[The following article appears in the February 1994 edition of _Public_Sector_Quality_Report_, pages 1-3.] MN REVENUE DEPARTMENT REENGINEERS TAX SYSTEM ____________________________________________________ Organizational Snapshot Minnesota Department of Revenue Sales/Use Tax System Annual collections: $2 billion % of total state revenue: 28 Sales Tax Rate: 6.5% Customers: 151,000 Employees: 1,000 _____________________________________________________ When the Minnesota Department of Revenue got a two-year, $2.4 million appropriation from the legislature to buy new document processing technology for sales and use tax collection, department managers had two clear options: Overlay new technology atop 20-year-old work processes, or use the money and some management innovation to rebuild the entire sales/use tax system, with an eye toward improving customer service and voluntary compliance. They chose the latter option, and the results after two years constitute what might be one of the more significant, state-level examples of process reengineering in the United States. Why "reengineering" as an improvement strategy? Connie Nelson, formerly an assistant commissioner in the department, says a reengineering approach (as opposed to, say, continuous improvement or employee suggestions) was chosen for several reasons: ù The chance to exploit new technology. Nelson notes that while "technology is sometimes incidental to quality management, it's considered fundamental to reengineering." Today the department's reengineered system is a potpourri of client/server platform technology, electronic data interchange, scanning, imaging, telephone voice response systems, area networks, and fax. ù An evolving mission. The department was redefining its mission from one of enforcing state tax codes to one in which it seeks to win compliance . To foster voluntary compliance, the department needed a comprehensive review of its relationship with customers, the business taxpayers. ù Dramatic results. Nelson and others in the department make no bones--they were seeking major gains. While to them continuous-improvement efforts are useful for refining discrete processes gradually over time, a reengineering mindset seemed better suited for a "holistic" and relatively rapid overhaul of a large, multi-process system. "If you want to improve what you have, you might do quality," Nelson said. "If you want to start over, or question whether what you have should be there in the first place, that's reengineering." More than 100 department employees participated in the reengineering process, with the work divided in three phases. In Phase 1 (roughly 9 months, starting in October 1991 ) they analyzed the existing processes and set ambitious "targets" for improved performance. Targets included customization of services to meet specific taxpayer needs, a reduction in the number of paper returns, resolution of delinquent cases within 90 days, all with no net increase in the overhead required to run the sales/use tax system. In Phase 2, employee teams used the targets to create new or redesigned processes. Phase 3, which still is unfolding, involved actual development, implementation, and testing of everything from new work procedures and job descriptions to the new information management technologies. Highlights of the reengineering effort suggest the department is making substantial progress toward its goal of dramatic improvement: ù Customer registration and profiling. Under the old system, a customer who missed a filing date once in five years, and one who missed five in one year, were treated generally the same. Under the reengineered system, the department maintains and updates customer "profiles" with details about each customer's business, officers, industry type, size, location, filing cycle, compliance history, and more. The department first captures profile data at the time of initial registration, which can be done at any department office, or even by telephone or fax. Profiles continually are updated as department employees interact with customers. Profiles help the department tailor services, education, and enforcement efforts to an individual taxpayer's needs and history. For example, if a customer misses a payment and the profile shows the customer normally files accurately and on time, a department employee might follow up with a phone call to see if the customer needs assistance or further education. The employee might even waive fines or late fees, if there are any involved. By contrast, if the profile shows a customer who's chronically late, the department can more quickly mobilize its full range of enforcement options, from dunning letters and phone calls to audits. "What we see now is that registration is really the beginning of the business process, and that process is to profile and know what our customers look like," says Nelson. "The profiling process does not stop until that business goes out of business." ù Filing and paving. The department is testing "paper-less" processes for filing returns, including fax, electronic data interchange, and touch-tone telephone. Meanwhile, the department is using profile data to generate taxpayer-customized sales tax forms. A customer no longer need search line-by-line through a legal-size return to find the handful of lines that pertain. Instead, at least 60 percent of all customers receive a simple, four-line form. The department also merged separate city sales tax and use tax forms into the single state return. Not only are the returns easier for customers to fill out quickly and accurately, they're easier to process. ù Processing. In the past, key data about a return was not available to department employees until 40 days after the filing date. With customers on a 30-day filing cycle, mistakes, errors, and unfiled returns were going unnoticed, uncorrected, and repeated. Department employees had little or no chance to notice--much less correct-problems before another filing deadline passed. Today, given a new, transaction-based processing system, critical filing data--taxpayer I.D. number, tax type, filing period, amount paid--generally is available online the day it arrives. All relevant data is available within seven calendar days. Earlier availability of data helps the department better interact with customers to correct problems, mistakes, and delinquencies. ù Ensure compliance. As indicated above, profiling helps the department tailor its enforcement based on customers' filing histories. As tax laws change, or as specific industries or business types exhibit patterns of errors or non-compliance, the department also can use profile data to target customer groups with educational classes and materials, helping to improve compliance. ù Ensure payment. The department hopes to reduce the average time needed to resolve overdue accounts from as long as a year to 90 days or less. Previously, the average time was between nine and 12 months, and only 24 percent were resolved within 90 days. Now, when a return is not fully paid, the redesigned process identifies delinquent accounts and sends out accounts receivable notices within 10 days of the filing date. Rather than mail second and third notices, the next step is direct contact from a department employee. A recent test showed that the new process was successful in resolving 96 percent of accounts receivable cases within 90 days. ù Administration. Although total employee numbers have stayed level, the department has been able to shift people from processing-related jobs to more "value-providing" work, such as taxpayer assistance and accounts payable resolution. Also, the department has reduced the amount of paper to be processed by converting many monthly filers to quarterly, quarterly filers to annual, and by allowing "zero filers" to file by phone. According to department estimates, the reengineered sales/use tax system ultimately will promote more accurate compliance and could generate as much as $50 million in additional tax revenue each year. The department also estimates that faster resolution of accounts payable will mean fewer uncollectible accounts, which could boost collections another $4.3 million annually. Use of scanning and imaging technology should save at least $200,000 in return processing and microfilming costs each year. Electronic filing and revised payment methods might eventually trim another $700,000 in paper-processing costs. In a report describing its reengineering effort, the department summarizes its new (and still evolving) sales/use tax system this way: "By broadening employee authority and access to information, by making customized services available to taxpayers rather than the "one size fits all" approach, by using technology differently, and by greatly expanding customers' understanding of compliance actions and effectiveness, the Minnesota Department of Revenue is positioning itself 'to win compliance' well into the 21st century." CONTACT: R. Gregory Tschida, Project Manager-Reengineering, Minnesota Department of Revenue, (612) 297-3002. [For more information or to subscribe, contact: Public Sector Quality Report 17733 Kingsway Path Lakeville, MN 55044-5209 Phone 612-898-5058 FAX 612 892-7710]