States continue steady spending on tax, revenue projects

State and local government spending on tax, revenue and collection systems will grow by more than $200 million from 2006 to 2010, according to a report released this week by the market research firm Input Inc.

Spurred by increased budget growth following a recession, Input of Reston, Va. forecasts that spending on state and local tax and revenue IT systems will climb from $549 million in 2006 to $755 million in 2010, rising at a compound annual growth rate of 8.3 percent.

The market will be driven by the potential return on investment and new tax initiatives, such as the Streamlined Sales Tax Program, which sets a precedent for online sales tax collection, the report states.

Growth, however, could be significantly greater with the expansion of integrated tax systems having national ramifications for integration across jurisdictions, the report suggests. The tax and revenue IT market could grow to the $1 billion to $2 billion range within the next two or three years, according to the report.

Behind the optimistic numbers is an economy building momentum. The United States' Gross Domestic Product grew aggressively in 2004, averaging 4.4 percent growth. The growth continued in the first three quarters of 2005 at a rate of 3.8 percent. Market analysis suggests that GDP growth will slow in the final quarter of 2005, but will still exceed Input's original projection of 3.5 percent growth for the year.

"The continued economic recovery will assist in stabilizing budgets and return these governments to a more pronounced period of spending that will include long-delayed projects for tax and revenue system information technology," the report states.

Vendors likely will see opportunities in collections, processing and tax discovery systems as well as electronic filing initiatives, according to the report. Also, Input expects a launch of the next major wave of revenue system metamorphosis, which will drive "extremely significant" investment.

Input offered three recommendations for vendors:

  • Watch for trends in the material transformation of tax structures.

  • Participate in public/private research and policy groups.

  • Exercise patience while watching for dynamic developments.

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