OpenGov - Open Government Brainstorm

This country probably has 1000 different taxes. These are imposed on many different levels: federal, state, county, city, etc.

To comply with all these taxes, an individual or a business must know about them and know who, what, and how to report and remit.

A new small business is possibly faced with many rules and taxes they have never heard of! Ultimately, they have to hire an attorney to figure it out. Even then they are likely to miss something and have to pay interest and penalties. If they expand to another jurisdiction (or even ship to another jurisdiction) they are face with learning that jurisdiction's laws too.

I realize that our Federal system (decentralized government) makes this hard, but what if there were one go-to agency (with a website) where you could enter your zip code and type of business and be presented all of the different requirements on you.

Ideally this agency would also provide the mechanism to calculate and remit the amounts owed.

How much simpler would a small employer's life be if they could go to one website, enter their payroll data, and have all the taxes and withholdings calculated and remitted? Then one agency that would come to them to audit and assure compliance.

I am hesitant to suggest that the IRS be that agency, because it is so ponderous and feared, but some central agency who's central mission is to make compliance easy would make so many employers, small businesses, & individuals lives so much easier. Perhaps the agency could be managed by a board with members representing affected jurisdictions (and, hopefully, taxpayers). They agency might be funded by taking a (very small) cut on the taxes it collects.

This does not mean that the taxes should all be set by the federal government. Our system of innovation at the local level is important. Instead it could work something like this:

The agency would develop an extensible structure (rules based system) by which local jurisdictions could define their tax system in a standardized manner (who does it apply to, what is the basis, what deductions are possible, what are the rates, etc.). The agency's computers would then apply those rules.

Jurisdictions would be incentivized to create tax rules that were implementable with the agency's system. But they would not have to. There would also be an exception system where instead the jurisdiction could just use the agency's system to inform the taxpayer that there is a tax and how to go about calculating and remitting it (i.e., "if you do X in location Y, see this website"). The agency, however, would have as a goal (a metric of success) the minimization of these exceptions. They would do that by (a)convincing the jurisdiction of the value of using the agency's calculation methods, (b)expanding the calculation system to include the rules the jurisdiction needs, or (c)some compromise between the two.

Finally, jurisdictions would not have to participate at all. They would be welcome to do it the old fashioned way. But I imagine, if the agency does a good job, no jurisdiction would want to ignore the agency completely. If nothing else, the agency would provide the jurisdiction another way to inform its taxpayers of their obligations.

A system like this could be invaluable for businesses doing multi-state transactions. The turf wars over sales taxes are heating up. Eventually the smallest internet seller is going to have an impossible time properly complying with all the tax laws. What if the seller could just enter in the zip code of the seller and the zip code of the buyer, the transaction amount, and the type of transaction and the system would calculate tax and ultimately remit the tax to the appropriate local jurisdictions?

With the advent of the computer, the internet, on-line banking, etc., the system we have now of forms and agencies is antiquated! Everyone (the IRS, local jurisdictions, taxpayers) would save money by having a centralized system like I've described. Compliance would go up, cost to comply would go down, cost to collect would go down. Everyone would be much happier.

As for auditing, local jurisdictions would retain the right to audit their taxpayers. But the central agency could also provide that service...they would audit automatically as part of their compliance enforcement, but they might also respond to audit requests from jurisdictions (either general requests or requests to audit particular aspects of a particular taxpayer), perhaps at the jurisdiction's expense.

Centralized reporting means that all agencies that a taxpayer pays tax to would be privy to all the same information automatically. The whole system of W-2s and 1099s would be built in. One audit would assure compliance with all affected taxes.

One implementation of this idea would be a centralized system of servers that apply rules based calculation methods and store historical transaction data which would then communicate with front-end systems via XML and related technologies. The agency would provide a front end, but it would also be open so that third parties could also write front ends.

QuickBooks, for example, could be a front end, automatically sending XML information to the central system which would respond with how much tax is owed for any particular transaction. This could be virtually real time, allowing taxpayers to fulfill their obligations and jurisdictions to receive their revenue much faster. This would create a competitive marketplace to be each person or business’s calculation and remittance provider.