Technological innovation is sweeping through state departments of revenue. Burdened with the overwhelming task of collecting a myriad of taxes, processing reams of individual forms, and ensuring the proper distribution of funds, state departments of revenue have sought information technology solutions to increase processing efficiency as well as help collect all available revenue.
Essentially, information technology has enabled these agencies to combat their paper-intensive processes, high-volume transactions, and time-sensitive materials with solutions that provide significant gains in efficiency, cost-savings and tax collection. In particular, the implementation of Imaged Revenue Management (IRM) Systems have transformed many state tax operations.
There are four key components to a complete IRM system.
* Front-end data capture. This enables agencies to scan data from tax returns into the system, eliminating the need for manual data entry while improving the speed of front-end processing. OCR/ICR scanners are the cornerstone of the front-end data capture process.
* Remittance processing. Often, agencies utilize remittance processing in conjunction with the main imaging system in order to efficiently capture check information, deposit funds and speed the issuance of refunds.
* Optical storage. This back-end processing involves the electronic storage of the return. Optical storage frees agencies from the burden of managing paper files.
* Error correction. This process enables agency personnel to manipulate an optically-stored return, which provides greater access to information, aids dispute resolution, and answers phone inquires more efficiently.
In many cases, state departments of revenue are plagued by data entry errors, a backlog of filings, delayed deposit and issuance of tax moneys, and poor document management. Consequently, they can utilize the vast capabilities and functionality of Imaged Revenue Management Systems to resolve business problems within the agency.
In particular, IRM systems provide:
* Increased data integrity. OCR/ICR imaging scanners capture data directly from the tax return, dramatically reducing errors commonly caused by manual data entry. Imaging makes the transfer of information from a hardcopy document to electronic format both faster and more reliable.
* Improved tax processing speed. From front-end data entry to back-end storage, IRM enables departments of revenue to significantly reduce the time required to process a single tax application. One agency shrank the tax processing season by nine days after the implementation of an IRM system.
* Greater access to data. Imaged revenue management enables multiple users to have access to and perform functions on tax information. Electronic storage of returns eliminates common problems of misplaced -- or even lost -- files.
* Better customer service. With the added capabilities of IRM, departments of revenue are better positioned to retrieve vital tax information and answer taxpayer queries in a single phone call.
* Increased tax collections. By improving the speed of tax processing, agencies can concentrate on increasing tax compliance and resolving delinquent cases. Departments of revenue have all realized tangible increases in tax collection after the implementation of an IRM system.
* Streamlined tax processes. Given the benefits of an initial IRM implementation, other divisions within a department often try and leverage IRM. This spurs several agencies to combine disparate applications and build an integrated tax system.
IRM SYSTEM SUCCESSES
In 1990, Delaware's Department of Revenue ambitiously set out to reengineer the state's tax collection process to improve tax processing, auditing and collection functions. The department worked with Grumman Data Systems to implement the Storage Access Management System and Optical Network (SAMSON), which provided increased functionality to tax management.
Utilizing SAMSON, Delaware's Department of Revenue is now able to process over 50,000 documents per day. The system has reduced an auditor's average per-case research time from 13 hours to two hours. It is estimated that this IRM system has increased overall productivity within the department by 25 percent. More importantly, SAMSON has increased enforcement revenues by at least 20 percent.
In Maryland, the Department of Revenue's annual data entry backlog forced the agency to implement an IRM system known as SMART. In conjunction with Andersen Consulting, the department integrated the state's disparate tax applications, reorganized along functional lines, and implemented an Image Revenue Management System. As a result, Maryland was one of the first states to utilize a fully comprehensive tax management system. The department can now process over 425,000 returns in a single week.
Imaged Revenue Management Systems are quickly becoming the rage for other state departments of revenue as well. Florida, Maine, Massachusetts, Mississippi, Pennsylvania and Vermont are a handful of states implementing new IRM systems. Moreover, a survey conducted by G2 Research indicates that a significant number of states across the nation plan to implement some aspect of an Imaged Revenue Management System over the next three years.
INTEGRATING THE TAX MANAGEMENT PROCESS
State departments of revenue are increasingly focusing resources to streamline the entire tax process across all state tax programs. Instead of completing functions -- such as taxpayer registration, collections, remittance processing, audits, etc. -- across individual tax applications on disparate information systems, integrated tax systems enable agency personnel to perform these functions all on one system. Integrated tax systems require these departments to shed the organizational structure of old and embrace the new design. As a result, extensive business process reengineering projects are always completed before the development of an integrated tax system.
Mississippi, for example, has developed a comprehensive tax system called the State Tax Automated Revenue System (STARS), which integrates 41 previously independently operated mainframe applications with a single, integrated client/server solution. The department will also utilize a comprehensive Imaged Revenue Management System developed by Grumman to improve the overall functionality of the Integrated Tax System. STARS, which is being developed by AMS, will be fully operational by 1997.
Similarly, Tennessee's Department of Revenue has decided to implement the Revenue Integrated Tax System, which will combine over 20 categories of taxes into one system. The department, working in conjunction with Andersen Consulting, expects the system will be fully implemented by the end of 1996.
Perhaps the most innovative approach to the utilization of an Imaged Revenue Management System is via outsourcing. In 1994, New York's Department of Revenue awarded an outsourcing contract to Fleet Financial for the state's Personal Income Tax Program. Essentially, Fleet Financial, along with subcontractor CSC, are responsible for all front-end processing activities and for providing the department with the information technology infrastructure to manage back-end processing functions. Although the department has paid a fixed fee for systems development, implementation services, and hardware and software procurement, all future services will be paid for on a transaction basis.
The results of the project have already been significant. The department has accelerated the refund processing time from 90 days to 45 days. In addition, as a result of the agreement, the department was able to shift the majority of resources previously dedicated to front-end tax processing to revenue generating functions such as tax resolution, tax compliance and tax enforcement. In fact, the state expects the outsourcing contract to generate a savings of 30 percent over traditional costs --approximately $75 million.
Whether implemented independently or as a part of a larger system, Imaged Revenue Management Systems represent the conduit for modern tax processing. As more and more states either expand current IRM pilot projects or develop more sophisticated systems, imaged revenue management will continue to revolutionize the traditional tax collection process over the next ten years. Similarly, other agencies such as departments of labor and human services -- which have paper-intensive processes, high volume transactions, and remittance responsibilities -- are likely to develop IRM systems of their own.
For more information, contact Rishi Sood at G2 Research 415/964-2400.