States Move to Provide Businesses With Online Tax Filing
States Move to Provide Businesses With Online Tax Filing
By William Welsh, Staff Writer
With government and industry still debating how to bring tax services online for individual citizens, many states are finding that an equally important move is to provide businesses with the ability to pay their taxes online. And putting business tax filing online is probably an easier step to take.
This was the consensus of industry officials attending the Federation of Tax Administrators conference Aug. 13-16 in San Antonio, where tax experts from the public and private sectors examined the best ways to provide online tax services.
"Last year's star was the state of Washington, but this year's stars were Pennsylvania and Virginia," said Jonathan Light, a vice president in the state and local group for American Management Systems Inc., Fairfax, Va. "They are really making progress and rolling out substantive applications that provide online services."
Although the most common tax application now online is individual income tax filing, putting business tax payment online is one of the best investments that state revenue departments can make, said Faye Farrington, director of marketing for tax, revenue and labor practice at Unisys Corp. of Blue Bell, Pa.
"It has the greatest potential for online filing," she said.
About half the states have some type of online filing programs, whether for business or individuals, said Jonathan Lyon, FTA's senior staff associate for technology issues. Although these states have made good progress, most of the projects are in the pilot stages, a long way from full-scale rollout or from fully interactive, personalized Web tax sites, according to those interviewed.
The pilot programs consist of simple filing applications. Until states overcome technical, administrative and policy issues, "there is a natural caution to roll out anything at a very sophisticated level," Farrington said.
Some of the top tax projects by systems integrators include:
? AMS will take a project for Virginia sales and withholding taxes from pilot to statewide this September. This is one part of a five-year project to re-engineer the Virginia Department of Taxation, said Light.
Meanwhile, AMS is implementing a customer relationship management system with the help of Siebel Systems of San Mateo, Calif., scheduled to go live in January 2001.
? Andersen Consulting of Chicago will go live this fall with business tax filing in the District of Columbia as part of the city's 36-month, $62 million Integrated Tax System project. Online personal income tax filing is scheduled to follow in the summer of 2001. Andersen expects that 10 percent of the city's businesses will file using the system within a year, according to Tim Finnegan, a partner in Andersen's global government practice.
? Deloitte Consulting of New York will offer corporate income tax payment this winter for the Florida Department of Revenue. For its integrated tax system, Florida selected off-the-shelf software manufactured by SAP Inc. of Newtown Square, Pa.
The online filing of taxes by businesses, as opposed to filing by individual citizens, is probably an easier first step for the states, according to Farrington.
First, businesses file more frequently than citizens do, often on a monthly or quarterly basis. In addition, the legal and technical mechanisms for online filing by businesses have been more firmly established. For example, businesses can use electronic funds transfers and other options that avoid the credit card fees that often must be paid by individuals when they make online payments.
A demonstration of Ireland's Revenue-Online Service, constructed by the Irish government and Andersen Consulting, offered a glimpse into possible innovations by the states. It is scheduled to go live in September.
The service goes beyond electronic data interchange and what Sean Shine, Andersen managing partner of global government practice, described as "straight filing" to providing a fully interactive service that allows filers to check their account status, file their returns and make payments online.
"This is the first step in creating a personalized Web site for each taxpayer doing their business," said Shine. "There is no state that I am aware of that has done that."
Ireland's ROS ultimately will serve more than 1.8 million taxpayers from a national population of more than 4 million, according to John Leamy, ROS project manager in Ireland's Office of Revenue Commissioners. In 1998, the Republic of Ireland collected more than $26 billion in taxes. Thirty-nine companies responded to Ireland's request for information in April 1999, among them AMS. The project is the largest e-government initiative yet to be undertaken in Ireland.
"A lot of states here at the conference wish that they had the freedom to do what we have done in Ireland [and] to be as aggressive and forward thinking as we have been and take the risks that we have taken," said Leamy. "One of the points we made at the conference was that none of the states should underestimate the amount of work to deliver these services, but you've got to start, and be aggressive and deliver quickly."
In addition to business and personal tax filing, states ultimately may provide other online services related to tax and revenue such as business registration.
Pennsylvania, which went live Aug. 17 with e-filing for businesses, has provided online business registration since September 1999. The Pennsylvania Department of Revenue developed the business tax software in-house, but outsourced its personal income tax e-filing solution to GovConnect.com of Cincinnati.
Business registration is an issue that will require cross-agency coordination, said Alan Krasner, a partner with Deloitte Consulting.
For example, businesses must register not only with revenue agencies but also with labor and other departments.
"I believe this is why business registration has been a little bit slower to emerge," Krasner said.
On top of all of this, a continuing source of concern is the tension between state governments and private-sector businesses, such as H&R Block of Kansas City, Mo., and Intuit Inc. of Mountain View, Calif., that provide software for citizens to use when filing their taxes.
While these companies support states providing citizens with e-filing, they do not want the states to provide citizens with tax preparation services.
This was a major bone of contention between tax preparation service providers and the California Franchise Tax Board in 1999. The debate centered on whether these services should be provided exclusively by one sector or the other, or as a mixture of public- and private-sector services, according to P.K. Agarwal, former board CIO and now executive vice president for e-government applications at National Information Consortium Inc. of Overland Park, Kan.
"It was eventually decided that the private sector would provide the resources," Agarwal said. The public-private debate continues in other states.
"Part of the challenge for all of these tax agencies is getting the right mix of capabilities in the citizen arena, and partnering with private-sector companies that are interested in providing these services," said Light.
Whether states should provide actual tax preparation services is not a technical issue but a matter of public policy debate, according to industry officials. While some states are sensitive to the concerns of the private sector in this regard, others are adamant about their right to offer this service to citizens.
But business tax filing is a service the states can offer without stepping on anyone's toes in the private sector. Business tax filing "is not a big market right now for any of the private software companies," said Finnegan.