April 3, 2007 By Adam Stone
"It costs a lot to take a piece of paper out of its envelope, scan it and send it to the bank," said Stevens, a program manager in the U.S. Treasury Department's Electronic Federal Tax Payment System (EFTPS). "If we can move taxpayers to paying electronically for both their state and federal taxes, that is cheaper for us to process -- about 60 percent cheaper."
Recently Stevens' office took a big step toward doing just that. In January, the department launched a pilot with Illinois, where businesses can pay their state and federal taxes simultaneously from a single electronic interface.
"We think it's an opportunity to streamline some things for businesses out there and to actually make it a little less taxing -- no pun intended," said Kevin Richards, manager of the electronic commerce division of the Illinois Department of Revenue.
If things go smoothly, another trial will run in South Carolina.
For more than 10 years, the EFTPS has been available online to collect taxes from businesses. The department calls it a success, with taxes on 90 percent of all business revenues nationwide paid through the system.
"We have seen incredible growth year after year," said Stevens, noting that the system took in just under $2 trillion last year.
Though states also collect tax revenues electronically, the process has always required two steps from taxpayers: First, taxpayers must file a return in the federal system, and second, they have to file another return in the state system. The new pilot aims to present an all-in-one payment option.
The Treasury Department first floated the idea to a group of state tax administrators that work with the federal government via the Federation of Tax Administrators' Tactical Advisory Group. Half a dozen of the state tax administrators showed some interest, Stevens said, and Illinois and South Carolina stepped up to try the all-in-one tax proposal.
The technology behind the effort is readily available. Practically all electronic transactions nationwide take place through protocols developed by NACHA -- the Electronic Payments Association. By connecting federal NACHA-based processing to comparable rules, guidelines and enforcement procedures at the state level, the states and the federal government are using what's already out there in the financial community, Stevens said.
Regarding the customer interface, links on the Illinois Department of Revenue Web site offer visitors the option of enrolling in the EFTPS interface, or staying with the existing Illinois TaxNet program.
The Treasury Department spent a year developing the pilot, but has chosen not to disclose the project's cost. The department said a chief criterion for selecting pilot states was the states' existing sophistication in the realm of digital tax collection systems.
"Some of the key things we looked for are an existing user base that may be familiar with electronic payments," Stevens said, adding that the Treasury Department is looking to expand states' current electronic systems.
Illinois occupied a fortuitous position because its sophisticated online payment system signaled to federal planners that business owners in the state would likely have some technological know-how, the kind of familiarity Stevens was seeking.
At the same time, planners saw room to grow because Illinois ranks fifth in the nation in usage of paper tax forms, with more than 1.6 million forms processed to pay corporate, excise and employment taxes in 2005.
On the technical front, NACHA compliance is really the only litmus test for states looking to participate in the system, along with an IT department willing to fit the pieces together.
"So long as there is the ability to interface with
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