lthough AICPA tax practitioners rated
this year’s crop of tax-preparation software
superior to the products they used last year, they
gave lower grades to vendors’ technical support. But
for many tax practitioners, the bigger story was
that the number of tax-software products continued
to decline, forcing newly orphaned customers to go
through the agony of selecting a new package and
converting their client tax files to make them
compatible. Such were the highlights of the
Journal of Accountancy’s spring 2004
survey of 2,010 AICPA tax-department members.
The average satisfaction rating for the nine
professional products included in the survey was
4.09—out of a possible 5.00—up from last year’s
average of 3.61, with Intuit’s Lacerte posting the
highest overall ratings with a score of 4.43 (see
exhibit
2 ). Three products tied for third place
with a score of 4.35: Drake Software, Thomson
Creative Solutions’ UltraTax and CCH Tax and
Accounting’s ProSystem fx Tax.
The average cumulative rating for technical
support slipped sharply to 2.44 from 3.50 last
year, although respondents reported an improvement
in the way their software ran on their
networks—4.09, up from 3.50. For a list of
the vendors included in the survey, see exhibit 1
.
SHRINKING MARKET
The survey also revealed that not only is
the field of vendors dwindling, but the existing
market is becoming more concentrated, with four
products appearing to lead the field with the most
customers: Intuit’s Lacerte and ProSeries, CCH’s
ProSystem fx Tax and Thomson Creative
Solutions’ UltraTax. Evidence of the
growing concentration can be deduced from the data
in
exhibit 2 . Although more than twice as many
tax practitioners responded this year than last
(2,010 vs. 993), making the 2004 data more
statistically reliable, only nine products
received the 10 or more responses needed to
qualify for inclusion in the survey. That’s down
from 12 last year. In addition, tax year
2004 will see at least three fewer tax software
products on the market. Thomson Creative
Solutions, which owns UltraTax and RIA’s GoSystem
Tax RS , acquired the customer lists of
Tax Relief and Exact Tax, both of which withdrew
from the market. Also, Best Software sold its CPA
Software Visual Tax customer list to CCH, which
will be attempting to migrate those customers to
its ProSystem fx Tax.
Caveat: The lopsided response in favor of
just four products makes the individual scores of
the remaining five products statistically
unreliable. GoSystem Tax RS received just
50 responses, Max Plus 44, TaxWorks 29, Drake 17
and TaxWise 12. However, we believe the cumulative
average of all nine product scores in exhibit 2
is statistically reliable. Currently,
there are only 16 tax software products on the
market that provide all the necessary federal
forms and can calculate taxes for every state with
an income tax. That’s down about 20% in the past
decade. Aside from the packages reviewed in this
survey, other products on the market include
GreatTax, Orrtax, Dunphy, Taxslayer, Petz
Crosslink, TaxSimple and TaxAct. When a
software publisher acquires a competitor, it
usually just wants the customer list; the acquired
product usually becomes defunct and the buyer
seeks to convert the orphaned customers to its
brand. But when Intuit acquired Lacerte a few
years ago, it took a different tack: Because both
the Lacerte brand name and product were so
popular, Intuit decided to continue the package
under a joint name.
TROUBLE FOR PRACTITIONERS
The current turnover
rate—the percentage of customers voluntarily
moving to a new product or being forced to switch
because their current product was being
withdrawn—ran at about 13% last year (see exhibit 3
). Most tax practitioners are not
happy about market consolidation—and for good
reason. Switching tax packages is no small matter.
First of all the CPA firm has to install the new
product on its network, praying its computer
system is sufficiently robust to handle the
change; if it isn’t, the customer must go through
the often difficult and expensive process of
upgrading the hardware. Then, since each
tax package operates differently, the firm’s tax
professionals must learn to run the new software
and become familiar with all its unique technical
nuances. And finally, the firm has to put all its
client tax data through the new vendor’s
conversion software to make the returns compatible
with the new package—all the while worrying
whether the conversion process will leave it with
hours of work tracing for evidence of errors.
Confirming the difficulty and frustration with
conversion software, the survey showed it is
nearly universally disliked. With but one
exception—Intuit’s Lacerte—tax practitioners
generally gave low grades (2.33) to these
converters. Lacerte received a 4.17 ( exhibit 3
). As evidence of the intense
competition to acquire orphaned customers, of the
nine products assessed here, all but one—GoSystem
Tax RS —provided free conversion software
( exhibit
3 ). GoSystem, which charges $2 a return for
conversions, is owned by RIA, which in turn is
owned by Thomson, the publisher of UltraTax.
TECHNICAL SUPPORT
Mention the words
technical support to a tax practitioner
and often you’ll get an earful of complaints about
bad service and long hours of holding on the
telephone for a tech-support representative. After
all, the last thing CPAs want to hear when they
call with questions during the critical days
before April 15 is a busy signal, a recording or
an ineffective response to a question. The average
cumulative rating for technical support fell to
just 2.44 from last year’s 3.50 ( exhibit 2
).
E-FILING GAINS
Preparers
electronically filed a larger number of both
federal and state tax returns: 39.4% of federal
returns were e-filed this year, up from 24.5% last
year. The state statistics were similar: 35.6%, up
from 19.4% (see exhibit 4
). Six of the nine vendors charged tax
preparers extra for e-filing, with fees as high as
$1,350 for an unlimited number of e-filings (see
exhibit
6 ). The three that didn’t charge were Drake
Software, GoSystem Tax RS and Max Plus.
Only three vendors—Thomson for GoSystem Tax
RS , Intuit for ProSeries and CCH for
ProSystem fx Tax—charged tax
practitioners a fee for the software used in
e-filing. GoSystem charged for e-filing but didn’t
charge for each return filed. An average of 31.5%
of the practitioners passed this fee along to
clients, and 37% said they planned to add such a
charge next year ( exhibit 6
).
PRODUCT LOYALTY
The software package
with the most loyal customers appears to be
ProSystem fx Tax ( exhibit 3
); 97.8% of its users said they planned to buy
the product again next year. Hot on the leader’s
heels was UltraTax, with 97.2% reporting they
planned to remain customers. For all nine
products, 89% of respondents said they planned to
stay with their vendor—showing an apparent 11%
voluntary turnover rate. Once again we suggest you
not read too much into the individual ratings for
those products with fewer than 100 responses.
We had hoped the survey data would reveal which
products were gaining customers and which were
losing them. Unfortunately, since only about 11%
of respondents voluntarily switched alliances, it
was evident the resulting switching population
(11% of 2,010 and divided among nine vendors) was
too small to provide reliable individual results.
However, one statistic on product switching
did stand out: When asked for the major reason
they switched products, 32% of the respondents
cited price.
SPECIAL SERVICES
We were surprised to
discover that online organizers—those software
add-ons that make compiling raw tax data
relatively painless for taxpayers and a labor
saver for the tax preparer—were not very popular
with either tax practitioners or their clients.
Although all of the nine products in the survey
contained such organizers, only 19.1% of the
responders offered them to clients (see exhibit 5
), and when they did, only 16% of their
clients used them. Tax-refund advances
remained a minor marketing feature. Only 5.1% of
the tax practitioners said they offered refund
advances, and growth in the service will be about
10% next year: 5.6% said they planned to offer it.
PROFILE OF RESPONDENTS
Of the 2,010 AICPA
tax-department members who filled out the survey,
12% were sole practitioners and 80.3% were from
local, one-location firms (see exhibit 7
). We had hoped to correlate the type
and size of firm with the software used, but again
we were stymied by the fact that some packages
received very few responses. However, four
packages—Lacerte, ProSeries, ProSystem fx
Tax and UltraTax—received enough responses to
provide at least a conditional analysis. It
appears the leading software used by sole
practitioners was ProSeries and the leading
local-firm package was ProSystem fx Tax.
There were too few responses from regional,
national or Big Four firms to provide reliable
conclusions. Because of the continued
intense competition in the tax-software market—and
if history is any guide—further consolidation is
likely to continue. And as the number of products
shrinks, it’s evident the market will see still
more concentration. STANLEY ZAROWIN, a former
JofA senior editor, now is a
contributing editor to the magazine. His e-mail
address is
zarowin@mindspring.com . |