies to reduce or eliminate their fees, but no satisfactory solution has emerged.Another obstacle to online tax filing is the opposition by professional tax preparers and businesses that sell software for online filing. Tax preparation giants H&R Block of Kansas City, Mo., and Intuit Inc. of Mountain View, Calif., late last year persuaded a judge to block the installation of an e-filing service by the California Franchise Tax Board, the state's tax collection agency.Officials from these companies said they support efforts by government to create an e-filing capability, but they oppose solutions in which the government performs a tax preparation service for taxpayers. "We think e-filing is exactly the right way to go, but we don't want the states to replicate tax preparation forms," said Bernie McKay, vice president of corporate affairs for Intuit. "This represents a conflict of interest and raises real questions about the appropriate role of government in e-commerce."McKay also warned that modern technology essentially could enable the government to take over entirely the task of tax preparation, leading to a scenario in which the government simply sends taxpayers a bill each year telling them how much they owe. "The technology can be built for the government to do anything and everything in our society. The question is what should the government do?" he said.In order to deal with ongoing questions about credit card fees and the smoldering opposition from tax professionals, governments are taking only small steps in their online filing projects, industry officials said. Pittsburgh currently accepts e-filing only for individuals who do not owe taxes.The pilot project in Virginia collects taxes from businesses, which primarily use electronic funds transfers that do not rely on credit cards.And some states, such as Kansas, have begun with telephone e-filing before moving to the Internet, although this approach also faced opposition from tax professionals, said industry officials.Virginia officials are using the pilot project to work with businesses and the professional tax preparation community to develop an acceptable solution, said Ross Kory, AMS vice president and director of state and local government and education."The changes are so large and pervasive that you've got to talk to all the stakeholders," he said.