Do you trust the state of California to prepare your online tax return?
That’s right, the state Legislature is considering this invasion of taxpayer privacy in SB-415, now under review in the Assembly. Though noble in intent, the bill is flawed and poses a great privacy risk to Californians choosing to file their state income taxes online.
It’s a high-tech version of the fox guarding the henhouse. The same entity that collects your hard-earned tax dollars should not be determining your tax liability.
If the state gets into the business of online tax preparation , in effect, becoming your tax accountant , it compromises taxpayer privacy by gaining access to individuals’ underlying critical financial information. Maybe the same state government will lay aside its own biases and self-interests to prepare our taxes accurately and fairly. Well, maybe not.
On the face of it, SB-415 seeks to encourage the growth of electronic government by making online filing more accessible, and that’s a good thing. In 2000, about 2 million Californians e-filed their state tax returns. This is expected to grow by 25 to 30 percent in 2001. The Internet has revolutionized government, and opportunities to broaden access to government functions are worthy of support.
Like they say, however, the devil is in the details. The current wording of this legislation is faulty. The culprit sentence reads, “The Franchise Tax Board shall provide to any individual, at no charge to the individual, interactive forms or software necessary to file any return required under this part, by means of electronic transmission.”
This gives the state Franchise Tax Board the power to actually develop online tax preparation software. Thus, the state shifts from the neutral role of accepting “filed” returns online to actually “preparing” and “determining” the amount of taxes owed. If the state offered online tax preparation they could have the technology to know every keystroke you make while preparing your taxes.
They will know every change, addition and deletion you make. If you increase or reduce a deduction, they’ll know it.
If enacted, this legislation will create a conflict of interest between taxpayers and their government. Like a private accountant or consumer tax preparation software and Web sites, would the FTB actually help taxpayers minimize his or her legal tax liability? And who is accountable for software glitches or inaccuracies?
Conflict Of Interest
The inherently governmental functions of writing tax regulations, collecting revenues, enforcing compliance and auditing returns are in direct conflict with the franchise board taking on an active role in preparing citizens’ tax returns and determining their tax liability.
On the other hand, private sector software is designed to help taxpayers determine their lowest legal tax liability. Software companies have no vested interest in how much you owe the state government. Also, this measure would be duplicative and costly to taxpayers, as well as pit the state against private software makers.
In February 2000, along with the IRS, the tax board declared it would not enter the online tax preparation business. The IRS has held to this position, but now SB-415 would permit the FTB to compete with companies already offering income tax preparation technology. Some allow taxpayers to download software and do their returns on a PC. Others let taxpayers do their returns online, then electronically file them with the tax collectors. Why duplicate all this technology and make taxpayers foot the bill?
As for broadening online access to tax filing, many software makers today offer their software free or at low cost to underprivileged populations. As many lower income households do not own a personal computer, libraries, schools, senior centers, community centers and other public access facilities provide computer access to those without Internet access at home or work.
Cost To Taxpayers
If the franchise board were to get into the online tax preparation business, the cost would be substantial. It would cost the state millions of dollars to develop the software and purchase the massive servers to create and maintain an efficient electronic tax preparation system. Private companies have already made huge investments and employ thousands of Californians to provide this service to taxpayers. Software development typically runs into the tens of million of dollars with very high start-up costs.
It’s clear SB-415 fails to provide the safeguards we need in online tax preparation. It is a potentially expensive and unworkable plan that may even discourage online filing in a society already hesitant about using credit cards online.
The state is not in the business of software development, and should ease budget burdens , already driven sky-high by energy purchases , and allow innovative software firms to continue to do what they do best.
If tax bureaucrats want to expand online filing, the answer is not to pass SB-415. Rather, we must encourage private investment and technology in this area while also protecting the continued separation of citizen and government in the estimation of taxes. In the end, a sound, reliable online tax system based on fairness and accessibility is in the best interests of Californians.
The government already collects our taxes. We don’t need Big Brother as our tax accountant, too.
Black is president and CEO of the Computer and Communications Industry Association.