Reengineer and Modernize the State's Tax Processing and Information Management Systems

The state s internal tax processing and information management systems should be reengineered and integrated to achieve operating efficiencies, promote voluntary compliance with the tax law, and increase audit detections.


Background
Over the decades, the system of administering taxes in Texas has become increasingly complex. Each legislative session modifications to the various taxes and those subject to them are made, with resultant adjustme nts to the processes of applying and collecting the taxes. Over time, the state s tax system has been somewhat improved, but in an incremental fashion, tax by tax and change by change. However efficient the current process may be, opportunities still exis t for reengineering the internal system of administering taxes to simplify the process, to serve the taxpayer better and to improve the collection of taxes due the state.

Texas presently has one of the most sophisticated tax processing systems in the cou ntry. However, recent improvements in information management technology and work flow management techniques promise to allow the state to make dramatic productivity gains in the next few years. A more efficient tax system can be expected to improve the lev el of voluntary compliance and allow more efficient auditing and enforcement activities. The net results will be improvements in customer service and in marginal revenue income to the state.

As part of the Comptroller s internal Renaissance Project, an extensive study of the agency s current tax processing and information management systems is underway. The study is intended to result in changing and modernizing the Comptroller s internal tax processing and information management systems rather than the co llection of taxes themselves. A team of Comptroller employees representing various divisions has identified and mapped all functions of the activities involving the administration of taxes. All supporting computer systems have been identified and are being studied to determine their utility in carrying out the Comptroller s tax administration responsibilities. The team is examining ways that the Comptroller s office performs similar functions across divisions and opportunities for placing common data elements from various tax databases into one integrated system. This project goes beyond simple automation or paving the cowpaths ; making old processes work faster is not the ultimate solution. The team must remain open to entirely new opportunities to do busi ness differently than it has in the past two decades. The team is relying on focus groups, interviews and surveys with taxpayers to identify problems with the current system. In addition, large numbers of employees, private sector experts and tax administr ators in other states have been consulted. The Comptroller s office has already avoided costs of close to a quarter of a million dollars as a result of this process.

Goals of the Renaissance team include improving taxpayer service, increasing tax revenue collections, reducing the cost of administering the state s taxes, reducing the time and effort for collecting delinquent taxes, decreasing the time and effort for resolving problem accounts, decreasing the time and effort for all processes which include taxpayer identification through report and payment processing, and optimizing present staff and increasing job satisfaction. To fulfill these goals, the team will examine current forms for simplicity, existing procedures, the current organizational structu re and the allocation of resources, including the use of technology.

The team is evaluating the current efforts in relation to the cost of administration and the revenue collected, to determine if information can be better processed and employees more effectively deployed. Initial findings indicate that the current system o f administering each tax separately creates inefficiencies that could be corrected with an integrated tax system: a system that includes one taxpayer database and enables the processing of one taxpayer s taxes as a single account. For example, the Comptroller currently must do extensive manual cross-referencing across divisions and information systems to identify the status of a taxpayer with regard to franchise tax, sales tax and other taxes for which the taxpayer is responsible. As an example of the difficulties, in the last legislative session interest accrual for delinquent tax accounts was changed from 10 percent simple interest to 12 percent compound interest. To implement this chan ge, the Comptroller was required to make program adjustments in each of 17 individual tax systems. With an integrated system, the change would need to be made only once. Another problem is the necessity for the Comptroller to submit to each taxpayer a sepa rate form for each tax owed, which is inconvenient for the taxpayer. Such a system is also more costly than necessary. One main benefit of modernizing the system would be an increased ability to identify delinquent taxpayers and collect taxes due. Integrat ing this information into one system would enable the administration of a tax system that is competitive with the private sector in terms of customer service, accounts receivable and billings, and the collection of taxes due and delinquent taxes.


Recommendation
The state should support the design and implementation of an integrated tax system that will serve the taxpayer better, increase the collection of taxes due and make the best use of state employees.

Elements of the reengineered system could inclu de expanding the use of electronic filing of tax returns and electronic funds transfer. Electronic imaging would be used for uninterrupted work flow, and taxpayer questions could be answered in the first phone call. The current batch processing systems use d by the Comptroller could eventually be converted to on-line processing, so that the information accessed by employees would be up-to-date. The improvements discussed above could decrease resolution in problem accounts from days to minutes, simplify th e tax filing and general compliance process, bring revenues in faster, identify all those who are subject to state taxes, identify delinquent taxpayers and strengthen collection tools. Rather than paving the cowpaths, this approach will involve a total reengineering of the current system, making use of available new technology, such as expert systems to improve employee skills and put them to the best use possible.


Implications
By providing funding for the implementation of an integrated tax system, the state could save on current tax administration costs by eliminating duplicative or unnecessary manual processes and increase revenues due the state. Changes discussed above would reduce programming needs and computer maintenance costs and would result in simpler training requirements. Most of these changes can lower the Comptroller s cost per transaction. The result will be better taxpayer service, better use of existing employees and a more efficient system. Improvements will begin as early as the first implementation year.


Fiscal Impact
The Comptroller, through an integrated system, will be able to identify delinquent taxpayers and serve taxpayers better. Enforcement and audit functions in the Comptroller s office will be improved, implying both greater collections of taxes due the state and increased voluntary taxpayer compliance. This, in turn, will result in increased tax collections. The savings are based on the assumption that tax revenues collected by the Comptroller can be increased by 0.2 percent over the biennium. After full implementation, the Comptroller will also be able to reduce administrative costs.

Gross Savings to Cost to the Net Savings to the
Fiscal General Revenue General Revenue General Revenue Change
Year Fund 001 Fund 001 Fund 001 in FTEs

1994 $ 22,000,000 $2,000,000 $20,000,000 0
1995 37,000,000 6,000,000 31,000,000 -5
1996 45,000,000 5,000,000 40,000,000 -20
1997 45,000,000 5,000,000 40,000,000 -20
1998 45,000,000 2,000,000 43,000,000 -20