Department of Revenue requests modest operating increases; highlights fraud prevention, hybrid work and modernization gains

At the Feb. 25 House State Government Finance and Policy Committee meeting, Department of Revenue Commissioner Paul Marquardt presented an overview of agency operations and the governors budget request for an operating increase. Marquardt said the department seeks roughly 2% increases in each of the next two years to cover growing expenses and ongoing operations.

Marquardt described the departments workload and recent outcomes: it processes millions of tax returns and refunds annually, said it has stopped about "$30,000,000 in fraudulent filed tax returns from going out the door," and reported that audits, collections and criminal cases produced about $487,000,000 in past‑due tax collections last year. He said the departments administrative cost is low relative to total revenue collection, calling it "about 0.6 of 1%."

The commissioner described technology and customer‑service modernization, including increased electronic filing, a chatbot for routine questions, automatic translation tools in Spanish, Hmong and Somali, and ongoing work to protect taxpayer data. He said the agency is evolving e‑services and identity verification capabilities for accounts and payments, and noted the legislature is considering whether the department should provide a direct‑file option for taxpayers rather than relying exclusively on third‑party vendors.

Marquardt also outlined changes tied to hybrid work: the department reported a roughly 35% reduction in leased office space since 2020 and a 24% reduction in Capitol complex space, which the agency estimates saves about $2.5 million per year. He said roughly 95% of department employees have a telework agreement on file and that recruitment has improved, citing an increase in applicants per job opening from 23 in 2019 to about 43 in 2024.

On budget specifics, the governors request represents an approximate $4.2 million increase on a roughly $200 million base (about 2% in fiscal 2026 and a cumulative 4% in fiscal 2027). Marquardt also described a proposed new audit unit focused on complex partnership tax issues; the department estimated the unit would cost money initially but ultimately could generate about $4.0 million in additional annual collections.

Representatives asked about paid family medical leave implementation, identity verification for mobile filing, and the political contribution refund modernization. Deputy Commissioner Lee Ho described evolving identity verification and said the departments current e‑file methods are provided to taxpayers through third‑party vendors; he said the department is strengthening identity verification and e‑services and that the option of a department‑provided direct‑file is under legislative consideration.

Committee members praised fraud prevention and cybersecurity modernization and asked the department to keep legislators informed about any federal developments that could affect state collections. The department said federal VITA funding primarily goes to local VITA sites and that state impacts would be limited but that data security and integrity remain top priorities.

Sources: Testimony of Paul Marquardt (Commissioner), Lee Ho (Deputy Commissioner), and Department of Revenue staff before the House State Government Finance and Policy Committee on Feb. 25, 2025.