Analysis & Commentary:

TECHNOLOGY HELPS STATES SNIFF OUT MISSING TAXES

As reported by Chris Sanders, delinquent taxpayers beware -- if your local tax collector doesn't get you, a new computer system will.

U.S. states are using computers and information technology to increase revenue and fee collection, showing the traditional tax man how to do a better job.

After hiring a firm that uses advanced computer software to make revenue collecting more efficient, four U.S. states already have dug up an extra $912 million overlooked by human staffers.

States, facing a collective $27 billion budget gap this year and an even bigger shortfall in 2003, need the money now more than ever.

"For the states, this is a way of raising revenue without raising taxes," American Management Systems Chairman and chief executive Alfred Mockett told Reuters in a telephone interview.

His firm collected the $912 million for California, Virginia, Kansas and Hawaii and hopes to push that number past $1 billion before summer's end.

Since 1992, Fairfax, Virginia-based AMS has been sniffing out fresh cash for states by streamlining accounts receivable collections, making audits more effective and mining state databases to increase the number of taxpayers.

Starting in California, which is facing a $17 billion budget shortfall through mid-2003, AMS helped state officials re-engineer the way the Golden State collects its debts, coming up with an extra $300 million so far.

"More effective administration of accounts receivable is the largest resource of potential revenues for states," Mockett said, pushing the unglamorous departments to the forefront in the hunt for revenues.

But state revenue units are not always the easiest department to work with, especially since some are still completely paper-based.

Even if they use computers, software is sometimes incompatible, making it nearly impossible to prioritize which accounts to pursue first in order to maximize collections.

Furthermore, departments are understaffed with few prospects of adding more workers. "It's just not the sexiest thing in the world to add staff to a revenue agency," according to AMS vice president John LaFaver, and former secretary of revenue for Kansas.

Software to the Rescue

To deal with the lack of staff and inefficient technology, AMS begins by installing software "decision engines" and easy-to-use Web-based software that makes the best use of staff time by pointing them toward the most promising uncollected bills.

AMS also uses software to make the most of state auditing by pointing staff toward the most lucrative examination prospects.

Aside from audits and accounts receivable, AMS mines state databases to find people and companies that are not filing tax returns.

But while it may make financial sense to let AMS into the state, it's not easy.

Mockett said states need to pass legislation allowing the company to begin its work -- a process that can take up to two years.

Once hired, AMS is not paid until the state brings in new revenues generated by the company's work.

Mockett said his firm is currently in talks with five other states considering signing up for his services, but he declined to identify them.

While AMS claims to be the only company offering these services that actually has customers, other firms are looking to break into the market.