Analysis

What changes have been made to the Integrated Tax System within the Department of Revenue?

A multi-phased Modernization Project

This column discusses the Pennsylvania Department of Revenue’s multi-phased Modernization Project in which a new Integrated Tax System is replacing an antiquated system based on a decades-old programming language.

Changes to Pennsylvania's Integrated Tax System

The Pennsylvania Department of Revenue is in the midst of a multi-phased Modernization Project in which a new Integrated Tax System is replacing an antiquated system based on a decades-old programming language. At a recent meeting of the Modernization Project Professional Advisory Workgroup, of which the author, Kenneth Stoops, director, Deloitte Tax LLP, is a member, the Department shared a status update and announced several changes.

After the initial ITS implementation for corporation taxes in 2013, taxpayers experienced several difficulties: the elimination of tax ledger reports resulted in limited visibility to tax accounts; notices were not issued consistently; and there were lapses handling items such as bonus depreciation and loss carryforwards. The volume of issues and the learning curve for Department personnel created backlogs throughout the system. The Department addressed many of these concerns through ITS programming changes and redeployment of resources. The November 2014 implementation for trust fund taxes (including sales tax and employer withholdings) went more smoothly, but businesses should be mindful of lingering issues. A key point to remember is that ITS has strictly regimented protocols for processing data. Taxpayers should pay close attention to the entry of items on tax returns, including demographic data and “check box” responses. Also, the presentation of corporate apportionment data has been the source of numerous adjustments.

The automated notices generated by ITS have been a source of confusion for taxpayers. The billing notice, for example, sets forth a balance due without any detail. Furthermore, the specific tax adjustments resulting in these balances due could not be appealed until the subsequent issuance of an assessment. The Department has announced the elimination of billing notices; prospectively, any tax increase will automatically generate an assessment package that includes an assessment notice, a basis for the assessment, a worksheet and a statement of account. Although this will facilitate the filing of appeals, it also effectively shortens the timeframe to address adjustments directly with the Department.

The overpayment offset process has also been a cause of concern. When an overpayment exists on a tax return, ITS scans for any outstanding balances due, including open assessments. An offset adjustment can leave an unexpected shortfall in the tax account for the current period. The Department announced that offsets will be locked out once an appeal is filed, but offsets will continue to be made prior to the filing of an appeal. Taxpayers may request the Department to reverse such offsets once an appeal is filed.

ITS has already had many profound effects on business taxpayers and the impact will become more widespread as additional phases are brought on line. The Department has announced that it will not move forward with future phases until existing issues and backlogs can be cleared. The Department is planning other initiatives to be announced later this year, aiming to provide more detailed tax account information to taxpayers. Businesses should closely monitor any notices received from the Department in order to track adjustments and assessments; verify the accuracy of the processing of carryovers, payments and overpayments; and preserve their appeal rights.

 

This column was originally published in Catalyst, the Pennsylvania Chamber of Business and Industry's quarterly magazine.

 

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