Tax Modernization

Implementation of House Bills 267 (Budget) and 272 from the 2005 General Assembly

Presentation to: Commonwealth Technology Council

February 23, 2006

What is

Tax Modernization?

Goals of Tax Modernization

Encourage rather than impede the success of business;

Make changes that are revenue neutral with elements that will spur economic growth in the future; and

Export some of the tax burden to nonresidents.

Tax Modernization: Not New, Not Easy

1995: Jones Report

1995-2003: Multiple attempts by the Patton administration

2004: First attempt by Governor Fletcher

And then………

Tax Modernization 2005

House Bill 272 Signed by Governor Fletcher on March 18, 2005

What is Tax Modernization?

Tax Modernization represents the Largest Change to the Commonwealth’s Tax Structure since 1936.1936 Changes Included:

Sales tax repealed and replaced with enactment of individual and corporate income taxes; and

Taxes imposed on cigarettes, beer and alcohol (sin taxes) for the first time in Kentucky.

Taxes Impacted

New Taxes Imposed Transient room tax Telecommunications Other tobacco products

Existing Taxes Changed Cigarette Alcoholic beverage Health care provider Utility gross receipts license

tax Individual income tax Property tax Corporation tax Sales and Use Tax

Equine breeders fund Streamlined sales tax

Revenue Neutral

To pay for all these changes, Kentucky taxpayers shouldn't have to dig any deeper into their pockets. 

The tax law changes were established to be “revenue neutral,” which means that the revenue raised through new taxes should be equal to the amount of tax reductions and new credits. 

Be Careful What You Ask For…

Tax reform was long overdue, but it meant….New computer software would have to

be developed;Hundreds of computer programs would

have to changed in a short period of time; and

New forms and procedures would have to be developed. 

So Why are We Talking about Taxes in a Meeting

about Technology?

Time is Not on Our Side….

The system changes were the equivalent of three years of work being compressed into nine months of time.

To Misquote Mick and the Boys:

Time was Not On Our Side…..

Innovation By Timelines

Staff within COT and DOR had to modify their normal processes and adopt innovative new approaches for the massive effort. These included: Creative structuring of the various projects into

phases; Consolidating testing by applications rather than

projects; Working in shifts when possible; and Changing computer programs only once even if

modifications were necessary for multiple tax projects.

Current DOR System Infrastructure

OUTSIDE AGENCIES

CRIS

IIT

CARS

EPAY

SUT

RIF

CIL

COMMON PASSWORD

MAINT

PSC CHARGE

BACK

FISHER FARMER MATCH

92 INC SEARCH

ARTIS

KRC SYSTEM MAINT

BARCODE IIT REURNS

STAX3rd

PARTY

W2 RECON

EMPLOYERS

KRC COMMON

INH.TAX

COMP

STING

PVA DATABASE

FED EXTRACT

SPECIAL FUELS

READS

MIXER DATA CONV.

MOTOR FUELS

HCPT

MFE II

ERROR CORRECT

TOOL

RETS

WTS

PASS THRU

POST AUDIT

MIXERS

SU ANNUAL

OSCAR

CTXCOAL TAX

QUARTLY

CAPS REPORTS

CORP CODE

ELF

KRC COMMON

CAPS

EFT

FED DISC

IRS

RATEBOOK

REPORTS

EOAD

IMAGE ENTRY

BANK LEVY

FARMERS BANK ADP

PURGED LIEN

GOEA

RETURNS

RATE CERTIFICATION

AND TAX ALLOCATION

MAILING FILE

REUSABLE NUMBER PROCESS

REVENUE DISTRIBUTEDREVENUE DISTRIBUTED

System Mnemonics

ARTIS: Automated Refund and Tax Information SystemCAPS: Centrally Accessed Property SystemCARS: Compliance And ReceivablesCIL: Corporation Income & LicenseCRIS: Cross Reference Index SystemCTX: Coal TaxEFT: Electronic Funds TransferELF: Electronic Filing (IIT)EOAD: Examination Operation Automation DatabaseFED DISC:Federal DiscoveryGOEA: Govenor’s Office for Economic AnalysisHCPT: Health Care Provider TaxIIT: Individual Income TaxIRS: Internal Revenue ServiceMIXERS: Miscellaneous Tax Registration SystemMFE II: Modernized Front EndOSCAR: Online System for Collections of Accounts ReceivableREADS: Revenue Evaluation And Decision Support SystemRETS: Revenue Electronic Timekeeping SystemRIF: Revenue Internet FilingSTING: State Income Non-GovernmentalSUT: Sales and Use TaxUMAST: Un-mined Minerals And Severance TaxWTS: Withholding Tax System

UMAST

TAX FORM TRACKING

Stand Alone Systems

Answer & Cross ClaimsApplication Inventory Management System (AIMS)Archive IndexAudit Review & Tracking SystemBank Franchise Tax SystemBrief BankCertificate of Delinquency Number CruncherCorporation Locator Tracking SystemCounty Allocation ProgramCounty ClerkDelinquent Property Tax DistributionDisclaimDiscoveryDuplicate ReturnsEnergy Direct PayEnterprise Zone ComplianceExempt Corporations Tracking SystemExtension Request Tracking SystemHuman Resources (HR) FilesInterest Calculator (Internet, Intranet, Field Version)MagMediaMail LogMonthly ReportsPayment DatabasePending Personnel ActionsPersonnel ProjectionsProblem ResolutionProtest ResolutionSales & Use Integrated Tax SystemSettlement Log (Offer In Settlement)

Tax Modernization System Impacts

91 DOR Systems were changed or created under the Tax Modernization Project.

Over 100,000 COT Man-Hours were spent designing, updating and creating the Tax Modernization Project.

Over 100,000 DOR Man-Hours were spent designing and testing the Tax Modernization Project.

What Could Have Happened….

Without COT and DOR

Cooperative and

Combined Efforts

With Cooperative Efforts…

Tax Modernization Implementation Ran

Smoothly

Tax Modernization Tax Modernization ImplementationImplementation

Tax ModPop. 2006

DOR and COT Teamwork

"Implementing the Tax Modernization project has been quite a challenge for both Revenue and COT, but our staffs have done a remarkable job.  I'm extremely proud of the teamwork, dedication and professionalism that state employees from both agencies have shown in getting the job done."

   - Commissioner Mike Inman     (COT)

DOR and COT Teamwork

“Tax Modernization was truly the most comprehensive tax change since the Department of Revenue was established. While all the tasks are not yet completed, the fact that tax filing season is running smoothly testifies to the dedication and professionalism of DOR and COT staffs.”

  - Commissioner Mark Treesh      (DOR)

What Does the Future Hold for DOR and the Tax

Systems?

Comprehensive Tax System

The Department of Revenue has requested funding in the Current Budget for a Comprehensive Tax System.

Project costs are estimated at $35 Million and include the replacement of all current DOR mainframe and stand alone systems.

RFI will be released in coming days, with the RFP scheduled for release by the end of April.

Questions

Bradley W. Thomas, Executive Assistant

Department of Revenue

Office of the Commissioner

Brad.thomas@ky.gov

www.revenue.ky.gov