Recommendations of the Texas Comptroller

Modify Electronic Tax Filing Requirements

Summary

Texas should require taxpayers owing more than $100,000 in annual taxes to make payments via electronic funds transfer (EFT) and provide the option for any taxpayer owing less than $100,000 to pay via EFT regardless of the amount owed. In addition, these taxpayers should be required to file tax data electronically for the oil production, international fuel tax agreement, natural gas production, and sales and use taxes.

Background

The Texas Comptroller of Public Accounts collects 63 different state taxes, 39 of which can be paid using electronic funds transfer (EFT), then transmits these tax payments directly to the state’s Treasury. By eliminating manual payment processing and mail delivery, EFT allows the state to earn approximately three additional days of interest on tax payments.[1]

At present, taxpayers who incur a tax liability of $250,000 or more in any of the 39 taxes that accept EFT must submit their payments using that medium.[2] Section 404.095(c) of the Texas Government Code authorizes the Comptroller to lower this threshold.[3]

Florida requires taxpayers who owe $50,000 or more in taxes to submit payments via EFT. The Florida Department of Revenue indicates that this requirement does not overburden taxpayers. In fact, the agency reports that many taxpayers prefer the convenience of EFT, and they file electronically even when their tax liability is under the $50,000 threshold.[4]

Electronic Filing

Texas taxpayers can file their tax data electronically for the crude oil production, international fuel tax agreement, natural gas production, and sales and use taxes. At present, electronic data filing is voluntary, regardless of the amount of tax liability.

Electronic filing makes it easier for taxpayers to file payments, and it reduces the state’s processing costs by reducing data entry. It also decreases the number of errors and reduces turnaround time for refund payments. In addition, electronic filing makes it easier for the state to review taxpayer data, and it allows the Comptroller’s office to return sales tax allocations to local governments more quickly.

Taxpayers who pay using EFT are not required to submit tax return data electronically even if they owe money in one of the four taxes that allow electronic data filing. Consequently, some taxpayers submit an electronic payment and a paper form for the same tax return. As of May 2000, more than half of the state’s taxpayers submitting data electronically submitted their payments by mail instead of EFT.[5]

WebFile

For the past two years, merchants owing no sales tax have been able to file their state tax returns electronically through “WebFile,” the Comptroller’s Web site for online sales tax returns. Information entered by the taxpayer into a secure Web site is checked for errors immediately and then recorded directly to the appropriate account. The state receives and processes around 250,000 of these “no tax due” returns each year. In 1999, about 10 percent of these returns were received through WebFile. This number is expected to increase to 20 percent or more in 2001.

In October 2000, WebFile was expanded to allow companies that do owe sales tax to file the state’s short form electronically. (Major retailers with multiple outlets and traveling vendors must file a long sales tax form and are not yet eligible for WebFile, unless they have zero sales to report at all locations.) The application automatically calculates the amount subject to tax and the tax due. A new feature of the system, “WebEFT” (Electronic Fund Transfer via the Internet), makes payment as easy as filling out a check: the taxpayer simply keys in the bank routing number, account number, amount, and transfer date on his or her computer screen. The system also accepts Discover and American Express cards for an online convenience fee. The Comptroller’s office receives about 1.7 million short form sales tax returns each year. The agency expects that at least 15 percent of these returns will be electronically-filed in the first year, and that this number will increase greatly in future years.[6]

The value of online tax filing and payment goes beyond taxpayer convenience; if most taxpayers can be persuaded to file taxes online, the state could save millions of dollars in processing costs.

Some taxpayers may be reluctant to use Web filing due to a lack of knowledge of the way the system works; where feasible, the Comptroller’s office should offer WebFile training courses for these taxpayers.

Recommendations

A. State law should be amended to require taxpayers with a tax liability of $100,000 or more to submit tax payments electronically.

Although the Comptroller’s office already has the authority to enforce this requirement, modifying the payment threshold by law would demonstrate legislative concurrence with this provision.

The Comptroller’s office estimates that this recommendation would affect 9,300 additional taxpayers, increasing the number of electronic funds filers from 14,500 to 23,800.

B. State law should be amended to require taxpayers with an annual tax liability of $100,000 or more to file their returns electronically for the sales, crude oil production, natural gas production, and international fuels tax agreement taxes. In addition, the Comptroller should be authorized to receive electronic returns for additional taxes as the Comptroller’s systems are modified to receive such data.

The Comptroller’s systems can receive electronic data for the four taxes cited above; system changes expected in the future will allow other tax data to be filed electronically. The Comptroller’s office estimates that 7,080 additional taxpayers would be affected by this recommendation, increasing the number of electronic data filers from 2,670 to 9,750.[7]

The Comptroller’s office should implement a waiver process for taxpayers that do not possess the computer equipment needed to file electronically.

Fiscal Impact

The estimate prorates savings resulting from annual tax reports due on or after January 1, 2002; these savings would consist of the annual interest gained due to the three-day decrease in processing time and the administrative savings from eliminating paper forms and checks.

The Comptroller’s Electronic Filing Section would incur a one-time cost for temporary employees to set up the additional 7,080 electronic data filers. Due to the decrease in maintenance needs for taxpayer data forms, the additional FTE for the Electronic Reporting Section could be transferred from the Comptroller’s Sales Maintenance Section. The Cash Management Section would incur a one-time cost for temporary employees, programming, and equipment. The interest gained for fiscal 2002 could be used to finance the remaining fiscal 2002 administrative costs.

Interest gained to the General Revenue Fund would be at a maximum level for fiscal 2003 through 2006.

Endnotes

[1] Comptroller of Public Accounts, “Revenue Processing Division Statistics, FY 1997–2000,” Austin, Texas. (Computer printout.)

[2] Interview with Dale Lykins, Electronic Reporting Section, Texas Comptroller of Public Accounts, Austin, Texas, May 17, 2000.

[3] V.T.C.A., Government Code §404.095 (c).

[4] Florida Department of Revenue, “Florida Electronic Funds Transfer Information” (http://www.sun6.dms.state.fl.us/dor/taxes/eft.html). (Internet document.)

[5] Interviews with Art Earle, Electronic Reporting Section, Comptroller of Public Accounts, Austin, Texas, April through July 2000.

[6] E-mail communication from Jena Thomas, Revenue Processing Division, Texas Comptroller of Public Accounts, Austin, Texas, October 16, 2000.

[7] Texas Comptroller of Public Accounts, Operations Support, “Taxpayers with an Annual Liability of $100,000 or More,” July 19, 2000. (Computer printout.)

e-Texas is an initiative of Carole Keeton Rylander, Texas Comptroller of Public Accounts
Post Office Box 13528, Capitol Station
Austin, Texas

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