The State Worker

California’s new online tax program leads a major firm to ask for paper instead

In this Wednesday, July 2, 2014 photo, warning flags hang on the parking garage of the State Board of Equalization building in Sacramento.
In this Wednesday, July 2, 2014 photo, warning flags hang on the parking garage of the State Board of Equalization building in Sacramento. AP

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One of the world’s largest accounting firms chose a low-tech option when the California Department of Tax and Fee Administration asked it to start using a new online system for filing business sales tax returns.

KPMG, the worldwide accounting and auditing firm, tried the new program and decided it was better off submitting tax returns on paper through the mail.

It was an early warning that businesses would struggle with the new Centralized Revenue Opportunity System (CROS), a $290 million program that the state has been developing since 2010.

CROS went live in May, but most businesses had their first interaction with the new program last month, when they had to report quarterly sales tax revenue to meet a state deadline.

Many had trouble figuring out the program, contributing to a record-breaking crunch of complaints and calls to the department’s customer service center.

This week, department Director Nicolas Maduros told lawmakers that the program generally works as intended, but it’s not easy to use as the program it replaced.

“The system works, but certainly we are not entirely happy with where we are at the moment,” he said at a Joint Legislative Audit Committee hearing.

A KPMG associate in May wrote to the tax department and reported that the new system was too time-consuming for its employees.

Previously, the state’s online business tax filing program automatically inserted information for local sales tax rates.

The new program, called Centralized Revenue Opportunity System, requires the filer to insert that information, making the task more difficult if a business had sales in multiple cities and counties.

“With this change we would need to manually select all of these locals every time, adding many hours or work to our process ever quarter,” the associate wrote in a message obtained by The Sacramento Bee through the California Public Records Act.

KPMG’s complaint would be echoed two months later by independent businesses and smaller accounting firms who similarly said the new program was more difficult to use than its predecessor. Two accountants told The Bee it took them 90 minutes to file a return in CROS, about an hour longer than they used to spend filing an electronic return.

The State Controller’s Office on Friday reported that tax collections in July came in below expectations, largely because of a dip in sales tax revenue. The state had anticipated collecting $818 million in sales tax last month. Instead, the controller reported, it collected $659 million.

The Legislative Analyst’s Office late Friday suggested that the new online tax collection program could have contributed to the missed revenue target.

“July was the first time quarterly taxpayers had to use this new system. If the shortfall primarily is due to the new IT system, sales tax revenues should increase in later months to offset this dip,” the analyst wrote.

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The Legislature created the tax department a year ago when it stripped the Board of Equalization of most of its power and staff. The Board of Equalization began developing CROS eight years ago, and hired a contractor to build it in 2016.

Over years, the Board of Equalization touted the efficiencies it gained by persuading tax filers to submit their returns electronically.

In 2011, then Board Chairman Jerome Horton published a press release that said the agency saved $3 million by persuading taxpayers to use the online system instead of paper documents. In 2016, the agency reported that 99 percent of its taxpayers submitted electronic returns.

Maduros told lawmakers that department staff and contractors are working around the clock to improve the new system. The department tracks complaints and questions during the day, and tries to resolve problems overnight, he said.

“It’s natural when you transition a million taxpayers to a new system that they will have issues,” he said.

Adam Ashton: 916-321-1063, @Adam_Ashton. Sign up for state worker news alerts at