June 95

Level: State

Function: Taxation

Problem/situation: State income tax system is expensive when done on paper.

Solution: Enable short form income tax filings to be done with telephone.

Jurisdiction: Massachusetts, Illinois, Mississippi.

Vendors: Ficke and Associates.

User Contact: Mass. Dept. of Revenue: 617/626-2251.

By Brian Miller

Features Editor

The ritual of the paper tax return onslaught each April could be nearing an unceremonious end at the hands of the Massachusetts Revenue Department. While most federal and state tax returns are still filed on paper and manually processed by government employees, this year more than 130,000 people filed Massachusetts state taxes using a telephone keypad and a simple worksheet. A benefit for the taxpayer, aside from easy tax filing, is that refund checks are sent within a week to persons using the system.

The program, called Telefile, was begun for the tax filing season which ended last April. Telefile was available to taxpayers meeting certain requirements, including earning less than $80,000 in 1994 and living at the same address as the previous year. Next year, the department plans to expand the system to allow more tax filers use of the system.

REVENUE TRENDS

The telephone filing system is part of a trend of revenue departments rethinking how taxes are collected, with technology playing a major role in solving the paper onslaught each spring. Revenue departments across the nation are "like huge paper factories," said Massachusetts Revenue Commissioner Mitchell Adams. "Most functions can be done electronically, one way or the other."

Many tax collection departments are working on converting from manual processes to electronics, which not only makes it cheaper for governments but makes filing easier for taxpayers. The Internal Revenue Service has been experimenting for a couple of years with electronic filing from preparer offices. Illinois and Mississippi have experimented with telephone filing. But these tests are generally done on a small scale compared with Massachusetts.

Adams asserts that within five years, the majority of tax returns in his state will be filed using home computers, electronic filing from a preparation service, or with a telephone. "We're not very far away from that in this department," Adams said. "It's tremendously exciting. I can increase service and save cost."

The department has a number of other automation projects under its belt, including MassTax, done a few years ago to automate various revenue collection and record keeping functions. Telefile, which is not a part of MassTax, contributes to the automation trend led by Adams, who said that "the faster I do this, the better off [the Revenue Department] is."

FULL STEAM AHEAD

After looking at what other states had done with telephone tax filing, Massachusetts bought equipment and set up its system. A dress rehearsal was held last year with 3,000 participants to help the department make adjustments. It then decided to go ahead full force with the program.

The department was not at all shy about pushing taxpayers to use Telefile. About 1 million forms went out to taxpayers who would have qualified to use Telefile the previous year, out of about 3 million taxpayers statewide. The state expects about half of the taxpayers who were sent Telefile invitations to still qualify and actually use the system.

To increase Telefile's attractiveness further, the department had prize drawings for persons using the system, with prizes worth $15,000 donated by the private sector. In all, 20 prizes were awarded, with a grand prize of $2,500.

HOW IT WORKS

The system is easy to use. To begin, a taxpayer fills out a worksheet accompanying the mailed-out invitation to use Telefile. Taxpayers fill in items such as earned income amounts