This article is from Cal-Tax Digest, published
by the California Taxpayers' Association.
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The FTB's Vision of the Future

Gerald H. Goldberg is executive officer of the Franchise Tax Board.

Filing 2010
Dramatic events continue to transform the California landscape for businesses, individuals, and government agencies responsible for meeting public needs. At the FTB, we interact with a variety of taxpayers and administer tax laws that account for nearly 60 percent of the state's general fund revenues. Our success in meeting the needs of California taxpayers depends on our ability to address demographic changes and technology trends that are reshaping how individuals and organizations interact with one another.

We first produced this document in 1995. Since then, unanticipated technological advances and the public's willing embrace of them have prompted this update. Our goal remains the same: to provide all taxpayers with the ease and convenience they demand when filing taxes and making tax payments. This document addresses the changes in product offerings we see emerging over the next 10 years as we work to realize this goal.

1990 - 2000: A Period of Transition & Preparation
Throughout the last decade, public and private organizations learned that a paper-based system does not meet the challenges of the changing world. We responded by reengineering our paper-based work processes with new technologies that provided immediate results and a foundation for future change.

Infrastructure Built to Support the Future. Implementing our vision requires the same attention to detail and use of quality materials necessary to build a home that will withstand the test of time. The following systems comprise the infrastructure we developed in the past 10 years ensuring our future rests on a solid foundation:

• Taxpayer Information System (TI)
• Business Entity Tax System (BETS)
• Pass-Through Entity Audit & Support System (PASS)
• Accounts Receivable Collection System (ARCS)
• Integrated Non-Filer Compliance System (INC)

Customers Given Access to Information and Services. Because our state's tax system relies on self-compliance, the ability of taxpayers to get the information they need is critical. Easier taxpayer access to tax information, forms, and assistance helps ensure more accurate and timely filing and payment compliance. We initiated the following products to empower taxpayers:

• 24-Hour-a-Day Telephone Assistance
• 24-Hour-a-Day Internet Assistance
• Electronic Correspondence
• Video Conferencing

Paperless Returns Filed. During the mid-to-late 1990s, we began the critical transition from being a paper-processing factory to being a high-tech electronic information gathering and processing enterprise. These successfully implemented projects provide the foundation of our paperless, return-free filing vision:

• e-file
• On-Line Filing
• TeleFile
• Magnetic Filing for Partnership Returns / K-1
• Non-Filer Return-Free Filing Project

Over the next 10 years, we will continue to move toward a taxpayer service and information-processing environment radically different from the paper-processing environment of the early 1990s.

Payments and Refunds Made Easy. Each year, business entities and individuals send us over 12 million tax payments. To make it easy and convenient to accurately comply with the state's tax laws, we began offering taxpayers alternative payment methods. These payment and refund options support our expansion into paperless processing:

• Business Entity Electronic Funds Transfer
• Electronic Funds Transfer Installment Agreements
• e-Pay
• Credit Card Program
• Direct Deposit of Refund

Administrative Efficiency Improved. During the 1990s, we implemented new systems and processes to promote administrative efficiency by improving how the department processes and manages its most critical asset - information. Specific initiatives included the following projects:

• Image Assisted Data Capture
• Modernizing and Re-engineering of the Cashiering System (MARCS)
• Power of Attorney Tracking
• Document Tracking

Filing in the 21st Century
Over the next 10 years, we will continue to move toward a taxpayer service and information-processing environment radically different from the paper-processing environment of the early 1990s. The hallmark of our vision will continue to be the ability of taxpayers to choose how, when, and where they get information, file returns, and make payments. We will also improve our ability to process and manage the tremendous volume of information we receive allowing us to speed refunds, resolve taxpayer problems quicker, and become more proactive in helping taxpayers avoid account problems. We will engage the most successful computer applications and work with established statewide e-government guidelines to enable this vision.

Transforming The Quality Of Our Customer Relationships. Over the next 10 years, we will not only look for new avenues to provide information to taxpayers, but will implement programs that change how taxpayers interact with us. Specific initiatives will include the following:

• Building an Information Network
• Direct Account Access
• Seamless Tax Information

Filing Returns Electronically. Over the next 10 years taxpayers will be able to choose from an increasing number of options for filing their state income tax returns. Whether using a PC, telephone, or interactive television from home; a public access terminal at the mall; a digital cell phone or PC notebook while traveling; or paper forms, taxpayers will be able to choose the method, time, and place that best suit their needs. By the year 2010, we anticipate that 59 percent of individual and 50 percent of business entities will file electronically using any of the following options:

• Expanded Electronic (Internet) Filing Programs
• Expanded Telephone Filing of Personal Income Tax Returns
• Interactive (Return-free) Filing for Personal Income Taxes

Making Payments and Receiving Refunds. The move away from paper will also occur in the area of payments as society increasingly relies on electronic financial transactions in lieu of cash and paper checks. We project the volume of payments made with cash and paper checks will decline from the 99 percent we saw in 1995 to 55 percent by the year 2010. This will occur as taxpayers become more trusting and familiar with electronic payments options.

Improving Administrative Efficiency. Our ability to collect, store, and manage information more efficiently means quicker refunds and more immediate identification and resolution of taxpayer problems. More efficient and effective administration of the state's income tax programs benefits all California's citizens and the state's business community because we spend fewer tax dollars administering tax law. Between now and 2010, our administrative efficiency will improve as the result of a number of projects, including the following:

• Expanded Image Assisted Data Capture, Access, and Storage
• Logically Integrated Systems
• Managing Information as a Strategic Resource

Especially critical will be our ability to use more accurate and timely information to help all taxpayers reduce or avoid the penalties and interest associated with tax errors.

Critical Success Factors
We will implement new programs over the next 10 years to make taxpayer service, tax filing, and payment easier, and to improve administrative efficiency creating a system of tax administration dramatically different from the one we had just a few years ago. As we move forward, we must address significant issues. To successfully implement our vision, we must address these seven critical factors.

Individual Taxpayers Must Use New Systems. To ensure successful implementation of new programs and services, we will survey taxpayers to find out how they want to access their tax information, file returns, and make payments, and we will implement new programs accordingly. Furthermore, we will make it a priority to build portals and interfaces that are easy for taxpayers to use and understand.

We Must Respond to the Needs of Business Taxpayers. Part of our vision is to reduce the cost and burden on California businesses trying to comply with tax requirements. One solution is for businesses to extend their use of electronic commerce and information management into the tax arena. Another is to make it easier for businesses to understand and manage their income tax obligations by increasing their access to tax information. Especially critical will be our ability to use more accurate and timely information to help all taxpayers reduce or avoid the penalties and interest associated with tax errors.

We Must Work Successfully With Private Sector Interests. We involve numerous private sector interests in creating tax-related products and services, helping taxpayers meet their income tax requirements, and reporting taxpayer information to us. We must work successfully with all of these interests to ensure compatibility between their products, services, processes, and systems, and ours.

Safeguarding Privacy and Confidentiality. Electronic transmission of tax information and the ability of taxpayers to electronically access their own tax account information raise serious privacy and confidentiality issues. Because we place paramount importance on safeguarding taxpayer information, we will not move forward with any new project or program in instances when these issues are not adequately addressed.

Implementing Cost-Effective Technologies. In keeping with our proven record for successful technology implementation, we are committed to prudently implementing new technologies. We will continue to do so with an understanding that there is tremendous value in establishing an electronic relationship with as many taxpayers as possible.

The IRS Must Take Similar Actions. We implemented many projects and programs that helped us enable our vision and we will continue to do so. However, we are dependent upon certain federal initiatives if we are to fully implement our vision. They include: 1) building a more seamless interface between federal and state tax administration agencies, and 2) federal participation in electronic filing.

Our Filing Vision Must Be Flexible. There has been a great deal of discussion recently regarding income tax reform. While any change in income tax laws will potentially affect how we administer California's income tax programs, we believe that the principles that underlie our vision are key to the successful administration of taxes in any form.

Conclusion
Continuing to provide our state with the best possible system of tax administration provides the key to our filing vision; one that makes paying taxes as easy as possible for all taxpayers, provides for efficient government operations, and generates revenue for California through the fair and effective application of the state's tax law. By building on past successes, working to resolve critical issues, and continuing to collaborate with appropriate private and public sector organizations, we are confident that the 21st century will bring the realization of this vision to the benefit of all Californians.

Furthermore, we believe these measures increase the likelihood that California taxpayers understand and consequently pay the correct amount of tax up-front, thereby decreasing future taxpayer contacts and improving overall revenue collection for the state.

Our Tax Filing Vision
The following scenarios frame our vision for the future of income tax filing in California. They reflect our commitment to make filing and payment of taxes quicker, simpler, and more convenient. They also focus on the need to provide a wide variety of filing and payment options to meet the needs of a diverse tax-filing population. While we cannot control the complexity of the tax laws nor the amount of tax owed, we can employ new technologies, work in partnership with other public and private entities, and rethink old ways of doing business in order to make filing taxes less burdensome. Furthermore, we believe these measures increase the likelihood that California taxpayers understand and consequently pay the correct amount of tax up-front, thereby decreasing future taxpayer contacts and improving overall revenue collection for the state.

Scenario 1
Taxpayer has a return-free relationship with FTB. Imagine coming home from the office one day in early February to discover a postcard from the Franchise Tax Board in either your physical or electronic mailbox. The sight of the postcard doesn't provoke anxiety. On the contrary, you expected it because you recently accessed your FTB account via your personal computer, interactive TV, or digital cell phone, and verified that all the information on your account was accurate. The postcard is merely a courtesy notice to inform you that FTB credited your refund to your personal bank account. Alternatively, if you owe any additional tax, the postcard indicates what payment option you chose: either paying with your credit card, transferring funds electronically from your bank account, or arranging for installment payments.

Now, let's imagine that when you access your account, you discover an income source credited to your account that doesn't belong to you, or that your charitable contributions were improperly deducted from your account. At the click of a button you correct the errors or omissions on-line while viewing your account. Or, if you prefer, a click of a different button takes you directly to your FTB account manager who personally works with you to correct the errors while you are on-line.

In less time than it takes to finish your morning coffee, you filed your state income taxes for another year.

Scenario 2
Taxpayer has a relationship with FTB via software providers. Perhaps you're one of the growing numbers of individuals and business owners who use financial accounting software to track your personal or business income and expenses. Imagine, one day in early February, a contact from this company telling you that they have prepared and successfully submitted your income tax return to FTB. You gave them your power of attorney when you signed up for service so they could file your income tax return for you. (If you didn't want to give your power of attorney you could still access your tax account maintained by the software provider via your personal computer, interactive TV, Palm Pilot, or digital cell phone, and verify that the information was correct before they transmitted the return to FTB.) As a result, FTB automatically deposits your refund into your bank account and notifies you within 24 hours of the deposit. On the other hand, if you owed any additional tax, FTB notifies you that they received payment through the payment option you chose.

Scenario 3
Taxpayer has a relationship with FTB via tax practitioners. Let's imagine you're one of the millions who have developed a trusted, long-term relationship with a tax professional who helps you navigate tax laws and systems. In this vision, you still depend on this person to meet your financial accounting needs. However, you no longer need to cart all your tax information to your preparer's office. Instead, she accesses your tax information via her computer through the secured FTB Internet portal. Since you gave her your power of attorney, she also files your tax return on your behalf.

You fully realize the benefits of using a tax professional when a problem with your tax account is identified. Since she electronically monitors your account, she knows whenever activity occurs. If the activity identifies an issue requiring attention, she resolves it even before you know about it. This kind of relationship takes customer service to new heights.

Scenario 4
Taxpayer has a direct relationship with FTB using existing filing options. Perhaps you're one who takes great pride in your knowledge and ability to follow the changes and complexities of tax law. You prefer to assemble and prepare your income tax return without assistance. Imagine a system that allows you to choose how, when, and where you get the information you need to file a return, make a payment, or get your refund. For example, you might opt to get general or personal tax information using your interactive television after the kids are in bed on Sunday night. Or, you decide to file your return and make a tax payment using your credit card via the Internet on Saturday afternoon after you accessed FTB's database to check your tax account. You might even decide to file your return over the telephone during your lunch hour on Friday. Let's not forget the obvious; you can even mail a paper return on April 15th. The issue here is that you select the method that is easiest and most convenient for you.

Scenario 5
Business Entity Tax Filing. Now, imagine that you are one of the many Americans conducting business electronically. Given your increased reliance on electronic rather than paper transactions to communicate with financial institutions and trading partners, you want the ability to communicate with us electronically as well. Rather than printing and mailing a hard copy of the information in your computer database and relying on us to accurately re-enter the information into our database, you simply transmit your tax return electronically via our secure Internet portal or through your tax professional. You reduce the possibility of human error, get immediate acknowledgment that we received the payment or information, and ensure our ability to quickly resolve any tax problems that may arise in the future. Additionally, you can confirm the information on your business entity's tax account by logging onto our system 24 hours a day, seven days a week.

Our vision for the future of business entity filing does not differ greatly from the scenarios presented for the individual tax filer. However, unlike individuals for whom low cost, ease of filing, and quicker refunds are enough to encourage taxpayer participation, we anticipate business entities may need additional incentives. Some of these incentives might be as simple as providing on-line tax account access only to taxpayers with whom we have an electronic relationship. Access to all California state agencies that relate to the customer's business (i.e., Employment Development Department, Board of Equalization, Secretary of State, Consumer Services, etc.) might also provide adequate e-filing incentives. Another might be to reduce the statute of limitations from four to three years for those with whom we have an electronic relationship.

There are approximately 800,000 business entities (corporations, banks, S corporations, exempt corporations, partnerships, limited liability companies) filing taxes in California. Of these, only 25,000 represent the large multinational-apportioning corporations. These multinational corporations typically have their own team of tax accountants and attorneys who handle all their tax issues. The other 97 percent are California business entities that are likely to rely on accountants and other tax professionals to handle their tax accounts with both IRS and us. The role of these tax professionals is changing. Their customers will rely more heavily upon them to handle all tax issues. They will find themselves performing the function of intermediary between their clients and the taxing authority. To serve their customers effectively, they will need to have direct on-line access to their customer's FTB account.