Custom vs. COTS: Choosing the ITS Modernization Strategy That’s Right for You

When state revenue agencies look to modernize their integrated tax system (ITS), they face an important decision between adopting Commercial Off-The-Shelf (COTS) software or opting for custom development. There are benefits to each approach. This guide aims to help you make an informed choice that aligns with your agency’s needs.

The Case for Custom Development

Custom development involves planning, designing, building, and deploying software that meets specific business requirements instead of customizing generic software to fit needs or changing business processes to fit the workflow of off-the-shelf software.

The end result of custom development for tax agencies is a very tailored ITS, specifically designed to address the unique needs and workflows of a specific agency. A custom ITS is also highly adaptable. Since it is built with the agency’s growth in mind, it can be easily scaled and modified to reflect legislative changes and evolving business priorities.

Additionally, a custom ITS can provide a competitive advantage by offering unique features and functionalities that are not available in off-the-shelf solutions, allowing agencies to differentiate themselves. Another benefit is the ability to leverage existing assets, such as long-term license costs and the use of open standards, which can result in cost efficiencies.

Finally, the maturity and capability of the state IT staff play a crucial role in the decision between custom and COTS solutions, as a more experienced team may be better equipped to manage and maintain custom-developed software.

California’s Franchise Tax Board chose a custom development approach for its Tax Systems Modernization project. The agency’s goal was to increase efficiencies and services for taxpayers, maximize transparency, and support taxpayer compliance.

The Case for COTS

Commercial Off-The-Shelf (COTS) software is ready-made and commercially available for sale, lease, or license to the general public.

Generally, COTS solutions are more cost-effective than custom software because development costs are shared among many users. Due to their pre-built nature, COTS solutions can be deployed more quickly, allowing agencies to implement new systems without extensive delays. Established, or mature, COTS solutions come with a proven track record of performance and reliability as they have been tested and used by numerous organizations. Additionally, COTS software often includes vendor support services such as updates, patches, technical assistance, and, in cloud deployments, hosting. This comprehensive support reduces the burden on internal IT teams, ensuring that the software remains up-to-date and functions smoothly.

In 2022 the Arizona Department of Revenue put out an RFP to modernize their existing tax administration system and solutions. They were looking for an all-inclusive, cost-efficient software solution, including operations, maintenance, and support. Voyatek (then GCOM) responded with and demoed RevHub. Through the RFP process, we were able to document, detail, and demo how the flexible configuration of our COTS product could be used to meet the needs of ADOR and we were awarded this modernization effort in June of 2023.

Key Differences Between COTS and Custom Development

There are several dimensions to keep in mind when thinking about the difference between COTS and Custom and what your opportunity may align better with. When evaluating the approach, you want to take with ITS Modernization make sure to consider and have a good handle on the business scope, budget, timeline expectations, and the appetite for ownership of the product — and all that comes with it.

COTS and Custom on a Spectrum: The Role of Configurability

It’s important to recognize that COTS and custom solutions are not always binary choices; instead, they exist on a spectrum where configurability plays a significant role. Configurable COTS solutions can offer a hybrid approach, providing a balance between the flexibility of custom development and the speed of deployment associated with COTS. These solutions allow agencies to modify pre-built software and configure it to meet their specific business needs without starting from scratch.

On one end of the spectrum, there are highly configurable COTS solutions that can be tailored to meet most agency requirements while still offering significant cost savings compared to custom development. On the other hand, some off-the-shelf software may not allow for the desired modifications or configurations, leaving agencies with rigid systems that require complex workarounds for even minor updates or changes.

The vision for Voyatek’s integrated tax solution, RevHub, has always been that of a highly configurable COTS solution. It was not built in conjunction with a client, rather we saw a need in the market for a modern, flexible, and intelligent ITS and built it with a clean sheet design, leveraging open architectures and cloud services.

While some states choose a custom development approach, RevHub has components to address many, if not all, of the required business functions in a configurable and less state specific fashion.

RevHub’s mobile-friendly taxpayer portal allows taxpayers to-

Easily submit returns and forms, and make payments online with embedded validation to help clean up data in real-time
Seamlessly manage their account, updating addresses and contact information, etc.
Access help and customer service features

Choosing the Best Option for Your Use Case

Choosing between Commercial Off-the-Shelf (COTS) software and custom development often boils down to specific business needs, cost considerations, and time constraints:

Budget: Evaluate your budget and weigh the upfront cost of custom software against the long-term savings and benefits it can offer.
Business Needs: Assess the alignment of available COTS solutions with your specific business requirements. Will customization be necessary to meet your needs?
Timeframe: Consider your timeline for implementation. Are you looking for a quick solution, or are you willing to invest time in developing a custom solution for a perfect fit?
Ownership: Is ownership and continual customization important, and if so, what is the size and bandwidth of your IT Department?

Conclusion

Both COTS and custom development have their respective merits and drawbacks. For state revenue agencies, the choice hinges on factors such as budget, timeline, and the specificity of requirements. By carefully evaluating these aspects, your agency can select the most suitable solution.

Ready to make an informed decision? Our team of experts is here to guide you through the process. Contact us today to learn more.

-Voyatek Leadership Team