Complaints Halt Hawaii's Tax System Modernization Funding

The tax modernization initiative is expected to cost a total of $60 million, and the final phase of the project is scheduled to launch in July 2019.

by Kevin Dayton, The Honolulu Star-Advertiser / June 19, 2017
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(TNS) -- The state Department of Taxation’s new computer system has generated so many complaints from taxpayers and raised so many concerns among lawmakers that the Legislature this year stepped in to halt the flow of new funding into the project.

Lawmakers this year refused a request from Gov. David Ige’s administration for $18 million in additional funding to continue the Tax System Modernization project, or TSM, forcing tax officials to scramble to find funds within the department that can be used in the year ahead to keep the project moving.

A consultant hired to monitor state progress in replacing the critical computer system warned in a new report that if the state Department of Taxation can’t persuade lawmakers to put up the necessary money next year, that would “almost certainly” mean the new system won’t be completed.

House Finance Chairwoman Sylvia Luke, who struggled to use the new system to pay her own state excise taxes, said the interruption in funding should send a message to tax officials to fix the problems with the new system before they expand it to include individual income taxes. That expansion is scheduled for next year.

“Once you hit individual income tax, which is going to hit so many hundreds of thousands of people more, how are you going to be able to deal with the technical and computer problems that you encounter?” asked Luke (D, Punchbowl-Pauoa-­Nuuanu). “In every instance they kept telling me that all of their problems have been solved, which has not been true. I’m a (general excise) filer, and I knew for a fact that I still had problems.”

State Tax Director Maria E. Zielinski said slowing the project down “would be the worst possible thing that we could do.”

It is critical to move TSM forward quickly because the old tax system doesn’t work, Zielinski said. “I mean, we’re using it, but people don’t know it has already crashed twice in the past year. Because we do things behind the scenes, it may not be obvious to taxpayers, but this is a very fragile system.”

The department is deferring some planned purchases to help free up $2 million in the tax department budget that will be used to keep the modernization initiative moving in the year ahead, she said. The next phase of the project is scheduled to launch on Aug. 14 and will shift corporate income taxpayers and withholding taxes over to the new system.

The state has spent an estimated $18.74 million on the program so far, and Zielinski said the project is on time and on budget. The tax modernization initiative is expected to cost a total of $60 million, and the final phase of the project is scheduled to launch in July 2019.

Lawmakers repeatedly questioned tax officials this year about public complaints surrounding the launch last August of the second phase of the computer system, which shifted general excise taxes, hotel room taxes and motor vehicle rental taxes from the old system to the new.

AdvanTech LLC, the consultant tasked with overseeing the project, said in its most recent report in May that some taxpayers had difficulty registering with the new system, a problem mostly related to security controls built into the new process.

However, once taxpayers were registered, the filing and payment system worked as intended and the number of people registered to file excise taxes online increased from 70,000 under the old system to 93,000, according to AdvanTech. The consultant reported that the number of problems with the system and the turnaround for resolving them is “in the normal range” for implementation of this particular system in other states.

Lawmakers, including Luke and Republican Rep. Gene Ward, paint a different picture of the August rollout, recounting their own problems with the new system as well as complaints from others.

Luke, who pays excise tax on rent from a condo she owns, recalled how she asked the system to send her security code to her phone, and it never arrived, which prevented her from registering for a time. When she asked where the code went, tax officials told her they didn’t know, but they acknowledged the texting feature was not working for some phone carriers.

Staff in the tax offices on the neighbor islands were unable to answer questions of many excise tax filers because the workers had not been fully trained, Luke said, and those taxpayers had to be referred to the centralized call center, which was overwhelmed.

Concerns about those problems prompted lawmakers to withhold the $18 million requested by the Ige administration this year, and to pass House Bill 1414 requiring an audit of the modernization project. Lawmakers also transferred a half-dozen of the key tax department staff involved in the project to the Office of Enterprise Technology Services, where they will work under the supervision of state Chief Information Officer Todd Nacapuy.

Luke said she believes the tax department established a series of deadlines for implementing components of the system, and is declaring the project to be a success if it meets those deadlines. “That’s not what we should be doing,” Luke said. “Just because you met the deadline doesn’t mean it is successful.”

Since the system depends on voluntary taxpayer compliance, the system needs to be user friendly to encourage people to file and pay, she said. “I mean, Department of Taxation has to understand they’re there for the users.”

Zielinski said the new system has new security features that caused some problems for people trying to register and use it. The department knew there would be calls and visits from taxpayers with questions about it “but I think we weren’t as proactive in what we needed to do. I think we didn’t expect that kind of initial volume,” she said.

Since then the department made registration more user friendly for taxpayers, and the average time to register is now 18 minutes, which Zielinski described as “pretty good.” The department also beefed up its call center from 16 people last year to “the low 20s” today, and made improvements in its automated phone answering system, she said.

“It’s all about customer service, we get that,” she said. She said the Tax Department will return to the Legislature next year to ask for more funding to complete its computer modernization program.

The consultant Advan­Tech noted that the TSM project is undergoing particular scrutiny because it is highly visible, and because some major state information technology projects failed in the past. One example involves the Tax Department itself. The department launched a system modernization effort in 1999, and eventually paid CGI Group Inc. $87.5 million to install what state officials later described as an already outdated computerized tax collection system.

Tax officials began rolling out the first phases of the entirely new tax system last year under a $59 million contact with Fast Enterprises.

©2017 The Honolulu Star-Advertiser Distributed by Tribune Content Agency, LLC.