BECAUSE TAX AGENCIES EXPECT VOLUNTARY COMPLIANCE, the level of public trust is key to an agency's ability to collect revenue.
Contrary to conventional wisdom, death and taxes are not the only constants in American life. There is one other: change. The changes in the way taxpayers of the 21st century will earn their living and how they will interact with state revenue agencies could hardly be more sweeping or significant.
Those of us in the business of using technology to facilitate tax compliance see a paradox: Even as our economy becomes more complex (and perhaps because of this complexity), taxpayers want tax compliance to become simpler, faster, cheaper, and more transparent. Indeed, the Internet experience, with its emphasis on accessibility and individual control, is increasingly the lens through which people evaluate all transactions, including tax compliance. As the nature of tax planning becomes continuous and occurs in realtime, taxpayers will demand more information and policy feedback in the normal course of commerce. This is a tremendous shift from the old "only on April 15th" perspective.
Challenges Facing Tax Agencies
To better understand these challenges, American Management Systems (AMS) conducted a comprehensive research study on the changing face of tax compliance. The report reflects a year-long analysis of taxpayer trends, obtained through interviews and focus groups with CPAs, CFOs, CEOs, entrepreneurs, technology experts, and taxpayers.
The chief finding of the study was that the traditional taxpayer isn't so traditional anymore. It uncovered
* a growing complexity in individual and small business tax concerns,
* a rising tide of customer expectations as routine tax tasks are automated,
* a sphere of operation in which local boundaries give way to a global focus,
* a concern that ease of access to vital tax information be balanced with security of data, and
* a distrust of government that can be ameliorated only if public agencies become more efficient, effective, and responsive.
Growing complexity. The days when the typical taxpayer relied on a single employer for a paycheck for an entire career, or even a majority of income in a single year, are fading fast. Americans today are changing jobs at a rapid pace, receiving income from multiple sources, and launching their own business ventures rather than working for large employers. Individuals are increasingly likely to have acquired financial assets in portable 401(k)s, IRAs, Keogh plans, or retirement and education savings accounts, with all their inherent tax complexities.
Small businesses are also changing rapidly. Companies that once considered themselves strictly local now do business online across the nation and, in many cases, around the world. Companies that were once involved in only one or two straightforward types of transactions now operate at a level of complexity previously the preserve of businesses a hundred times their size. The traditional boundaries of state tax laws are becoming invisible to business online, and taxpayers increasingly experience complex compliance scenarios across multiple jurisdictions.
Rising expectations. Technology is turning the once specialized task of tax preparation into a commodity. Consequently, many tax-preparation firms are moving away from simple tax preparation to ever more sophisticated planning and advice. Similarly, tax agencies can use web pages and other technology to provide basic information and other low-level value-added services that the 21st century taxpayer will come to expect as a matter of course.
The tax system is not about to go on automatic pilot-quite the contrary. If Mom and Pop, Inc., no longer file Form 1040 EZ, their growing sophistication will lead to complex, time-sensitive requests directed at tax agencies, requiring a level of expertise and service not currently available. …