Texas Applies Predictive Analytics to Delinquent Taxes

The state of Texas has started using predictive analytics in an effort to determine which delinquent tax accounts to spend the most effort and resources on, according to an executive at Elite Analytics LLC, an Austin-based accounting firm specializing in compliance analytics.

“The area of collection management has been one of the most prominent for the application of predictive analytics,” said Dr. Daniele Micci-Barreca, adding that proper prioritization of delinquent accounts – those running from $200,000 to $300,000 annually -- helps the state determine which accounts to concentrate on.

Iowa and Canada use similar predictive analytic methods, he said.

Elite had worked since 2003 with Texas in using predictive analytics for its auditing, so when the state decided last fall to use a similar approach for delinquent taxpayers (all businesses, Texas doesn’t have a personal income tax), Elite recommended using the same software application – Clementine from SPSS Inc. in Chicago.

Delinquent accounts are processed once they are 60 days past due, Micci-Barreca said.

The software provides data access and modeling as well as algorithms to provide a scoring model. Among the considerations are propensity to pay, outstanding amounts, previous filings, call center notes and audit history. The scoring model helps determine which of the delinquent filers are likely to self-cure, the ones where automated enforcement methods will provide the best returns and ones that need (and are high enough amounts) to warrant more aggressive collection methods. The software also helps with the workflow – how many days the accounts should stay in the queue, when it should go to filed collections, and so on, according to Micci-Barreca.

“This isn’t new in terms of analytics, but it’s new in terms of government,” Micci-Barreca said.

The first collections as a result of using the predictive analytics approach are just starting to come in, so the state has yet to determine how effective the program is has yet to be determined.