Testimony on development of electronic funds transfer programs for the payment of state taxes before the Federation of Tax Administrators

Tax Executive, The, Jan-Feb, 1990 by William M. Burk

Testimony on Development of Electronic Funds Transfer Programs for the Payment of State Taxes

Introductory Remarks

Good morning. I am William M. Burk, Director, Domestic Tax and Audits for CPC International Inc. in Englewood Cliffs, New Jersey. I am here today in my capacity as President of Tax Executives Institute (TEI). The Institute is the principal association of corporate tax executives in the United States and Canada; its 4,300 members represent more than 2,000 of the leading corporations in North America.

TEI represents a cross-section of the business community, and is dedicated to the development and effective implementation of sound tax policy, to promoting uniform and equitable enforcement of tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayer and government alike at both the state and the federal level. As a professional association, TEI is firmly committed to maintaining a tax system that works -- one that is both administrable and with which taxpayers can comply.

TEI is very pleased to be present today to discuss the very important issue of electronic funds transfer (EFT) for the payment of state taxes. Just a month ago, TEI held its first-ever liaison meeting with the Federation of Tax Administrators (FTA), and we view this meeting as a manifestation of a continuing and productive relationship between the Institute and the FTA. Although taxpayers and tax administrators are often viewed as "adversaries," there are numerous areas where we share common interests and where we can -- and should -- work together. The Institute hopes that this meeting is the first in a series of forums to develop specific recommendations to the states. For example, TEI strongly believes that a similar meeting should be expeditiously scheduled to develop recommendations in respect of an administrative "bill of rights" for taxpayers.

In our comments today, we focus on certain policy issues that we believe merit special emphasis. Administrative and technology-related implementation issues are discussed in an appendix to this statement and, we understand, will be addressed in detail by representatives of the Committee on State Taxation (COST) and the other organizations represented here today. From our prior work on EFT issues (and as a consequence of the cross-membership of TEI and COST), we can say with confidence that COST's specific comments are generally in accord with those of the Institute. Obviously, Tax Executives Institute would be pleased to respond to any questions the FTA may have about the issues discussed in the appendix or commented on by other witnesses.

EFT: The Need for Uniformity

Turning to the subject at hand, TEI commends the Federation of Tax Administrators for its leading role in the development of uniform EFT standards. The discussion draft prepared in connection with this meeting identifies the full range of issues that the States must address in developing their EFT programs, and although TEI and individual taxpayers may disagree with FTA's (and individual States') ultimate resolution of some of the issues, we believe the process that has been followed bodes well for the implementation of fair and efficient EFT systems.

Of paramount concern to TEI is EFT uniformity. Currently, the rules and requirements vary from State to State. Disparate EFT requirements among the States stand as a veritable Tower of Babel -- confusing taxpayers, increasing their compliance costs, and generally denying them the benefits offered by electronic data interchange (EDI) technology.

For example, some States limit EFT to the remittance of severance or withholding taxes; others impose the requirement in respect of corporate income taxes as well; and still others require EFT remittances of all taxes (including excise and environmental levies). In addition, whereas some States accord taxpayers an option to use EFT, other States have sought to make EFT procedures mandatory. More fundamentally, the States that have imposed EFT requirements have established different data formats for the remittance of data and many States that are planning EFT systems are developing their own proprietary data formats.

Taxpayers, regardless of size, cannot reasonably be expected to establish more than one internal system to electronically transfer tax payments to the States. Lack of uniformity would exacerbate the administrative burdens on corporate taxpayers that EFT will spawn. Thus, if there is one message TEI wishes to deliver today, it is this: the States that choose to adopt EFT rules and procedures should hew closely to a set of uniform and consistent guidelines concerning EFT payments and procedures.

In developing these guidelines, States should realize that uniformity among the States on technological and administrative, as well as policy, issues will benefit not only taxpayers but the States themselves. Moreover, although States may ultimately choose to encompass different types of taxes within the scope of their EFT programs or impose different thresholds for the imposition of EFT requirements, (*1) disparate resolution of those two issues should not detract from the overall goal of uniformity.