Hoyle Assures Lawmakers New Tax Collection System Will Work

RALEIGH — You know the old saying — you have to spend money to make money. That’s the message N.C. Department of Revenue Secretary David Hoyle wants to send as the department puts the finishing touches on its new Tax Information Management System.

And while Hoyle is confident the new system will not only pay for itself but also generate more revenue for the state, there have been — and most likely will be — some bumps in the road.

“I want to put you on notice and say there might be some challenges during the changeover,” Hoyle recently told the General Assembly’s Revenue Laws Study Committee.

Hoyle said the new system was necessary because the department’s current system was 25 years old, which is comparable to a “90-year-old man trying to play in the NFL.”
According to 2011 report issued by NCDOR, the overall projected cost of implementing the TIMS system was set at $86 million.

But the General Assembly appropriated only $45 million, meaning the department would have to devise a plan using a portion of the benefits derived from the new system to pay its vendor the remaining $41 million.

In the meantime, the economy collapsed, leaving the state with a huge budget deficit.

“Unfortunately, no one anticipated the depth or length of the recession,” the report stated. “Budget projections showed vendor invoices would come ahead of generated revenue, which would result in negative impacts to the project and a deficit duration lasting 20 months.”

In order to meet this challenge, the department worked with its vendor to devise what it described as “an aggressive, yet innovative approach.”

Compliance and collection efforts were moved to the front of the project. Two big payoffs were an automated attachment process that streamlined the collection of garnished wages and an automated return mail system that could update efficiently addresses of delinquent taxpayers when collection notices were returned via mail.

Those two initiatives are part of $191 million in gross benefits, which has enabled the department to collect $45 million toward its vendor fund.

Hoyle recently told the committee the new system will be in effect fully by August 2013. But even then there will still be challenges.

One major challenge, Hoyle said, will be training employees on the new system while keeping the department — which takes in approximately $105 million in revenue per day — running at full speed.

Between 130 and 150 department employees will be engaged in training and implementing the new system.

“We’re going to have to take somebody from every department to help us get that training done,” Hoyle said. “That means taking auditors off the road,” which in turn could lead to a short-term dip in revenue.

But the long-term benefits of the new system will pay off in the end, Hoyle maintains. Basically, it will make it easier for the state to collect taxes.

Hoyle said collecting payroll taxes from businesses can be problematic. The new system will be able to conduct audits in a more timely fashion.

Hoyle explained that sometimes it can take three or four years to conduct audits on businesses, after which time the businesses could be hundreds of thousands of dollars in arrears.

Delays conducting audits can lead to what Hoyle described as a “double-whammy.” Businesses withhold taxes from employees’ paychecks, but do not remit those taxes to the state.

In the meantime employees — who are not at fault, Hoyle noted — file tax returns with the state, which the state pays. So while the money’s going out, it sometimes takes several years for it to come back in.

With that in mind, Hoyle recalled the challenges the N.C. Division of Motor Vehicles faced when it converted to the STARS system in the mid-1990s.

Hoyle recalled receiving calls from constituents — he was serving in the state Senate at the time — complaining they couldn’t get titles and registrations.

“For about a month or two, we went through some problems. But now it is working great,” Hoyle said of the DMV’s system.

Similar problems occurred when the state centralized its child support collection system. Again, Hoyle received phone calls from constituents wondering where their checks were.

“I thought if this goes on much longer, Lord, I don’t know what’s going to happen,” Hoyle said.

But those problems were worked out, and Hoyle is confident any problems with his department’s system will be worked out as well.

“It is, in my opinion, one of the greatest successes in government,” Hoyle said.

A member of the legislative committee, Sen. Fletcher Hartsell, R-Cabarrus, said that while he hasn’t “gotten into the weeds” of the project, he believes it is indeed a necessary upgrade.

“State government has so many antiquated systems,” Hartsell said. “This appears to have real functionality and will get done what we have been trying to do for some time. From what I gather, I do think it will be of real assistance in integrating the functions of tax collections.

Sam A. Hieb is a contributor to Carolina Journal.