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
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.
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 and state taxes withheld.
A taxpayer then calls a number, and is guided by voice prompts through a series of steps which include a personal identification number printed in the invitation booklet. If an invitee loses their original booklet which contains the identification number, the booklet is not replaced and the taxpayer must use the mail route.
The taxpayer presses numbers on a telephone keypad when prompted to do so by a computer. Refunds are sent by the department almost immediately to the addressee. Payments are made and a sheet attached to the Telefile brochure is included by the taxpayer.
The Revenue Department went to the state Legislature last year to make a voice recording of a taxpayer - saying his or her name - as legally binding as a conventional signature. With Telefile, the taxpayer is asked to verbally verify the submitted information and state his or her name. The recording is kept for department records and potential audits. At the end of the session, the computer gives the taxpayer a confirmation number. The whole process takes about eight minutes on the telephone.
The Revenue Department's main outlay for tax collection is spent on processing paper forms. Income tax returns, for example, require employees to open envelopes and keyboard data into a computer. Telefile reduces data entry errors because the taxpayer sends information directly to the state in electronic form, where it can be transferred to other databases. And the computer does the addition and subtraction, figuring the refund or amount due before the end of the call, further reducing errors by either employees or taxpayers.
With millions of returns coming in the mail within a few weeks each spring, there is often a backlog which causes refunds to take extra time to get to a taxpayer. In Massachusetts, the Revenue Department estimates that it costs $1.28 to process each mailed-in tax return, with much of that figure going to payroll. With Telefile, these costs are cut roughly in half, saving over $1 million per year.
To pay for the system, Adams estimates that the department needs an average of 200,000 taxpayers to use Telefile in each of the next five years. With over a month to go in the filing season, the department was nearing the mark, which was unexpected for the initial year, Adams said. Plans are being developed for expanding the qualifications to use Telefile next year, which should increase the number of participants.
Telefile may be opened for taxpayers who have moved since the last return or for more complex filing with exemptions. "There is a limit to what we can do on this, because you're not going to get a complicated return over the telephone," Adams said. "But we don't know where the line is."
A rack of PCs is set up at the department for processing calls coming in on some 200 telephone lines. Seven times a day, the PCs offload data to another database, where the records are processed and checks are printed and mailed. Taxpayers can access the system 24 hours a day.
The system took several months to put together, beginning early last summer when equipment was installed and a focus group brought in to test the system's user-friendliness, said Jeff Ficke of Ficke and Associates, a Cincinnati, Ohio-based firm specializing in voice response systems. It is an open UNIX system, with voice processing cards in each of the PCs which act as servers for the system.