Virginia Department of Taxation seeks roughly $131 million to replace aging IRMS tax-processing system

Jim Alex, the new tax commissioner, and Kristen Collins, deputy tax commissioner for policy and legislative affairs, told the General Government Subcommittee they seek funding to replace the department’s Integrated Revenue Management System (IRMS) and other end‑of‑life systems.

"It is ancient technology," Alex said of IRMS, which he described as software implemented in the mid‑2000s with components written in an older language. He told the panel the system processes the Commonwealth’s returns and handles the roughly $30 billion in General Fund revenue and that an RFP last year produced vendor responses allowing the department to refine a five‑year funding estimate to roughly $131,000,000.

Commissioner Alex and Collins said modernization would move the system to a cloud architecture, permit faster implementation of statutory or rate changes, and improve audit selection, collections, non‑filer identification and refund‑fraud detection. Alex said the existing technology forced the department to retain legacy technical staff and that modern systems would also support better data analytics and customer experience.

Kristen Collins summarized the procurement timeline: a 2017 assessment, a 2019–2020 RFI, a 2022 Gartner study that recommended buying a commercial off‑the‑shelf (COTS) solution, and a July 2024 RFP that closed in August 2024. Collins told the committee the procurement is in final stages and that funding in the introduced budget would let the department contract with a vendor and start implementation: an initial release is planned for sales and withholding tax in September 2026, with corporate/business taxes following and individual income tax scheduled for a September 2028 release (available for the January 2029 filing season) under the proposed rollout.

Collins said the department could support the IRS’s Direct File pilot if the state’s statutory prohibition on developing a state‑provided free filing platform (a 2010 law mentioned in the hearing) is repealed; Senator McPike has introduced legislation to remove that prohibition and Collins said participation could begin in 2028 if the law changes and funding is provided. She also said the department discussed the IRS direct file experience with other states and that some jurisdictions reported relatively straightforward implementation.

Alex and Collins gave several operational figures: IRMS currently processes roughly 12 million returns and the department issues about $2–3 billion in refunds annually; the agency said that its appeals staff headcount has fallen roughly 50% since 2017 and that refund/error‑resolution staffing shortfalls have slowed processing and increased refund interest paid by the Commonwealth.

Lawmakers asked about compliance benefits. "With regard to this investment ... we'll have a much better audit selection process," Alex said, and added the department expects improvements in refund fraud protection, collections case management and identification of non‑filers. Senators also asked about AI and analytics; the department said modern systems will permit integration with advanced analytics tools and allow better, more discriminating audits.

Collins noted the appropriation act required a work group and annual reports; the department said it published a November 1 oversight report and would continue reporting progress. The department also requested funding to replace related end‑of‑life systems (payment processing, web upload, e‑forms and audit selection systems), to meet new security requirements and to fund additional staff in appeals and error resolution.

The department told the committee that vendors and other states are being consulted and that Ohio, Georgia and other states provide implementation examples to guide Virginia.

The RFP remains in final stages; the department said it would proceed to contract once funding is enacted and the budget signed into law.