Now A Trickle, Internet Tax Filings Viewed As Wave of Future

Among the 42 states that collect income taxes, 12 allow residents to file cost-free returns using state Web sites. That's expected to produce a tiny number of tax returns -- about 200,000 -- this year.

But in a short while that trickle should grow into a tsunami, predicts Verenda Smith, with the Federation of Tax Administrators. "I think you're going to see significant growth within three years," Smith says. "I think you're going to see most states doing this within five years"

One reason is because states find culling tax returns from cyberspace cheaper than dealing with mountains of paperwork arriving by snail mail, Smith says. The cost of processing a paperwork tax return has been pegged at $3.50, compared with 50 cents for an Internet filing.

Increased accuracy is another lure, because cyber-filings don't contain illegible handwriting, confusing erasures and suspect math. Online tax filing software packages won't allow a taxpayer to advance from one line to the next unless the previous one is error-free. Another lure for taxpayers is that refunds can be obtained faster by using the Internet.

Finally, the possibility of a tax return being lost is practially nil.

Missouri is the latest state to introduce the concept, putting the Centennial State in step with Colorado, Delaware, Illinois, Indiana, Kansas, Massachusetts, New Jersey, New Mexico, Oklahoma, Pennsylvania and South Carolina.

Last year, only nine states offered taxpayers the option of filing their taxes online for free, without using third party Internet or tax preparation services. Oklahoma, Pennsylvania and Missouri didn't offer programs in 1999.

Internet tax filing is not to be confused with electronic filing, an umbrella term that covers Internet filings, tax returns completed over the telephone and returns done by tax preparers, then transmitted to non-Internet sites via modems.

When taxpayers use a state web site, access free tax information and then send a completed return back to the site, that's an Internet tax filing, Smith says.

Here are some of the features being offered by states with cyber-filing programs:


Delaware's Web filing spot is www.state.de.ud/revenue. Taxpayers using the system click on Internet Filing, then enter their information online. Completed data is transmitted over the Internet through a secure transmission line to the state's server.
Indiana gives residents the option of filing over the Internet, or printing out a return and mailing it. So far, three-fourths of taxpayers have elected to finish their in cyberspace. The Hoosier State's cyber-address is www.state.in.us/dor/tax.index.html.
Massachusetts lets residents download free tax preparation software from www.state.ma.us/dor. Taxpayers can use an encrypted, 128-bit Internet connection to file their return, or use a modem-to-modem connection.
In Pennsylvania, a program known as pa.direct.file can be reached through www.revenue.state.pa.us. Pennsylvania uses a system that encrypts taxpayer information.

Whether secure transmission lines or encryption systems are used, states are bending over backward to protect the privacy of online filers, FTA's Smith says. "Security is their first concern and their last concern."

Be that as it may, state taxpayers aren't stampeding to file tax returns over the Internet.

On April 7, 1999, the New Jersey Division of Taxation had recorded 1,751 returns filed through the Garden State's PC file system. On the same date a year later, 7,351 New Jersey state income tax returns had been completed over the Internet.

"More folks are becoming computer literate and using the technology that's available," Division of Taxation spokesman Francis Rapa says. "I think the overall goal here is to provide better service at less cost."

In the meantime, New Jersey is striving to win youthful converts. The Garden State has created a `Taxation Kids Page' that among other things lets young visitors calculate how much New Jersey's 6 percent sales tax would add to the cost of a pair of roller blades or jeans.