The dominant players in application service provider tax prep technology continue to consolidate their positions. But there is still room for smaller ones to enter the market.

Once described as "the next big thing to still be coming," the predicted surge in tax prep ASPs stalled for years. However, new developments by established providers, and an entry from a new start-up, indicate a revival of interest in the technology.

"If the volume of system, security and application updates and patches continues to increase within firms, I think we will continue to see firms explore ASP products as a way of minimizing their maintenance and the conflicts that the in-house products can create, as well as to provide a practical solution for firms with multiple locations and remote users that need to share data," said Roman Kepczyk, president of InfoTech Partners North America. "Use of ASPs is still expanding within our profession, as evidenced by the direction of the document management vendors and the standardized use for tax research and forms."

"ASP demographics are changing," said Randy Fraley, product manager at CCH Global fx. "It's becoming more widely accepted, although there are still some reservations from both client and consumer perspectives."

Many of the early adopters that wanted to work with remote capability used Citrix technology and hosted their own software, according to Fraley. "Now, they have to decide whether to migrate their Citrix to our ASP environment," he said. "That's why we look to continued steady growth, but it's not going to take off for a few more years."

RIA's GoSystem RS continues to grow its high-end software, according to product manager Boyd Gackle. "We signed three major nationals in the top 10 accounting firms during the past year, in addition to the Big Four, which were already users," he said. "We're continuing our integration activities, so we can offer an entire suite that's ASP-hosted. We're working with BNA to integrate their Web-based depreciation product with ours. We already integrate with the Creative Solutions depreciation product. And in addition to working with several document management companies, we just purchased Immediatech and its DM product, GoFileRoom."

Gackle denied that GoSystem had plans to eliminate its CD-ROM version. "As far as new customers go, 93 percent of them choose the [Remote Server] version," he said. "But we will absolutely continue to support the desktop version. As long as we have users on CD, we will continue to support it."

Dexter, Mich.-based Creative Solutions has seen double-digit growth in its ASP offering over the past year, according to Teresa Mackintosh, CPA and senior director of marketing.

"For a firm to take advantage of ASP technology, all their application needs must be met by the host," she said. "We offer not only CSI applications, but we also host Microsoft Office, and within the last year we've added Microsoft Exchange."

She noted that many new users are poised to purchase ASP technology as a result of a natural cycle. "A lot of firms made significant technology investments in 2000," she said. "Now that hardware investment is coming to the end of its natural life and people are re-evaluating their options. Many of our calls are from people who say they have to decide whether to upgrade their infrastructure or choose a new way by going to a hosted environment."

Rome, Ga.-based TaxWise is currently developing ASP technology.

"There's obviously a demand and a need for the kind of products we publish to be available in ASP," said vice president of marketing Gene Goldenberg. "We're actively developing an online version of TaxWise. We'll put it through a beta test this coming season. If it's successful, we'll launch it as a full-fledged product for the 2007 season."

"The value proposition for our customers is that so long as they are running offices that have a decent broadband connection, they will be able to install and set up users much more easily," he said.

Bellevue, Wash.-based Orrtax is developing an ASP version for its users. "We want to provide more flexibility and access for our tax preparers," said director of product management Stuart Lisk. While not committing to a particular date, Lisk said that the ASP would be available within three years. Instead of a beta test, Lisk plans a limited rollout of the ASP version in its first year.

"ASPs are not for everyone, and our customers are not pushing us toward this model," acknowledged Lisk. "But we found that many of our customers are looking for ways to add to their existing core services. For example, credit unions provide normal credit union services to customers, but during tax season their customers go somewhere else to get their returns prepared."

"The ASP model allows their customers to get access to a Web site and have their return prepared by a preparer under the credit union brand," he said.

Lisk emphasized that Orrtax did not intend to target the consumer. "We're not changing our target audience," he said. "Our ASP would be a bridge between tax preparers and taxpayers."

Tracy, Calif.-based Petz Enterprises brought out its ASP model, V-Tax, a year ago. It was designed especially for preparers serving large numbers of individuals from multiple locations, according to Chuck Petz, vice president of tax software development. "It enables preparers to leverage what they're doing by expanding to more locations without additional cost," he said.

San Francisco-based Orange Door Inc., a start-up founded in 2004, is currently testing its ASP model. "We'll have our beta release at the end of August," said chief executive Sharra Chan.

"Our target market is the small to medium-sized practitioner," she said. "The technology eliminates a host of headaches. All of the data is backed up, the stored data is secure, and there is anytime/anywhere access."

Not for everybody

Despite the continued growth of the market, some major participants have declined to jump on the ASP bandwagon.

Intuit's Lacerte introduced an ASP product, NetTax, in January 2002, but withdrew it the following year. "Although it's something we continue to investigate, the ASP model is not something we're seeing huge demand for on the professional side," said company spokesman Charles Var. "Of course, we use the ASP model on the consumer side with TurboTax."

Likewise, Ken Crutchfield, vice president of Rockville, Md.-based ATX/Kleinrock, said that there are no current plans to develop an ASP version for its tax prep program. "We're not seeing a tremendous amount of movement there yet," he said.

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