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Five State Department of Revenue Improvement Opportunities

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Many, if not most, state departments of revenue (DORs) are pursuing digital transformation, although some indirect tax leaders would like to see these efforts accelerate. This is especially true for departments whose implementation and use of advanced systems and tools would help produce a stronger DORs taxpayer experience.

What Tax Professionals Want Most from DORs

In a recent online survey, Vertex Community members identified the following as their top improvement priorities for DORs:

  1. More Timely Guidance: It would be helpful if the DOR could provide well-drafted guidance via regulations or interpretive rulings/bulletins in areas where taxpayers believe the law is unclear (selected by 35.8% of participants).
  2. Customer Service: Corresponding with the DOR can often be challenging given notices/misapplied payments/other issues (26.6%).
  3. Website: It can be challenging to find information, or the site simply could be more user-friendly (15.3%).
  4. Improve Audit Timeliness: Sometimes, audits may take too long due to scope, sampling, and/or the length of the audit period (12.8%).
  5. Resolution: The audit or appeals level requires experienced decision-makers who can settle in a more timely manner (5.5%).

Two notes about these findings: First, 4% of respondents selected “other/unsure.” Second, the poll was conducted during two Vertex Community webinars that attracted over 500 attendees—including indirect tax leaders and professionals, C-suite leaders, and a range of VPs and managers from finance, accounting, HR, IT, and customer service groups. Vertex Community is a centralized hub offering customers easy access to knowledge, training, support, product updates, and peer collaboration.

How Technology Is Transforming DOR Operations

DORs appear highly interested in deploying new technologies, such as artificial intelligence (AI) and advanced analytics, which can drive numerous improvements. It’s notable that the Federation of Tax Administrators (FTA), a professional organization of DOR professionals, dedicates one of its four major conferences each year to technology, which is also one of the top objectives described in the organization’s 2022-2027 strategic plan (advancing the use of technology for tax administration and data exchange).

Based on my discussions at FTA conferences and interactions with state DORs, I see tax administrators leveraging new systems and tools in three main areas:

  • Customer service automation: These advances include the use of chatbots and voice recognition to address common customer inquiries (and, in many cases, to simultaneously address staffing shortages and related resourcing challenges).
  • Revenue rulings and related research: More DORs are piloting and using AI tools to perform initial scans of revenue ruling requests to quickly identify issues and areas requiring deeper research. AI can also be used to support those research efforts.
  • Audit enhancements: While advanced analytics solutions are not yet widespread among DORs, some are using these tools to help identify which taxpayers to audit, especially among companies that are not regularly audited. However, widespread automation in audits is still limited due to training and resource constraints.

A final point on DOR improvement priorities: indirect tax leaders also have a role to play. They can engage with DORs directly (and kindly point out improvement opportunities while doing so). Tax leaders can also work through trade groups and other companies to help influence tax policymaking within DORs

Explore more resources from our industry influencers:

Michael J. Bernard, Chief Tax Officer – Transaction Tax at Vertex Inc. Vertex's Chief Tax Office (CTO) provides insight regarding the impact of tax regulations, policy, enforcement, and emerging technology trends on global tax department operations.

Michael J. Bernard

Chief Tax Officer, Transaction Tax

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Michael Bernard is the Chief Tax Officer of Transaction Tax. In his role, he provides insight and thought leadership around tax department operations, U.S. indirect tax, tax risk management, and tax policy, as well as emerging tax trends. He is an executive-level tax attorney with a diverse portfolio of experience in corporate tax, administration, and finance, including a substantive knowledge of U.S. and international tax laws.

Prior to joining Vertex, Michael was in various tax leadership roles at Microsoft Corporation for 28 years, the most recent being Senior Director – Tax Counsel. Michael led teams in the following functional areas: direct and indirect tax controversy, sales and use, business license, property, tax IT, SOX, and telecommunications. He also co-led a corporate taxpayer advocacy group with the Washington Department of Revenue and was a Director on the Board of the Washington Research Council. Michael has also testified before administrative and lawmakers at both the federal and state level.

Michael earned both a J.D. and a Bachelor of Science in Business Administration from Creighton University. He is a part-time lecturer of Law in the LLM program at the University of Washington School of Law. Michael also served on the board of directors, executive committee, and chaired committees for The Tax Executives Institute (TEI) for nearly 25 years.