Imaging Technology Boosts States' Tax Offices

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Imaging Technology Boosts States' Tax Offices

Information technology companies are finding big-money opportunities in plugging document imaging technology into state and local government tax revenue offices. With tax offices looking to reduce inefficiency, document imaging reduces the need for keypunch operators and staggering amounts of paperwork.

G2 Research Inc., a Mountain View, Calif.-based market research company, reports that document imaging technology accounts for a large share of a state and local tax revenue market that's worth $386 million in annual sales now and is growing at 14.3 percent.

For prime contractors looking to make inroads in tax revenue systems integration, selling imaging technology is a way in the door of state and local government offices, industry officials say. Unisys, Northrop Grumman and Armonk, N.Y.-based IBM Corp. are dominating the state and local market now with this niche, according to G2 Research.

Unisys recently snared a large award from the state of California. The company won a $61 million contract in June to provide image-enabled tax processing for the employment development division. That service will include the processing of California's workers compensation tax forms.

Unisys photo Barry Lurie oversees Unisys' tax and revenue business

Among other recent successes for Unisys that include document imaging in tax offices: In May, the city of Louisville awarded it a $2.3 million, integration contract to manage city withholding tax. In June, the state of New Hampshire awarded Unisys a $2.3 million integrated tax application contract for its labor department. Last month, the state of Pennsylvania awarded the company a $7.5 million contract extension that will provide imaging technology for personal tax systems management systems.

In the imaging business for 15 years, Los Angeles-based Northrop Grumman Corp. is now introducing the technology to state customers who are already signed on to tax revenue systems integration contracts with the company. The imaging systems were launched in the tax revenue offices in the state of Florida late last month, and Mississippi has been using the technology for about a year. Since July, both states started using a new version of Northrop Grumman's imaging technology to process tax revenue checks, adding to the tax form work the technology was already providing.

"We're really excited about the market growth,'' said Dondie McNickle, director of imaging and information systems for Northrop Grumman. "The customer is extremely excited about working with us. We're hoping to use this as a leaping point for other things to do. We want a more product-type solution, a standard architecture, to reduce the cost in using the systems and market it to multiple customer tastes.''

About half the states in the country are using document imaging in tax revenue offices or are considering it, according to Harley Duncan, executive director of the Federation of Tax
Administrators, the Washington association that represents the nation's state tax revenue offices.

Northrop Grumman photo Dondie McNickle, director of imaging and information systems for Northrop Grumman

The technology allows government customers to take piles of mailed-in forms and scan them electronically. The system can even use software to check the taxpayer's math. The forms are then stored on 12-inch data disks that can be accessed through the tax revenue office network.

When a revenue employee must talk to a customer about a problem with the form, they call it up instantly on their desktop through the network instead of dealing with microfilm or paper.

When checks are scanned, the integrator technology encodes and endorses the check on behalf of the state and readies the check amount for deposit. With document imaging, the government customer gets the money in the bank in two or three days instead of a month, industry officials say.

The city of Toledo, Ohio, cut its tax revenue staff from 21 to 15 - trimming annual personnel costs from $1.25 million to $1 million - after hiring Unisys to provide imaging technology as part of a $1.4 million contract awarded in April 1995.

"For us, that's a drastic change,'' said Gene Borton, commissioner of taxation and treasury for Toledo, population 330,000. "We eliminated duplication of effort between cashiers and data entry people. We also went basically paperless. ... People don't spend time going through files looking for forms.''

IBM has landed at least $15 million in contract awards since 1990 by providing document imaging technology to state revenue offices in Maryland, Maine, Vermont, Georgia and Wisconsin. The company is now negotiating with at least four undisclosed states and expects to start announcing those awards by the end of the year. Getting the awards tends to have a domino effect, company officials say.

"Customers today, especially with document processing and forms processing, tend not to be big risk takers,'' said Scott McDonell, the IBM manager who oversees intelligent forms processing. "This is leading-edge technology. They want to see proof that it works. Once you get one lined up and working well, you get other customers who have a tremendous amount of interest in the solution.''

In 1995, Northrop Grumman won systems integration contracts with two states' tax revenue offices that will last up to five years and total about $5 million in company revenue each. Those states, Florida and Mississippi, are following the lead of New Jersey, where tax revenue officials have been using Northrop Grumman imaging technology for two years now, as part of a five-year, $5 million integration contract.

"With the paper handling, we had to find a better way,'' said Alice Gorman, director of administrative services for the Mississippi State Tax Commission, which oversees 75 different tax levies that use 500 different forms. "With the image scanning, we hoped this would help us handle the growth in numbers since we can't grow staff.''

Hopefully, company officials say, tax offices are just the beginning. In Florida, Northrop Grumman is providing generic pricing information on the imaging of letter and coupon-sized forms so it can provide the service to other state agency officials, such as those overseeing motor vehicle document processing.