Department of Taxation and Finance

Privatization of Personal Income Tax Return Processing: The Cost of Privatization Including Relocation to Kingston

In 1995, the Department of Taxation and Finance began a ten-year contract with Fleet Services Corporation to privatize processing of the State's personal income tax returns. Department officials estimated that the contract, through the use of new imaging technology, could cut the cost of tax processing by $76.5 million over the ten-year period. This estimate was made before Fleet's tax processing operations were relocated from the Albany area to the Kingston area in 1996 and 1997. We examined how personal income tax processing costs were affected by this relocation and certain other factors that were not taken into account in the original savings estimate.

We estimate that the relocation to Kingston will increase tax processing costs by about $41.3 million. We also identified other costs that need to be taken into account as well as factors that could increase the original savings estimate. More significantly, we determined that, between 1995 and 1997, the expected cost of the contract increased from $198 million to an estimated $330 million, an average increase of 19 percent a year. We therefore recommend that Department officials, with the assistance of a qualified independent party, conduct a comprehensive analysis to determine whether it is cost-effective for the Department to continue to contract for personal income tax return processing services when the contract with Fleet expires in 2004, or whether the Department should process the returns in-house with its own imaging technology.

For a complete copy of Report 98-S-62 click here.
For a copy of the 90-day response click here.
For a copy of the associated follow-up report click here.