A Clear Look at Tax Software

CPA Journal, The, May 2008 by Anders, Susan B, Fischer, Carol M

2008 Annual Survey of New York State Practitioners

New York State tax practitioners responding to the 2008 annual survey continue to report using the most-popular tax software products. They are generally satisfied with tax software. Overall ratings for tax compliance products increased slightly from the 2007 survey, while tax research resources continued a moderate decline from prior years. The authors would like to express their respect and gratitude to New York State CPAs for their continued contributions to this ongoing study.

The survey used an online questionnaire format for the second year, providing an opportunity for a broad range of respondents to participate.' Although the current survey asked many of the same questions that have been addressed in previous years, some questions were omitted or modified, and new questions were added, asking respondents to rank the most important software features for both tax compliance and tax research software, for processing tax returns online, and for furnishing tax returns to clients via the Internet.

Market Trends

The dominant vendors in the national tax software market continue to be CCH, Intuit, and Thomson. These vendors' products represent 245 of the 266 (92.1%) tax preparation package ratings, and 204 of the 264 (77.3%) tax research software package ratings reported by this year's respondents. Each vendor offers multiple tax preparation or tax research products.

The tax software industry continues to consolidate while using product differentiation to try to reach market segments. In recent years, CCH acquired ATX/ Kleinrock to attract the low-cost, midsized-firm market, and Tax Wise to attract smaller-firm, mid-range-cost customers. These acquisitions balanced CCH's higher-end ProSystem fx and Tax Research Network products. Intuit's midpriced ProSeries is aimed at practitioners interested in tax-only software; its higher-end integrated Lacerte line is aimed at those looking for full-service accounting products. Thomson takes a similar approach. Its GoSystem Tax RS focuses on tax compliance, and its UltraTax CS within its CS suite focuses on accounting resources, both of which are in the higher-cost range. Thomson covers tax research with its low-cost PPC, in contrast to its higher-end RIA, and provides access to these two and other research products on its Checkpoint platform. The "Big Three" are not the only active acquisitive developers, however: H&R Block purchased Tax Works, renaming the company RedGear Technologies. Interestingly, Block does not use TaxWorks in its own offices.

Methodology

The 2008 questionnaire was e-mailed to approximately 5,000 practitioners from the New York State Society of CPAs' database of members with an interest in tax. A total of 245 usable surveys were returned, an increase over most prior years. With the advent of the online survey in 2007, it is likely that many more of 2007 and 2008 responses were provided by individuals who use the software on a day-to-day basis, including those who were not involved in the software selection process.

A profile of respondents (Exhibit 1) indicates that the 2008 survey respondents resemble those who responded in previous years, but provide greater representation of both smaller and larger practitioners and greater variation in size. The 2008 respondents also reported a higher number of tax-season professionals, but a lower percentage of their professional practice in tax, possibly indicating a broader range of participants.

Since this annual tax software survey began, participants have been shown to be less enthusiastic than software providers about industry trends. With respect to the trend toward marketing integrated product suites, one participant stated: "More and more tax software providers are trying to become one-stop shops. While this certainly has the ability to allow for ease of transfer of data, it is also very scary to become increasingly dependent on the same provider for most of my software needs."

Survey respondents continue to rate "ease of use" as the most important feature of both tax preparation and tax research software, in contrast to vendors' promotion of their technical support and training initiatives. Electronic filing has been a hot topic in taxsoftware industry publications, and many states have moved to mandate e-filing. CPA Journal survey respondents' use of e-filing peaked on the 2006 survey before declining last year, but moved up again slightly for 2008.

Tax Preparation Software

Important considerations in choosing a tax software package or an online service include cost, ease of use, customer support, available features, timely updates, and user familiarity. Participants ranked the vendors on each factor using a scale from 1 (very dissatisfied) to 5 (very satisfied). Ratings for tax preparation software were favorable, generally consistent with prior years. Overall ratings for all factors increased slightly from 2007, heading back toward the 2002-2006 means. Ratings of each feature averaged well over the midpoint for all factors except cost, which has been the lowest-rated feature of the tax preparation software products since this survey was first conducted in 2002.