Will the U.S. help bridge the digital divide with tax

Shawn P. McCarthy

Are federal, state and local governments making headway on electronic commerce initiatives to accept taxes and fees online? And are governments closing the digital divide?

The answer to both questions is yes, but progress is slow.

A recent study by Forrester Research Inc. of Cambridge, Mass., said that by 2006, federal, state and local governments will collect about 15 percent of fees and taxes online, or $602 billion. Is 15 percent a high enough goal?

For now, most online payment systems are limited-purpose arrangements aimed at specific constituencies. They tend to be low-risk so they won't cost jurisdictions a lot of money if they fail. And they require minimal identity authentication. That means residents worry less about privacy invasion, but governments invest less in secure systems.

Online progress

The report said residents increasingly expect to make secure payments for taxes and fees online, but governments will ramp up slowly because of their legacy systems. By 2005, we should see a slew of legislation requiring governments to spend the money to synchronize e-commerce processes for everything, including tax collection.

Governments could speed up by following a model that's already in place.

One area in which the federal government has been successful with e-commerce is in online procurement systems.

Most procurement systems are set up for the government to pay out rather than collect funds. But the infrastructure for payment processing is in place, which is half the battle. Codeveloping online procurement and fee collection is a logical way for small government offices to get what they'll need.

Is it happening?

A study by GartnerGroup Inc. of Stamford, Conn., predicted governments will spend $1.5 billion developing e-commerce systems this year, ramping to more than $6.2 billion by 2005. But these efforts are still mainly aimed at the business-to-government market.

An example is NIC Commerce of Reston, Va., formerly known as eFed. The Bank of America set it up specifically to handle business-to-government transactions. If such near-turnkey systems exist for procurement, why not extend them to tax collection?

Agencies need a focus on robust business-to-government and consumer-to-government systems. They could become the commerce interfaces that the public uses to buy, sell, pay taxes and so on.

This leads to the second part of the puzzle: the digital divide. Should governments go ahead and build payment collection systems they know cannot be used by much of the population? One reason online procurement happened first is that most government suppliers have online facilities and prefer doing business that way. But that's not the case for the general population.

Another Forrester study found that parts of the United States are making good progress in giving communities access to the Internet, but large sections of the South and Southwest are vastly underserved.

Universal need

Governments will never succeed at collecting taxes and fees online if all residents can't participate.

What's likely to happen by 2005 is that federal funding will help states bridge the gap to bring connectivity to all residents. This will in turn require classes at schools, community centers and senior centers where residents learn to use the systems.

Some believe the government will never be able to offer decent home access alternatives, and that it should instead build free access points in communities.

But with prices for home computers in the $300 range, the government could easily use tax credits and other incentives to get such machines into more homes.

Configuration and maintenance would be a minor issue with a network computer, which could come preconfigured for e-mail and Web browsing but not for computer games. Grandma and grandpa wouldn't have to know much about it except where the on switch is, what their e-mail address is and which button to push on April 15 when taxes are due.

E-mail Shawn P. McCarthy at [email protected].


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