Department of Taxation and Finance

Privatization of Personal Income Tax Return Processing: The Cost of Privatization Including Relocation to Kingston (Follow-Up Review)

In 1995, the Department of Taxation and Finance began a ten-year contract with Fleet Services Corporation to privatize processing of the Stateís personal income tax returns. Department officials estimated that the contract, through the use of new imaging technology, could significantly reduce the cost of tax processing.

In our prior audit report 98-S-62, we examined how processing costs would be affected by the relocation of Fleetís tax processing operations from the Albany area to the Kingston area in 1996 and 1997, and by certain other factors that were not taken into account in the original savings estimate. We identified costs and possible savings that were not taken into account in the original savings estimate, and determined that the expected cost of the contract had increased from $198 million to an estimated $330 million. We recommended that Department officials, with the assistance of a qualified independent party, conduct a comprehensive analysis to determine whether it would be cost-effective for the Department to continue to contract for personal income tax return processing services when the contract with Fleet expires, or whether the Department should process the returns in-house with its own imaging technology. In our follow-up review, we found that the Department was in the process of performing such an analysis, but had not yet completed the analysis and had not as yet obtained assistance from a qualified independent party in performing the analysis.

For a complete copy of Report 2001-F-2 click here.