1. Valuation Method for Aging Tax Debts 2006 MSATA Presentation By: Jeff Scott, Executive Director of Compliance Enforcement Andrew Kapp, Accounts Receivable Manager Net Realizable Value Kansas Department of Revenue

2. What is NRV? Simply, NRV is predictive statistics. –A statistical probability of debt recovery based on each debt’s unique combination of variables or characteristics. realizable valueProbabilities are used to determine a realizable value of an inventory over a defined period of time. Net Net... bankruptcy and bad debts are not included. Net Realizable Value (NRV)

3. Building Valuation Models –KDOR’s Approach –Valuation Flow & Coding Scales –Valuation Example Application Technique –Report Examples –Other Uses For Models Discussion & Questions Topic Outline

4. NRV Considerations Method –Judgmental or Empirical (Statistical) –Continuous or Incremental GAAP (Reporting) Model Application –Data Warehouse –Reporting Software Valuation Components –Tax Type –Age –Amount –Filing Frequency –Debt Source –Physical Location –Customer Profile –Business Type –Etc...

5. KDOR’s NRV Method –Judgmental or Empirical (Statistical) –Continuous or Incremental GAAP (Reporting) Model Application –Data Warehouse –Reporting Software Valuation Components –Tax Type –Age –Amount –Filing Frequency –Debt Source –Physical Location –Customer Profile –Business Type –Etc...

6. Building Probability Models Five years of historical data is extracted from KDOR’s collection system. Extracted data is sent through a custom analyst process (data warehouse environment). Each debt is coded according to it’s components. Debts are compared to collection(s). File is created describing incremental collections of each unique combination of debt components. Debt Valuation Modeling Process

7. Process Illustration Modeling Process Partial recovery is included.

8. Process Illustration Modeling Process Historical Debt File Debt Components Valuation File

9. Valuation File - Report View Valuation File

10. Alternative Use of Valuation File Valuation File

11. Application of Valuation File Valuation of Debt Reporting

12. Reporting Examples

14. Other Report Uses Debt risk scoring Strategy effectiveness over time Taxpayer typology research Employee performance Test new collection strategies Regional analysis Agency performance benchmarking Report Utility

15. 18 Month NRV File Comparison Retailers' Sales Tax January2005 June2006 % Change Age in DaysDebtAssess DebtAssess DebtAssess <3066.4%13.3% 73.8%38.4% 11.2%189.0% <6055.7%11.1% 65.2%31.1% 17.0%179.3% <9047.9%9.6% 57.4%25.4% 19.8%164.8% <12043.4%8.7% 48.5%18.7% 11.9%115.7% <24040.6%8.1% 40.7%13.9% 0.4%71.8% <36031.3%6.3% 30.5%8.5% -2.7%36.1%

16. Report Utility

17. Questions and Discussion Contact Information: Jeff Scott - (785)-296-3321 jeff_scott@kdor.state.ks.us Andrew Kapp - (785)-368-7243 andrew_kapp@kdor.state.ks.us