Vermont News Archives

Vermont taxpayers should be able to start filing their income tax returns soon, says the company hired by the state to clear up computer problems and put the system on-line.

Computer bugs have delayed "Vfile," the state's new Internet-based tax filing system. When the problems came to light earlier this week, Gov. Howard Dean said he would not tolerate delays of the sort that made last year's tax season a nightmare for taxpayers and officials alike.

Dean said he wanted the problems fixed in the "next week or so."

"I think that that's realistic," said Tina Bowness, a spokeswoman for Anexsys, the Chicago company designing a Web "portal" for the state Department of Taxes through which Vermonters will eventually be able use their computers not only to pay taxes, but also to accomplish such tasks as renewing vehicle registrations and buying hunting and fishing licenses.

Dean has urged Vermont taxpayers frustrated by delays in income tax processing last year to file electronically. A report prepared last year by the Federation of Tax Administrators, a Washington, D.C.-based organization that works to improve state tax administration, recommended increasing electronic filing to reduce the amount of paperwork the Tax Department handles.

"One of the things I want to do is convince Vermonters to file electronically. You get everything turned around much faster and automatic computer help as you do it," Dean said in a recent interview with the Valley News editorial board. "I think the best way to ensure that people aren't going to have problems is to file electronically."

Dean could not be reached for comment yesterday.

Last year only 15,000 of the roughly 340,000 income tax forms the Tax Department received were filed electronically. Half of those were sent through Vfile, which was available to anyone with Internet access. The other half were filed through a program run by the federal Internal Revenue Service, which is available only to professional tax preparers.

Anexsys, hired last summer to create new Vfile software, is still testing and getting bugs out of the program. Some of those bugs are simple, such as providing a button to click on to get from one page to the next. Others are more complex, such as problems with the program's ability to calculate a taxpayer's bill or refund, Deputy Tax Commissioner Ellen Tofferi said in a phone interview yesterday.

Tax Department officials said they want to make sure Vfile is bug-free before they bring it online. Tofferi said the volume of returns is still light and won't get heavier until mid-February.

"Most taxpayers are just receiving their W-2 forms," she said.

The Tax Department struggled last year to process personal income tax returns with its new computer system. The department's optical scanners had trouble reading poorly designed income tax forms; a new computer system was programmed to send out letters to taxpayers who made minute errors on their returns; and at the legislature's request, the Tax Department was trying to capture more tax information to guide policy decisions -- all creating a burden that bogged down the state's tax return processing system.

The troubles delayed tax refunds for longer than 10 weeks --in some cases much longer -- and resulted in more than 20,000 people receiving erroneous letters telling them they had paid too much or too little income tax.

The Tax Department has processed 3,000 to 4,000 paper returns so far this year, and Tofferi said she is "very encouraged" by the results.

The Vfile program's problems also began last year. For a short period of time, people trying to file their income taxes were able to see information filed by other taxpayers, Tofferi said. In addition, GovConnect Inc., the Cincinnati-based company designing Vfile at the time, didn't provide enough memory for the application. When some people tried to file from home, they couldn't bring up the forms, or couldn't submit their completed returns because the state's server was full.

Still, people who filed electronically received their refunds much more quickly than those who sent traditional paper returns.

The state did not renew its one-year contract with GovConnect, and signed on with Anexsys in September.

"We started over," Tofferi said.

With several government agencies looking to allow people to pay bills online, Patricia Urban, the state's chief information officer, negotiated a contract with Anexsys to do the work one agency at a time. The company began with Vfile, starting work on it when the one-year contract was signed in September, Urban said yesterday.

Anexsys has not yet received any money under the contract, because the Vfile program isn't done, Urban said. The contract calls for Anexsys to make a maximum of $14,000 a month, to be paid when the company finishes each application. Taxpayers have paid a lot already for new technology, and government officials want to make sure that what they get works correctly.

"We're being very cautious about this," Urban said.

Vermont News

The Vermont Tax Department's new computer system was supposed to make things go more smoothly for taxpayers, speeding the arrival of refunds and simplifying the often-trying task of giving the state its due.

Instead, many taxpayers experienced just the opposite. According to taxpayers, tax preparers and officials interviewed by the Valley News, flaws in the new system produced a series of vexing and costly problems:

-- A quarter of Vermonters who filed their state income tax returns on paper forms received notices that they either under- or overpaid their taxes. There was just one problem, Tax Commissioner Janet Ancel now acknowledges: Many of the notices were wrong.

-- Some taxpayers received refund checks to which they were not entitled and deposited them, only to receive another notice assessing penalties for not paying enough.

-- Some taxpayers received letters telling them -- erroneously -- that they weren't eligible for a state property tax rebate and would have to pay back the entire "prebate" they'd received the year before to help pay their property taxes. That deeply worried lower-income taxpayers for whom the prebate can be $1,000 or more, tax preparers said.

-- Still others received notices telling them they underpaid their income tax by a nominal amount, from a few cents to $20 or more. Unaware that those notices were wrong, people may have just sent in the extra payments without question.

"It was a very high error rate. Unacceptably high," said Jeff Fothergill, chairman of the tax committee of the Vermont Society of Certified Public Accountants. "In hindsight (the computer system) just wasn't ready to go," he said. "It wasn't tested well enough."

Ancel defended her department's performance, saying that a new computer system always brings glitches. Nonetheless, she acknowledged that the problems caused confusion for an unusually high number of Vermont taxpayers.

"There has never been a year when there hasn't been crazy notices, but this year (the number of notices) is unacceptably high," Ancel said.

Ancel said her department tested the system thoroughly before putting it to work, beginning the testing Sept. 1 and continuing until Feb. 19, when the Tax Department started scanning income tax returns. She said another year of testing would have cost the state at least another $1 million, without necessarily reducing the error rate.

The problems with the computer system add to an embarrassing spring for the Tax Department. Earlier this month, State Auditor of Accounts Elizabeth Ready found that the department took up to six weeks to deposit income tax checks, forgoing thousands of dollars in interest income for the state.

Moreover, Ready found that the department's slow procedures were responsible for a six-week delay in issuing refunds to people who filed paper returns. (The more than 15,000 people who filed electronically experienced no problems or delays in receiving their refunds.)

Tax Department officials blamed the refund delays on the new computer system.

The department has been implementing the computer system since 1995 and has spent about $13 million on it since then, Ancel said. The Tax Department started processing business taxes on the system in 1998, but personal income tax returns went through the new computer for the first time this year.

On its maiden voyage into the state's largest body of tax documents, the computer system put out three notices for every 10 returns, for a total of 150,000 notices (some taxpayers may have received more than one notice). Last year, roughly 66,000 of 440,000 returns -- about 1.5 in 10 -- produced a notice.

Ancel said she didn't know how many taxpayers had received erroneous notices that they had paid too much or refunds that they then had to repay. Local accountants whose clients received notices said that nearly all of the notices were erroneous.

Jeff Graham, an accountant with offices in Woodstock, Ludlow and Springfield, said that of the roughly 1,000 tax returns his firm prepared, "a couple hundred" had notices sent back. "Less than a handful were correct."

Some accountants joked that they felt as if they had been working for the state in trying to iron out their clients' problems. Clients who didn't call their accountants might have just written checks to satisfy an incorrect balance-due notice.

"Anybody who receives something that says 'balance due' thinks it's a bill" and pays it, said Bethel accountant Audrey Turk said. Most of the glitches affected returns prepared by accountants on computer forms and mailed into the Tax Department. The Tax Department set up a special hot-line for tax preparers to call, and most accountants said that their problems were handled swiftly. The Tax Department doubled its seasonal staff this year, hiring 23 extra people.

Some of the problems occurred because the computer system often left a final digit off a taxpayer's adjusted gross income or misread the questions about whether a taxpayer was eligible for a state property tax rebate. The computer system also created sporadic errors that didn't seem to follow a pattern, tax preparers said.

When the Tax Department began scanning income tax returns, state workers checked all the notices that came out of the computer. Half of all returns generated notices, and about half the notices were intercepted because they were obviously erroneous, Ancel said.

But in mid-March, the department stopped screening the notices; Ancel said the notices "looked fine" when the department stopped examining them. In late May, after officials realized too many false notices were going out, the Tax Department resumed the quality checks.

Some of the erroneous notices were caused by taxpayer error, Ancel said. The scanners will not read a form properly if a number is entered on the wrong line, or if a taxpayer sent a photocopy instead of the original form, she said.

Before this year, Tax Department staff had reviewed every return. But Ancel said the volume of returns, and the difficulty finding and retaining part-time staff, has made this practice impossible to continue. There will always be some scanning errors in the absence of a manual review, Ancel said.

Ancel said there are things she would have done differently. Only one person was making sure the computer read forms properly. "We should have had more people doing that," she said.

Also, the Tax Department could have done a better job designing a critical part of the computerized form used by income tax preparers, Ancel said. Each form prints out with a "scan band" at the top, a sort of bar code that tells the scanner how to read the information. The Tax Department's scanners dropped digits from forms because of problems with the scan band, Ancel said.

"I think what we did with the scan band was probably not sufficient in terms of making sure it was correct," she added.

Next year, legislative changes in the income tax will result in the state's longest tax form yet, and Ancel said she has scheduled two months of additional training for her staff. In subsequent years, changes in the statewide property tax and the income tax should result in a shorter form, but the coming year could present difficulties, Ancel said.

"The more pages you have to scan ... the more opportunities there are for error."

Vermont News

-- Anonymous, March 13, 2002