The High Costs of Small Fees

One of my clients does business in [I decided not to specify the state; it's a liberal state on the east coast, however]; they are hardly the only client to do so, but let's consider the lone case for illustrative purposes.

Their billing process for this state varies by ZIP code.  Depending on the ZIP code, they have to charge different local use fees to their clients.

They're spending about $200 of my time to handle this one case.  This isn't much for them, but I'm only one part of the process, and one of the cheaper parts; for every hour I spend handling this one case there are ten other people spending an hour or three or their time, some of whom provide me the information, some of whom check my work, some of whom run the QA process, some of whom's time is being wasted in meetings they aren't relevant in, some of whom are just overseeing the process.

My small part of this process costs them around $4,000.  And my part is cheap.  They, or their clients, are spending around $20,000 to handle this one case, one you figure in the additional costs of lawyers, business administrators who identify and build the logic to handle this, etc, etc, etc.  Each client ends up paying this money, some several times over because they have multiple internal systems.  (AT&T has literally -dozens- of distinct billing systems; they don't pay these particular fees, but I guarantee they're paying different ones.)

They have a few dozens clients.  This one state's idiosyncrasies cost several hundred thousand dollars in this company and its clients alone.  I've seen these fees, and I am willing to put money down that the total cost to businesses - before they even pay these fees to the local governments - exceed the actual revenues from those fees.

I see this situation over and over and over again in clients; from state, county and city fees for business transactions to different sales tax reporting guidelines across cities, counties, and states, to simpler regulatory rules (some states explicitly require my clients to use social security numbers to uniquely identify customers, others explicitly forbid them from using them), the sum costs just in compliance - never even minding what these companies pay in taxes and fees - is mind-boggling.

There are hundreds of companies in the industry that operate in this state; if each of them pays a mere $20,000 to comply with these fees (I guarantee half of them are paying substantially more), we're discussing millions of dollars a year (the work I'm doing has been done before - our client previously worked with another vendor, and there are system upgrades, and training costs, and the laws change more than once a decade on top of that) to achieve a few hundred thousand dollars a year in revenue for the government.

This isn't even the grossest case.  I've seen single companies pay millions of dollars to have vital systems completely reworked to produce a new kind of document because a state changed some compliance paperwork submission rules to save itself a few thousand dollars of processing a year.