Inside Next Year's Tax Software


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The death of tax preparation as a revenue producer has been talked about for a lot of years. But a funny thing happened on the way to the morgue -- tax preparation is alive and well as professional preparers have steadily increased their share of the tax market over the last few years.

So as preparers ready themselves for the next tax season, the quality of tax software, and the service and support provided by the companies that sell these packages, continue to be  key issues for firms.

With many packages having filled up on major forms over the years, the hot trends often involve features directly related to preparing tax forms. This year these include:

  • Continued vendor consolidation
  • Increasing availability of electronic storage of tax documents
  • Integration between tax software and other accounting office applications
  • The spread of Web-based organizers and
  • Proliferation of vendor-provided Web-site development tools.
This year brought continued consolidation, in a market that is getting short on companies to consolidate. Drake Software bought the customer list for TaxPack from Alpine Data, and also picked up the operations of Xpress Software. The acquired products are no longer available.

Partner Insights

But there was a twist: the product lines of two companies that were purchased remain on the market. UCG, which acquired Caribou, Maine-based ATX, is integrating that company’s line with its Kleinrock Tax Research tools. Also, Houston-based electronic filing service TRE Financial Services is continuing to field the Intellitax line it got with the purchase of Orrtax.

The fate of Visual Tax, acquired by Best Software with its purchase of CPASoftware, is undecided.

This year has also been unusual in that a new package has come on the market, Great Tax, marketed by Nelco/Greatland, largely believed to be a version of Laser Systems’ TaxWorks. Nelco entered the tax preparation market after years of providing third-party electronic filing services to many other vendors, who have largely begun providing their own e-filing services.

“We’ve mailed close to 200,000 postcards to the customer base and the IRS list,” says Tom Reader, marketing director for Nelco. At the time of the interview, Reader noted the company was just moving into the prime selling time. But he says it has been surprising that more customers are buying at the high end of the line, which is priced at $350 to $2,000. “Most users want integrated electronic filing, bank products, and business returns,” says Reader.

Nelco had provided third-party filing services to many companies that are now its competitors in the tax software market. But because many began integrating e-filing with their forms and doing their own in-house e-filing, the company got out of the third-party business.

“If we had stayed on the course we were, our volume would have been diminishing every year we had it in,” says Reader. The result is that Reader expects that the volume of electronically filed returns the company handles will drop.

Less Paper

Although it’s not purely a tax preparation feature, document storage tools have been spreading. Such applications enable users to store documents electronically, both on local drives and on the Internet, through products such as Creative Solution’s File Cabinet Solutions and Micro Vision’s eCabinet (for local storage) and CyberCabinet (for Internet storage).

Dexter, Mich.-based CSI was one of the first companies to market with FCS, which can store tax documents on local drives and via the NetClient portals available to the company’s preparers.

“What we found out is that now that some other competitors have come out (with storage tools), it’s becoming more mainstream” says Jack LaRue, CSI’s vice president of marketing.

Most of these systems store documents in the Adobe Systems PDF format so that they can be retrieved, and usually they can be viewed by clients before the return is completed.

“It just makes sense to provide easy storage,” says Laurence Zuckerman, vice president of sister companies Micro Vision Software and AccountantsWorld, based in Hauppauge, N.Y. “It is catching on very quickly.”

Not everyone is so enthusiastic. About two years ago, Intuit launched WorkSpace Pro, a private client site system which provided remote storage. But WorkSpace was dropped after a year, says Kristy Coleman, director, professional accounting Solutions for Intuit. “I think the early adopters are embracing electronic storage,” says Coleman. But Intuit does not believe that the larger market is ready for such systems.

Not everyone agrees that document storage is a new thing. Joe Angebrandt, vice president of professional products for Universal Tax Systems, which markets the TaxWise software line, says his Rome, Ga.-based company has had the ability to provide document storage for years.

“It hasn’t been through the Internet,” he concedes. UTS uses the PCL language from Hewlett-Packard, which Angebrandt says uses much less storage space than the PDF format. UTS will enable preparers to store documents via the Web “and perhaps allow the customer to access the return.”

Tying It Together

Integration of tax preparation software with other packages is also a major theme. Intuit has integrated ProSeries with QuickBooks, while CCH is working on blending all of its CPA applications as part of its ProSystem fx suite. For example, using the DynaLink feature, preparers will be able to transfer information from ProSystem fx Engagement (the recently renamed ePace) to the tax preparation package.

For some, integration is old hat. CSI’s LaRue points to the CSI family of products as long having the ability to tie together, a capacity he says that users value highly. When CSI takes its annual user surveys, “Integration continues to be the biggest benefit cited by users,” he says.

Others are a bit newer to the trend. Laser Systems has allied with People’s Choice Accounting of Spencer, Iowa, to enable its TaxWorks tax software to be integrated with the partner’s accounting software package. Similarly, UTS has struck up an alliance with little-known accounting and write-up vendor PC Software of Sarasota, Fla. PC Software is writing a bridge to TaxWorks.

“These guys (PC Software) have a very good product. They are very strong in development,” says Scott Crowley, UTS’ vice president of marketing. 

LaRue notes that CSI, which already has connections between UltraTax and products such as Write-up Solution, is increasing the level of integration of its applications. For example, information in K-1s can flow from partnership to partnership. UltraTax also has the ability to recognize data from W-2s and 1099s if the client has had after-the-fact payroll services performed. UltraTax recognizes the presence of the data and queries the preparer whether it should be imported.

Getting Organized

The Internet-based feature that has the broadest acceptance has been electronic organizers. This year, Intuit’s Lacerte operations will add a Web-based organizer, as will ATX, Micro Vision, and CSI.

However, Intuit is not adding an organizer to ProSeries. “It’s really because of customer demand. For Lacerte, one of our most requested features is the eOrganizer,” says Coleman.

Another trend is the availability of Web-site development tools from the tax vendors. CCH has integrated the former Execusite into its product suite as ProSystem fx Site Builder. AccountantsWorld/ Micro Vision has CyberSuite Drake Software offers the preparer site builder at .

Meanwhile, the number of online tax preparation systems continues to grow with Nelco joining the online consumer tax-preparation fray that is dominated by TurboTax for the Web.

Nelco has been providing business filing services for small businesses for W-2s and 1099s at its site. Nelco will also be providing an online consumer tax preparation packages, aimed at the same audience. 

Nelco is joining other vendors that offer online preparation, including Drake Software, through its site. Petz Enterprises has, launched last season, which offers preparation of a federal 1040 for $14.95 per return and $4.95 for e-filing, and a $9.95 per return fee for a state 1040 and a $2.95 state e-filing charge.

When it comes to overall pricing, there were few dramatic changes for the 2002 crop of tax software. However, one jump came in the UltraTax line from Creative Solutions, whose federal 1040 module went from a first-year cost of $1,500 to $1,800, while renewal increased from $1,250 to $1,500. However, the new price included the electronic-filing module, previously sold for $150, and the Pro Forma module, which previously sold for $100.

“The bottom line is there is no real price increase for renewal users, just a bundling of the products, providing they had ELF and pro forma,” says LaRue.

Intuit’s 50,000 users of ProSeries faced no price increases this year, but its 35,000 Lacerte users got a slight increase in the federal 1040, going from $1,995 last year to $2,055 for 2002 software. CCH, which tends to add modest increases each year, made this year no exception, raising the federal 1040 first-year price of ProSystem fx Tax to $2,675 from $2,550.

Free for All?

Most vendors expect a continuing boom in electronic filing. Intuit, for example, experienced a 50-percent growth last year.

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