Currently, CDTFA administers numerous Tax and Fee Programs that require the submission of tax returns within various time frames.  After taxpayers file tax returns, they are processed through many complex rules in accordance with specific tax programs.  Processing may take months before issues can be identified, taxpayers are notified, and corrective action is taken.  The data analytics solution along with various data sources, will increase return processing accuracy, efficiencies, and timely taxpayer services.

There are several challenges with our current solution:

• Unable to fully leverage internal data 
• Unable to fully leverage third-party data sources
• Unable to obtain data in a timely manner
• Unable to determine business changes and growth as it aligns with their existing business permit
• Unable to verify business activities, transactions, and business revenue
• Unable to determine tax return anomalies and take timely tax discovery actions 
• Unable to analyze large volumes of data
• Unable to fully perform Taxpayer return analysis with current assortment of tools 
• Unable to efficiently create new business models (e.g., account selection)
• Unable to capture feedback from taxpayers to improve business models

This results in:

• Missed revenue opportunities
• Missed customer engagement and education
• Delayed and inaccurate tax discovery actions and analytic activities
• Increased taxpayer penalties and interest
• Inability to identify and confirm business entities and activities 
• Low frequency and volume of data collection and preparation (e.g., forecasting and trend analysis)
• Increased time to complete analysis
• Less data captured for business models
• Higher percentage of tax returns incorrectly selected for audit

CDTFA envisions a solution to support tax return analysis that will increase tax return processing accuracy and efficiencies to provide timely tax compliance advice and actions.

The State of California is seeking a solution that would meet the following needs:

1. Accuracy Requirements

1. Ability to provide third party data in real-time or close to real-time on California businesses activities/transactions.
   1. Detailed business activity information at the account level and site location. 
   2. Current and accurate North American Industry Classification System (NAICS) code(s) for the account and each site location. 
   3. Site location type (e.g., store front, corporate office, warehouse, etc.). 
   4. Business entity (Owner Name).
   5. Business entity type (Individual, Corporation, Partnership).
   6. Business location (latitude and longitude Geospatial Information System (GIS) coordinates to be stored for each location site); to know the exact undisputed geographical business location.
   7. Business name (Doing Business As [DBA]) or legal entity name.
   8. Business or mailing address; to know the exact business address to reconcile or validate business account registration records.
   9. Business recently sold, closed out, or changed ownership.

2. Efficiency Requirements

1. Ability to create attribute or indicator to categorize accounts by specific business activities and tie the attribute or indicator to current NAICS code.
2. Ability to convert current and new business activity data accurately into a NAICS code or equivalent. 
3. Ability to provide key business identifications: Tax ID, Seller's Permit, Occupational License, or internal entity record number, etc. 
4. Ability to provide business banking information.
5. Ability to identify business owners, officers, members, or partners.
6. Ability to provide an alternative to business NAICS codes identifiers.
7. Ability to provide retail space or maximum seating information.
8. Ability to provide information on new building permit applications and their subsequent status to completion for all California cities and counties.
9. Ability to provide other identifications from other government entities: Social Security Number, Driver License, Federal Employer Identification Number (FEIN), Secretary of State ID, or State Employer Identification Number (SEIN).
10. Ability to model selected business types (e.g., gas station, grocery story, bakery, restaurant, etc.) by geographical parameters (e.g., zip code, city, county, etc.).
11. Ability to determine if the business owner’s current permit accurately covers the current business activity.

3. Tax Advice and Actions Requirements

1. Ability to identify a selected business entity and determine if their business activities, account characteristics/indicators qualify them to claim exemptions and deductions on their returns.
2. Ability to automate the process of identifying information that needs to update taxpayers’ registration.
3. Ability to identify tax return anomalies and/or patterns to assist staff determining target areas of non-compliance and how to address these issues with taxpayers. 
4. Ability to recognize clustered patterns useful in categorizing businesses behaviors.
5. Ability to provide data analytics to analyze CDTFA tax returns and/or tax return data, using a variety of technologies that may include Artificial Intelligence, Machine Learning and algorithms.
6. Ability to identify criteria to evaluate returns and assign a confidence or probability score.
7. Ability to identify industries with high likelihood of underreporting taxes.
8. Ability to Identify returns with repeat errors.

4. General Requirements

1. Ability to handle batch job submissions.
2. Ability to interface with CDTFA’s ESRI GIS platform (e.g., to use current and historic tax rate GIS maps).
3. Ability to interface with CDTFA’s CROS tax revenue platform, GenTax.
4. Provide users access to the data for querying, data analysis and reporting.
5. Provide the ability to display, track, and analyze Key Performance Indicators (KPIs), metrics, and data points.
6. Allow team members to pull items from the work queue.
7. Generate workflow items, after tax returns are flagged, that include taxpayer communications (e.g., system generated notices or letters to taxpayers to correct return).

5. Information Security Requirements

1. Cloud based solutions must comply with the Cloud Computing Policy within State Administrative Manual (SAM) Sections 4983-4983.1, and employ the capabilities outlined in Cloud Security Standard, Statewide Information Management Manual (SIMM) 5315-B.
2. Cloud based solutions must Federal Risk and Authorization Management Program (FedRAMP) compliant. In case of FTI involvement, the system must be FedRAMP certified.
3. The solution must encrypt data in transit and at rest while the vendor maintains the encryption key and stores the data on a domestic server.
4. The solution must keep confidential, sensitive or Personal Information (PII) encrypted in accordance with California State Administrative Manual (SAM) 5350.1 and California Statewide Information Management Manual (SIMM) 5305-A.

Constraints 

The current solution to support tax return analysis is constrained by the following:

1. Data matching to other data sources is done manually outside of CROS currently.
2. Data is not documented (i.e., no metadata, no data model, and no Entity Relationship Diagram). In CROS, it is documented at the field level.
3. Data is not aggregated in a repository that can be used for querying and analytics outside of CROS. In CROS, it can be queried if the data is available.
4. Custom in-house tools are stand alone, not enterprise level, hard to configure, maintain, and integrate with other applications.
5. The only way to get data into and out of our current tax return processing system is via extract, transform, and load (ETL).
6. It is difficult to analyze large volumes of data.