Tax Filing Teamwork
- By Dan Carney
- Jan 31, 1998
Last year the Progress and Freedom Foundation, a Washington, D.C.-based think tank, ranked the state of Washington first among equals in its use of information technology to serve the public interest. This year the state also may earn high marks for an innovative system that lets its business community calculate, file and pay monthly taxes electronically.
The project, which finished its first pilot last November by handling the tax returns of 10 companies, has since been scaled up to handle the returns of hundreds of companies. In the process, the state has laid a foundation for electronic commerce (EC) throughout the state government.
Using the system, state business taxpayers can log onto the Internet and download a program that computes their taxes and provides updated tax rules and rate tables. So far, businesses have been so pleased that many have started filing their taxes monthly instead of quarterly to participate in the program.
"This will transform how taxpayers do business with the state," said Fred Kiga, director of the Revenue Department, which teamed with the state's Department of Information Services to design, develop and launch the system. "It is our philosophy to make dealing with the state as easy as possible."
How It Works
The application is designed to perform automatically all the mathematical calculations of computing a tax return and to move results from one field of the form to the next. This eliminates human math errors and copying mistakes. "A significant number of errors are math-related," said Ralph Osgood, program manager for the Revenue Department, who estimated that 13 percent of all tax forms the state receives contain at least one error. "Using the electronic filing system, any computational errors would be eliminated."
Other common mistakes include misunderstanding tax form instructions and using out-of-date tax tables. To solve the problem, the software client hyperlinks to pages with relevant tax laws and updated tax tables. "Every time they log on, the system checks all the components they have installed and downloads only those that have changed," said Dave Kirk, manager of strategic initiatives in the Department of Information Services. Once the download is made, users can disconnect and work on the filing offline.
The system populates the form with all the information on the taxpayer, based on the taxpayer identification number. All the taxpayer has to do is enter the tax number, without keying in any tedious name, address or other related information. Payment is handled by electronic funds transfer, which also is how many companies pay employees and how homeowners pay mortgages. Many of the large companies already had tax accounts set up to use EFT, but they had been using a telephone Touch-Tone system to make the monthly transfers, Kirk said.
To address concerns about sensitive corporate financial information traveling over the Internet, a pair of firewalls — one between the security server and the Internet and one between the tax filing system server and the security server — has been installed. "We need to ensure that our business community is confident the security is adequate and safeguards their information," Osgood said.
The Business Case
There are about 400,000 business taxpayers in Washington, a number that is rising by 10,000 to 20,000 annually, largely because the economy is producing more and more sole proprietorships. The growth is putting a burden on the Revenue Department. "We are not seeing a comparable increase in the number of bodies we have in the department," Kiga said.
To keep pace, the tax-filing program planners hope to reduce the staff overhead caused by tax filing errors. Ideally, revenue workers could focus on educational activities and outreach to taxpayers rather than fixing math problems. "This isn't a cost-cutting measure," said Todd Sander, deputy director of the Department of Information Services' Strategic Technology Division. "The object is to do better with the same, not more with less."
The state realized that without taxpayer support, developing an electronic filing system would be a waste of time and money. So at the outset, the state staff asked taxpayers, "What will induce the business community to interact with government over the Internet and pay taxes online?"
The answers were brutally frank. "They said it can't cost me more than 32 cents, and it can't take more than 10 minutes," Kirk said. But as the wish list expanded, taxpayers decided that they would be willing to loosen these restrictions if the system provided certain benefits. "They said, 'If it will help me get it right the first time, I'll use it.' "
The input helped ensure that the system would be palatable to taxpayers, but it also improved the end product. "Because of their input, we have a much better system," Osgood said. "By the time programming started, we had a pretty good idea what they would use. After two weeks of prototyping, we had businesses in there testing what had been developed."
For the state, electronic filing will spread the workload more evenly through the month rather than loading all of the work on the monthly deadline. Meanwhile, taxpayers can file when they have the time each month and hold on to their cash as long as possible. "With this system, they can file early and tell us the day they want to transfer the money," Kirk said. "That smoothes out the transaction load."
Moreover, the system can help companies avoid sending in more tax than needed each month. If they overpay, they will get the money back at the end of the year, but that may be too late for a small company struggling to pay bills. "We have built this using their own business rules," Osgood said. "We have created an opportunity for them to improve their businesses as well. This is counter to a typical government approach of telling taxpayers what to do."
Of course, the goal now is to convince as many taxpayers as possible to use the system. "If we could have 60,000 [businesses] using this system in a few years, it would be a big success," Osgood said.
To do so, the Department of Information Services must provide comparable user support. "The unknown is, how fast can we scale the user base and still communicate clearly with the users?" Kirk said. "You look at most systems in a state agency and you have as many as 15,000 users. We can scale up only as fast as the help desk can support."
The client application is a Microsoft Corp. Internet Explorer-based program that runs within the browser. This means that other browsers are not supported — at least not yet. The application was written in Microsoft Visual Basic 5.0 and is downloaded to the taxpayers' machines the first time they connect to the service. The application takes about six minutes to download the first time over a 28.8 kilobits/sec modem, according to Kirk. But any subsequent downloads are shorter because only updated portions of the program load.
For the pilot, Washington used a pair of Compaq Computer Corp. ProLiant 133 MHz Pentium servers, said Steve Bilhimer, manager of Internet development and support for the state. One server runs Microsoft Internet Information Server and Microsoft Transaction Server to handle the World Wide Web page and financial transactions, while the other runs an SQL Server 6.5 database management system to hold all the tax data, he said.
Both machines run Microsoft Windows NT Server 4.0, and the application server has 128M of RAM, while the database server has 64M of RAM. Both have 2G hard disk drives. The Department of Information Services is the state government's Internet service provider, and the electronic filing system is connected to that T-1 Internet connection.
A team of four people from the Revenue and Information Services departments collaborated on software development. The group wrote the code in just nine weeks with the help of a "technology coach," said Sylvain Duford, senior consultant for Kirkland, Wash.-based Best Consulting Inc., who was familiar with the tools used. "They wanted to see how effective it was to bring in someone from the outside rather than trying to learn themselves and making the inevitable mistakes," said Duford, who believes the technique is a cost-effective use of outside assistance for agencies when using unfamiliar development tools.
Because they developed the program themselves rather than paying someone else, the result is that the staff knows the system inside and out. And by having a coach guide them through the process rather than sending employees to training classes, the state had a working application at the end of the process.
Furthermore, planners insisted that Revenue Department staff participate in the system development so that working knowledge of the application would not be isolated or lost to the information systems people. "The goal was for the revenue staff to be self-sufficient so they would know the application and own it when it was done," Kirk said.
The Microsoft Question
The decision to use software from Washington native Microsoft to develop and run the tax application might appear to have been a foregone conclusion. But project managers say the state — which had been an Oracle Corp. and Netscape Communications Corp. shop — chose Microsoft because it offered all the tools needed to build and operate the system, including the Internet browser, the Internet server, the programming language and the database management system.
"We used Microsoft tools because we thought they were the best for the contract at this time," Kirk said. Mike Tompkins, Microsoft's account executive for Washington, said, "It was definitely a competitive situation between Netscape, Oracle, Sun [Microsystems Inc.] and Microsoft."
In fact, the speedy development turnaround was possible because the tools were well-integrated, Duford said. "I don't think that we could have done the job as fast with any other tools because of the integration," he said, adding that "working with a mature language like Visual Basic helped."
The state wants to expand the program to accept credit card payments, but it faces the obstacle of the discount fee of 2 percent per transaction charged by credit card issuers. "When you are talking about a tax liability of thousands of dollars, 2 percent is cost-prohibitive," Osgood said.
Some taxpayers are hot on the credit card idea for its convenience and the opportunity to accumulate benefits such as frequent-flyer miles. But others are resistant to the idea of using credit to pay taxes. "People need to recognize that there are valid reasons to do it," Osgood said. "Cash handling is very different today."
As the state adds the ability to support more users, more agencies will be welcomed to use the system for their own EC systems. "There are several agencies that are very interested in using a system similar to this," Kirk said. "The lessons we have learned can now carry forward to a number of fee-based systems. We can start applying those lessons to other fee-based systems."
The program could grow beyond state agencies to include city and county agencies, for which the state already provides some IT assistance and Internet access. Providing them with an EC infrastructure would be an extension of that relationship. "We'll offer them the opportunity to use our commerce servers," Kirk said. "We already have secure machines and the firewalls."
The Department of Information Services also has a billing scheme for charging other agencies for its services; this scheme could be used to compensate the department for the use of its infrastructure. "If an agency wants to do this themselves, they can, but to run a secure firewall is very expensive," Kirk said. While it is too early to set prices, "we want it to be very affordable."
"Businesses really like this system," Kirk said. "It is pushing up convenience, timeliness, accuracy and cost-effectiveness. Electronic commerce in this system drives up every one of those measures. Now, if they are on vacation in Hawaii, they can do it from there."
Dan Carney is a free-lance writer based in Herndon, Va. He can be reached at [email protected]