By: Niko Spyridonos

Municipal tax collection is an especially important component of local governance, supporting essential services through revenue generation such as public safety, education, infrastructure, and social services. However, the current tax collection process is fraught with inefficiencies and errors, which result in substantial financial losses and operational delays for tax collectors, mortgage servicers, and property owners alike.

Errors such as overpayments, double payments, and incorrect tax assessments lead to refund requests, which waste resources and complicate financial reconciliation. The solution lies in embracing automation and AI-driven technology, which can streamline the process, increase accuracy, and benefit all stakeholders involved.

There are many challenges faced by municipal tax collectors and mortgage servicers. However, advanced technology solutions, including automation and AI, can drive digitally transformative improvements.

Challenges in Municipal Tax Collection

One of the most significant challenges faced by municipal tax offices is the high potential for errors in tax assessments and collections. These errors are not only detrimental to homeowners and businesses but also place a heavy burden on local governments.

Overpayments, double payments, and incorrect assessments often occur due to outdated manual processes and lack of integrated systems. For example, tax assessments are often made based on incomplete or outdated property data, and human error during manual processing of payments and refunds further compounds these problems.

A single error, such as a property being incorrectly valued or a tax rate being improperly applied, can trigger a cascade of issues. Homeowners may overpay on their taxes or, worse, pay twice. When these errors are discovered, either through internal audits or complaints from property owners, the tax office is forced to issue refunds.

Many of these challenges stem from staffing issues and overall processes within the office. A recent survey of tax collectors found that 41 percent of respondents said their main challenges in collecting tax revenues include insufficient resources and staff, data management issues, and IT problems during payment processing. As a result, another 28 percent said delinquent payments are a primary challenge.

In fact, the survey showed that less than 20 percent of respondents said their tax collection processing system was “very efficient." Less than ten percent of respondents said they were “very satisfied” with their current system.

The majority of respondents (28 percent) said they would like to see more simplified payment procedures created for their tax collection systems. Another 26 percent said they would like to see streamlined dispute resolutions mechanisms, along with an improved process for refunds.

Refund Processing: A Drain on Resources

Refunds are one of the most glaring inefficiencies in the current tax collection process. While refunds serve as a corrective measure for overpayments or erroneous tax assessments, they represent a significant waste of resources. Processing refunds requires time and labor, diverting municipal staff from more productive tasks. Moreover, issuing refunds is not merely a clerical task — it affects the overall budgeting and financial planning of local governments. Every refund issued delays the financial reconciliation process, leading to delays in closing accounting books for the fiscal year.

Furthermore, refunds can lead to a loss of public trust. Homeowners and businesses expect the tax office to be accurate. Frequent refund requests can erode their confidence in the municipality's ability to manage taxes effectively. This can lead to more scrutiny and, in some cases, legal challenges, creating additional costs for local governments.