Next Year's Software


This could be the year of the small firm in tax preparation; the year in which the non-CPA professional gets more attention; the year in which the outlines of a market that has been consolidating over the last few years becomes clearer in terms of product development and pricing. One measure? The success of this year's round of the IRS Tax Forums has caught the attention of most vendors. About 5,000 attendees, many from smaller firms, showed up at the Las Vegas show in August, with some vendors estimating that 60 percent of those were CPAs.

"We are talking to a lot of smaller customers," says Jack LaRue, vice president of marketing for Dexter, Mich.-based Creative Solutions. The company also began increasing its presence at IRS shows two years ago.

And a large part of that market may be deciding if it needs all the features at the prices charged by the vendors with the high prices.

Partner Insights

"There isn't that much feature difference," says Ken Crutchfield, vice president of marketing for Rockville, Md.-based ATX/Kleinrock. LaRue agrees, "The quality of the individual tax return products has increased all over the market. There was a time when you had to have an upper-level product if you wanted to have all states and electronic filing. That's no longer true."

Crutchfield speculates that in prior years, many preparers bought higher-priced products that had more features than they needed. "I think there is a market for people who have overbought, buying ProSystem, Creative Solutions, and ProSeries," he says.Click here - Intuit Tax Products Grow ATX's philosophy has been that while its line doesn't have all the features of the higher-price products, many practitioners don't need all of those features. Even LaRue notes that ATX has been having success at those lower price points.

However, Intuit's view is that its newest products had nothing to do with the impact of price competition, and that they were not added to counter the customer loss the company reported for its fiscal year ended July 31, 2004. They were products that were tailored to markets that Intuit had not previously served, says David Kramer, group product manager.

"The people we lose to the lower-priced offerings don't fit the profile for Basic," says Kramer. But certainly Basic does offer a simpler approach in terms of features for less-sophisticated preparers.

"One size does not fit all," says Kramer, explaining the development of the new product lines. Basic is aimed at "a preparer who is fairly new to tax preparation and does not know a lot about it," he says, while Express is aimed at the store-front preparer, an area where Intuit found that "we were not in the market, but there were people using our products."

Whether Basic is aimed at shoring up Intuit's low end, it clearly had price in mind this year when it offered preparers a three-year price freeze if they renewed by June. The company seems to feel something worked in reversing weak results for the professional tax segment for 2004. In discussing results for fiscal 2005, Intuit CFO Brad Henske in August told analysts that the two new products were responsible for a 9 percent increase in its professional customer base.

But there's no doubt that TaxWise, based in Rome, Ga., sees an opportunity with the small firms at the expense of Intuit.

"The creation of these products has saved people that would have moved to other products," says Gene Goldenberg, TaxWise's vice president of marketing.

With the introduction of Express, Intuit moved squarely into the market served by TaxWise, although Intuit is aiming more at the single-store retail operator than the multiple-store businesses targeted by TaxWise.

Goldenberg says part of the growth is driven by the formation of new firms, many opened by preparers who cut their teeth on tax preparation with chains such as H&R Block, Liberty Tax, and Jackson Hewitt.

Smaller firms are also unhappy with the service they have been getting from the larger vendors, says Goldenberg, who agrees that these buyers are very price sensitive.

That's one reason that TaxWise lowered its prices by 30 percent for 2005.

Both Goldenberg and ATX's Crutchfield say that much of their business is coming from ProSeries customers who are converting.

"Our conversion rate is about double last year," says Crutchfield, who believes that customers who paid $2,600 or $3,999 for ProSeries are now realizing they can buy a product like ATX's Total Tax Office for $1,400 "and get all your research at the same time."

LaRue says CSI has a different experience. With its prices increasing from 1 percent to 3.5 percent on different parts of the product line, the company draws from what he calls "the upper-end, top-quality products," in particular Lacerte and ProSystem fx.

Whatever the trend, Intuit still dominates in market share. It had 106,000 units sold for the year ended July 31, up from 97,000 units for fiscal 2004. That compares with more than 19,000 firms served by CSI and another 20,000 accounts for CCH's ProSystem fx Tax.

Would CSI consider moving into the low-end with an "UltraTax-Lite" kind of product? "There is no discussion right now," LaRue says.

Internet Bound

Meanwhile, interest in Internet-based tax preparation continues, although no one would picture tax preparers moving to the Web in great numbers-yet.

But interest is picking up, with document management and the ability to have staff work from remote locations named as major factors in driving more preparers online.

"We are continuing to see more people jump on Global fx," says Kevin Robert, president of CCH Tax and Accounting, referring to his company's Internet-based suite. There are about 4,000 users, and that number is expected to double in the next year.

That is hardly an explosion. But CCH is getting ready for people to switch as it rewrites the ProSystem fx Office suite in the Microsoft .Net language. It is currently rewriting ProSystem fx Tax for .Net. The multi-year project "allows us to leverage a lot of the work Microsoft does and take advantage of tools Microsoft puts into the system, such as print drivers," says Robert.

Robert agrees that document management products such as ProSystem fx Document are a catalyst for online adoption, especially at multi-office firms that also see the advantages of providing staff with the ability to work remotely. Moreover, the coming of age of a generation that is comfortable with technology is probably also a factor.

"I think the new people coming in to the industry don't want to work 100 hours during tax season," says Robert. With Internet-based preparation, he continues, "they can go home and have dinner with their families, put the kids to bed, and then do four or five returns."

Petz Enterprises, based in Tracy, Calif., is pushing the development of V-Tax, its online professional package. The company, which like TaxWise specializes in serving storefront preparers, sees V-Tax as providing greater control for organizations with multiple retail locations.

An important new feature of V-Tax is a dashboard that enables central offices to know the status of returns at all times, and can track the actions performed by all preparers.

However, control is not the only important item for the storefronts. Speed is as important, if not more important, notes Intuit's Kramer.

"Their primary thing is to prepare very simple returns, very fast," he says. Many clients spend 15 minutes with the preparer, who then spends about five minutes preparing the return. "If we can cut 30 seconds off the process for each return, these are huge wins for the company," he says.

Standard Improvements

Of course, not all the new features in tax software are the flashy or technologically innovative ones. Preparers continue to look for the product that has the forms that they need.

CCH added about 40 more state entities and is providing efiling capability for the 20 states that are requiring efiling, says Robert. Similarly, Intuit has added New Mexico and Arizona business states, along with returns for Ohio cities, says Kramer.

An important feature, he notes, is ProSeries' new Print Preview, which enables users to select or deselect forms and schedules. The company also simplified its approach to its Short Organizer. Last year, it took 83 mouse clicks to print the organizer because of the number of forms and schedules associated with it.

"We've gone from 83 clicks to one," Kramer says.

Click here - Tax Software Vendors Expand Web Services

Robert W. Scott is Editor of Accounting Technology and can be reached at

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