A Hard Look at Tax Software

CPA Journal, The, Jul 2005 by Anders, Susan B, Fischer, Carol M

2005 Annual Survey of New York State Practitioners

This article presents the results of the fourth annual survey of tax software used by New York State CPAs, highlighting trends as well as some changes. New York State CPAs continue to express a high level of satisfaction with tax software, and have generally availed themselves of the largest and most popular products. A large proportion of survey respondents indicate that they use tax preparation packages that are integrated with other software products. The percentage that e-file tax returns has increased substantially over the prior year's survey results.

Respondents to the annual survey of New York State CPAs preparing tax returns continue to embrace technology, generally indicating satisfaction with available products and demonstrating some increases in their use of these resources over the last few years. Survey participants reflect national shifts toward the use of integrated software packages, as well as an increased use of e-filing. On the other hand, they still express a lack of interest in online client organizers and in processing returns via application service providers.

The tax software industry continued to consolidate over the past year. CCH purchased the CPA Software tax products. Creative Solutions recently acquired Accountware; its parent, Thomson, also owns RlA and PPC. Intuit claims ProSeries and Lacerte Software. Kleinrock merged with ATX, and Tax Wise joined forces with CCH and BNA, as well as with the Volunteer Income Tax Assistance (VFTA) program. Respondents to this survey have consistently selected these "Big Four" vendors, which have come to dominate the field.

The 2005 survey asked the same questions as in previous years, as well as whether respondents currently use a tax preparation software product that is integrated (packaged) with other applications, such as accounting, payroll, financial planning, or document management software, or plan to do so within the next five years. This question provides some insight into the extent to which the tax software decision is independent of other accounting and business software decisions. Satisfaction with a particular tax software program may also provide an incentive to use the vendor's other products.

The survey was mailed to approximately 500 New York State CPAs, selected from online yellow pages and CPA directories. A total of 136 usable surveys (27% response rate) were returned and analyzed. Although this response rate represents a decrease relative to the previous year, it is consistent with the 2003 survey. The participants represent a relatively diverse group and provided ratings of many different tax software packages, similar to prior years' responses. A profile of respondents (Exhibit 1) indicates that the 2005 survey respondents resemble the 2004 survey respondents. In fact, 109 participants (80%) in the 2005 survey have responded to the survey in at least one of the three previous years.

Individual Tax Preparation Software

Consistent with past years, survey respondents rated favorably the individual tax preparation software used in their practices. Users ranked the vendors on a scale from 1 (very dissatisfied) to 5 (very satisfied). Important considerations in choosing a tax software package or an online service included cost, ease of use, customer support, available features, timely updates, availability of state tax software, company reliability, and user familiarity. The survey instrument listed 21 of the most commonly used commercial tax return software vendors, based on a review of print and electronic media. Participants were asked to write in the name of any package that was not listed on the survey. Most respondents indicated having used at least one individual tax preparation software package; some had used more than one. Respondents reported using 10 of the 21 tax return software companies; Exhibit 2 summarizes the ratings for these 10 vendors.

On average, respondents had been using their software package for more than nine years; while there is considerable variation among the packages rated, the number of years used is longer than average for the two packages rated by the largest number of respondents. The mean overall satisfaction rating for the 10 software packages rated by this year's participants was 4.24, slightly higher than the 4.21 in 2004. The average respondents were highly satisfied with the tax preparation software that they have been using. Accounting Technology's October 2004 "Tax Software Special" reported very little change in prices across the market, although our survey shows that cost continues to be the least satisfactory category, and its mean rating declined from the prior year.

More than 60% of the ratings received were for two software packages: CCH ProSystem fx (44 ratings) and Lacerte Software (47). Similar to last year, three other vendors received more than 10 ratings: Creative Solutions (17), Intuit ProSeries (17), and RIA GoSystem (12). Together, these five packages represent 92.5% of the ratings received. Discussion of specific ratings and features will focus on these five packages. ATX Forms, CPA Software, Drake Software, TaxWise, and TaxWorks were each evaluated by six or fewer users; thus, the ratings for these vendors are presented for completeness, but should be interpreted with caution.