E-filing saves time, money

E-filing saves time, money<@VM>Selected states and their electronic filing systems

Paul Mann says New Mexico spends $2.17 to process each paper return it gets but spends less than $1 to process online returns.

Massachusetts officials agonized over using this provocative slogan on the tax form cover.

Receiving state taxes on the Web yields many happy return


Massachusetts makes a bold statement, right on the front of its 2000 tax forms. The commonwealth has tagged them with this question: 'Would you like to throw this form away?'

Bob Nevins, the Revenue Department's Research and Development Division commissioner, said the question promotes WebFile, a new online tax filing system.

'We anguished over whether to put the statement on the forms, practically right up until press time,' he said. 'We were afraid residents would take us too literally and not file their taxes at all.'

Massachusetts and many other states are urging taxpayers to file electronically because it saves money in processing costs and speeds up refunds.

But only nine states give taxpayers the ability to file personal income taxes directly over the Internet via their Web sites: California, Delaware, Illinois, Maine, Maryland, Massachusetts, Minnesota, New Mexico and New York.

All states with personal income taxes now offer some form of electronic filing. But in most places, filers must either download tax filing software from state Web sites or use an approved commercial software package to file.

Residents who use tax software transmit their return data over dial-up connections or over the Internet, depending on state and software requirements. Some tax software is designed to automatically locate a user's browser to transmit information over the Internet.

Nevins said Massachusetts' online filing is easy for residents to use because there is no need to download software. Taxpayers can access WebFile, at www.dor.state.ma.us/options/webfile/webfiletweener.htm, and use a personal identification number they received in the mail to file their paper tax forms.

Automatic assist

'It also automatically corrects any mathematical errors,' he said. 'We went to great efforts to test the code to make sure it calculates correctly before we went live with it.'

GovConnect Inc. of Cincinnati developed the online application for Massachusetts under a $285,000 contract.

Nevins said online tax return data is transmitted to MassTax, the state's mainframe system, which generates refund checks.

State yes, federal no

Commonwealth residents who file online sometimes get refunds within four days, Nevins said, vs. a minimum of two weeks for paper filers.

Though states are moving forward to provide residents with online tax services, the IRS does not yet offer Internet filing. Taxpayers who want to file federal taxes electronically must go through tax practitioners or use approved commercial software and modem connections.

Some software publishers and other tax services offer free electronic federal tax filing on their own Web sites, but most charge a fee for this service.

The IRS provides a list at www.irs.gov/elec_svs/ol-txpyr.html of software companies and tax services that provide federal online filing.

State and federal tax authorities review and approve commercial tax preparation applications. Tax return data filed through an online service is transmitted to states and the IRS over private connections.

Residents in 37 states and the District of Columbia can file joint federal and state returns electronically with the IRS through a practitioner, online service or by using approved software.

The IRS separates federal data and relays state data to the appropriate state.

Hawaii offers electronic filing only through joint federal and state filing. Residents may also download forms from Hawaii's Web site, at www.state.hi.us/tax/tax.html, but they cannot submit the data electronically to the state.

Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming levy no personal income taxes. The income taxes of New Hampshire and Tennessee apply only to interest and dividends.

Last year, before Massachusetts had implemented WebFile, 817,000 of the state's 3.2 million taxpayers filed online, either by downloading the state's software, using state-approved commercial software or through a tax preparer, Nevins said.

Within six weeks of launching WebFile, about 53,000 of the commonwealth's taxpayers had used the application, Nevins said.

'If we reach 900,000 total for electronic filing this year, including those filed through a preparer, we will be happy,' he said.

Massachusetts' experience is echoed elsewhere.

Paul Mann, the New Mexico Taxation and Revenue Department's information systems telecommunications manager, said his state saves more than $1 for every dollar it spends in processing costs when residents file online.

New Mexico spends $2.17 to process each paper return, but spends less than $1 to process online returns, Mann said.

New Mexico, now in its fourth year of providing Internet tax filing, was the first state to provide the service.

Programmers in the state's Information Services Division developed the Personal Income Tax-NET, or PIT-NET, application in 1998. It runs under Solaris on a 400-MHz Sun Microsystems Enterprise 450 server with 3.5G of RAM.

New Mexico residents can file online at www.state.nm.us/tax.

Mann said taxpayers who use PIT-NET generally get their refunds within three days if they supply direct deposit information. The state guarantees a 10-day turnaround.

Of the 608,912 returns New Mexico processed last year, 137,500 were filed online, including those filed through practitioners. By late February, electronic filings had already surpassed last year's total.

'We hope to reach about 235,000 this year,' Mann said.

Mann said his state promoted online filing several ways. It held seminars for tax practitioners, installed online kiosks in district tax offices for residents to use free and donated PCs to Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs.

Promotion campaign

Tom Howker, director of the Maine Revenue Services Systems and Programming Division, said his state promoted its new online filing service on its Web site. It also ran advertisements for the service on television throughout the state.

Maine's I-File, at janus.state.me.us/revenue/netfile/fastfile.html, went online in August.

The state's programmers developed the application using Microsoft Visual Studio 6.0. The application resides on a 600-MHz IBM NetFinity server.

Howker said Maine residents must wait up to two weeks to receive tax refunds because the state Treasury Department generates the refund checks.

'We are a little different than most states because our refunds have to go through another department,' he said. 'Revenue processes and verifies the tax returns, and it is up to the Treasury Department to send out the checks.'

Within the first six weeks of the 2000 tax-filing season, which began in mid-January, about 8,000 of Maine's 580,000 taxpayers had filed online using I-File.

Selected states and their electronic filing systems
StateHow DevelopedExpected to file electronically in 2001Total number of taxpayersReturns filed on the Internet within first eight weeks of 2001Web Address
MaineDeveloped in-house using Microsoft Visual Studio 6.012,000*580,0008,000I-File:
MassachusettsContracted with GovConnect Inc. for $285,000900,0003.2 million53,000WebFile:
New MexicoDeveloped in-house235,000609,000138,000PIT-NET: www.state.nm.us/tax
*Excluding electronic filing by paid preparers


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