Tax Collection Matters

By Joseph W. Lazzaro, Esquire

As I am not an economist, I will not try to predict whether the recession is ending, whether the Federal stimulus is working or if we are headed for even worse months ahead. We will leave that task to Federal Reserve Chairman Ben Bernanke and the television network pundits.

Rather, as an attorney focused in government collections law, I can tell you that cities, school districts and counties should be preparing now for the impact of reduced tax revenues.

Tax revenue, and thus tax collection, is the sustenance of government. For decades, most local governments made far too few advancements in the way in which they collected taxes. Political forces, along with the stagnation of small bureaucracies, kept most local governments from looking to technology as the solution to aide their tax collection efforts.

Many communities now find themselves competing to recover desperately-needed tax revenues. These local governments are competing for the same consumer dollars against bank lenders, credit card companies and skilled debt recovery firms, most of whom have already implemented advanced collection technologies. Local governments are finding they’ve fallen far behind in the race to collect the tax dollars they are due.

The citizens in your community wear several hats: one as a consumer and one as a taxpayer. The consumer buys real estate, automobiles, gasoline, food, clothes, vacations, cell phones, etc. and often borrows money to do so. The taxpayer also receives government services, along with the tax bills. When the economy was booming, most bills—including the tax bill—were paid. As the economy slowed down—and gas prices soared—the consumer-taxpayer suddenly can only pay some, but not all, of those bills. He has to make choices.

An effective collector has two business objectives. The first objective is to convince the consumer to pay its bill first (the priority choice). The second objective is to cut the cost of the collection process.

To compete with other creditors, local governments are finding that they must bring themselves up to speed in the collection arena, changing people’s priorities and cut those costs at the same time. To do so, local governments must abandon antiquated methods of billing, communication and record keeping. After decades of resistance, they are finally turning to (or running to) new technologies to help them through the hard times.

Technology Basics

Obviously, every tax billing system should include automation at both the front and back ends. From the start, tax forms must be designed with both taxpayer ease and internal processing automation in mind. Along with high-speed printing and mail insertion equipment, the collection program should have scanning capability and be customizable. As local ordinances and regulations alter the types of taxes, the tax amounts and the procedural rules for garnering those taxes, the form layout and processing techniques must accordingly be capable of change.

In turn, as citizens mail their tax payments into the system, the checks must be processed quickly. Underpayment invoices must be immediately mailed back to the taxpayers. Checks should be scanned with payments electronically imaged, preferably Check21 ready, so the funds hit the government bank account with immediacy.

The way the tax form itself is handled is crucially important to the speed, and thus the priority of the process:

“While most tax returns are still filed on paper, we are able to provide a paperless solution by scanning thousands of returns into our system,” said David Kratzenberg, who oversees technology operations at the Keystone Group, a tax and government debt collection firm located in Irwin, Pennsylvania. “We use the very latest in handwriting recognition, optical character recognition and forms recognition to virtually automate this process.”

By controlling the collection technology, the tax collector can provide a program that’s both highly efficient and customizable. The bills move quickly and the process is oriented toward the needs of the taxpayer. Those elements, in turn, help to give your tax bill priority in the eyes of the paying consumer.

“How may I help you?”

Tax collection efforts are naturally directed toward citizen taxpayers (and voters). Communication ability thus become especially important. Operation technologies must therefore be merged with a telecommunication system that is both knowledgeable and friendly to the taxpayer’s call.

Modern telecommunication systems in the collection industry include interactive voice response (IVR), predictive dialing, voice-over IP and most importantly, a call center staff that has immediate access to all of the electronic data needed to quickly respond to the taxpayer’s inquiry regarding his or her account.

A good call center will also monitor the verbal responses of the taxpayer services representative as well as monitor the telephone call statistics (such as average “hold” time) so as to ensure that telephones are adequately staffed.

Finding Your Solution

While a few local governments are trying to assemble the equipment, hardware, software and IT staffs necessary to operate in-house collection departments, most are opting to engage outside collection firms. In recent years, even the IRS hired outside collection firms to pursue delinquent Federal taxes. How a municipal or county government selects the collector is critical to the success of the effort.

Here are some key factors to consider:

Flexibility in design. Many business and service provider industries in the private sector use standard data management systems for bill collection. In the public sector, the needs of local governments and the vastly different types of taxes, duties, costs, fines and penalties they impose necessitate a collector with a customized system. Different governments with varying needs and unique criteria cannot be forced into the same “cookie cutter” mold.

Responsiveness. Political sensitivity is important in the tax collection process. While tax collectors must be firm, a good collector will couple that approach with a sense of fairness. Look for special considerations like manageable taxpayer payment plans and attention to hardship situations. Be sure to ask about the candidate’s history of being sued or challenged for overaggressive efforts and exorbitant fees.

Accountability. While collection speed is important, accuracy is paramount. Particularly with public funds, look for a firm with delinieated financial controls and examine the report detail that they provide to their existing government clients. A good collector leaves a clean and clear audit trail.

The needs of governments continue to grow while facing budgetary constraints. Technology-driven tax collection permits leaner, smarter, and more accountable good government.

Joseph W. Lazzaro is Vice President and General Counsel at the Irwin, PA-based collection firm The Keystone Group.