The Taxman Looks to Speed Up Payments

It’s one thing to pay for a coffee using a startup’s payment app. It’s a bigger deal to pay your taxes that way. 

Taxpayers in Iowa could be doing this one day soon, as a result of a partnership with the Des Moines-based payment startup Dwolla (a portmanteau of “dollar” and “Web”). Iowa Governor Terry Branstad announced today that government officials would be exploring ways to use the service, including potentially collecting property taxes, issuing refunds, paying contractors, and renewing vehicle registrations. 

The announcement is interesting because of Dwolla’s disruptive aim to create an electronic form of cash and rewire a crucial hub of the U.S. financial system (see “With Mobile Internet, Money is Up for Grabs”). This allows for real-time money transfers without the delays of processing checks through the Automated Clearing House. It also means businesses could save on swipe fees they pay to credit and debit card providers. Dwolla only charges a flat 25-cent fee for transactions more than $10. 

As with most payment startups, Dwolla faced the challenge of getting a critical mass of consumers and businesses to adopt its service. Partnering with governments to modernize their antiquated systems and make it easier for residents to interact with these bureaucracies could help speed adoption. The company hopes to convince more governments to sign up. 

To start, Iowa will begin allowing businesses that pay a collective $130 million annually in cigarette stamp taxes to pay with Dwolla. In a press release, the governor said the option is cheaper and safer than processing a paper check, which is how most of these payments are made today.