by Roger Russell

Once labeled by a leading vendor as “the next big thing to still be coming,” application service providers have weathered a series of peaks and valleys in customer demand and are working to enhance their reputations as a boon to preparers.

And while a growing number of vendors have active offerings, others are biding their time, waiting for client demand to catch up.

Carrollton, Texas-based pioneer GoSystem RS is on target to process 1.2 million returns this tax season, which ends in October. For GoSystem, a Thomson business, this is a 20 percent increase over last year. “We’ve seen a significant increase in remote server volume,” said product marketing manager.

ASPs deliver a number of advantages to tax preparers, according to Gackle. “It lowers clients’ overall hardware costs - new tax programs don’t drive the need to upgrade equipment. We upload the program for you. A good example is when New York changed the tax rates for estimated tax due June 15, we were able to make the change on our servers within a few days.”

“We’ve got a world-class data center, with layers of security, virus protection and encryption schematics. While some people got out of the service bureau business, we’ve been in it for close to 40 years. The data center goes through security audits every year. Our clients can access their data any time from anywhere in the world.”

Although GoSystem doesn’t specifically endorse outsourcing tax prep to offshore sites, ASP technology is what makes it feasible, according to Tom Walsh, national sales manager for the professional services market. “We don’t have an economic interest in outsourcing,” he said. “We leave it to the firm to make the decision. But if they choose to outsource - domestically, across their own offices or overseas - we have the tool that lends itself to this.”

CCH’s ProSystem fx now has all of its tax applications available on Global fx, its ASP engine. “Other accounting applications will follow,” said Ernest Zoumot, senior marketing manager for Torrance, Calif.-based CCH Tax Compliance.

Technology was not the barrier in rolling out Global fx. “CCH has always been a stable organization, not the first to rush into new technology,” said David Bergstein, business development manager for CCH Tax. “CCH had Complete Tax Pro up and running as an ASP several years before Global fx was introduced.”

Bergstein said that Complete Tax Pro, which accountants can offer through their own Web sites, was based on market demand. “The purpose of Complete Tax Pro was to respond to CPAs who asked us to provide a tool to tap into the do-it-yourself market and give them an additional revenue stream,” he said.

Although CCH also makes Complete Tax available directly to taxpayers through its own Web site, and through the Internal Revenue Service Free File Alliance site, Zoumot refuted charges that the product undercuts CPAs by going directly to the consumer. “The Internet has introduced a lot of do-it-yourself tools, such as online banking and stock trading,” he said. “We don’t want to bury our heads and pretend it’s not out there. We want to create tools that allow the CPA to stay in that world and complement what’s out there.”

“It allows CPAs to turn do-it-yourselfers into professional engagements,” he said. “It puts them on a par with H&R Block and TurboTax by providing them with a Web presence with a plate of offerings. If a taxpayer starts a return and wants the CPA to finish it, he can automatically transfer data into ProSystem fx. If you take a look at Complete Tax Pro, you can see that our goal is not to compete with, but to partner with, the CPA.”

Alan Haacke, spokesman for Kaysville, Utah-based TaxWorks, agreed. “We have a sister company, Tax-Engine.com, which sells an online product to consumers. We found that the online product doesn’t take away from our target market, the professional preparer. We want to help people who like to do it on their own, but we don’t compete with the professionals.”

Mountain View, Calif.-based Intuit’s TurboTax is also available to consumers on its own Web site, as well as the IRS site. Intuit’s Lacerte division rolled out its ASP model, NetTax, in January 2002, but has put aside the model for the time being.

“We found virtually no market demand for it, but we’re continuing to survey and monitor our customers,” said Intuit spokesperson Miles Kotay. “Based on what our customers are telling us, they’re not ready yet. But when they are ready, we’ll be there.”

“However,” he said, “there’s been a lot of interest generated by QuickBooks online as an ASP model. If QuickBooks moves to the Internet, can tax be far behind?”

Meanwhile, Dexter, Mich.-based Creative Solutions Inc., a Thomson business, has seen significant growth. “We had ASP usage increase about 200 percent over last year,” said CSI president Jon Baron. “Many people headed into remote processing for various reasons. Vendor/partners is one of the stronger reasons for preparers to think about ASPs,” he said.

“We see accountants developing a total Web strategy. Once they comprehend the power of the Web, everything comes into play in their decisions - a personal client portal, which allows client activity and collaboration, 24/7 access to the accountant, a secure data center and reduced costs. ASP processing is just one component of an overall Web strategy.”

Baron noted that the more applications there are available, the better. “This is the fourth year that every one of our products is available in a Web version,” he said. “When most firms move to the ASP model, they want everything. Some of the advantages go away if you can’t have all of the applications available remotely.”

Franklin, N.C.-based Drake Software has the technology ready, according to spokesman Mike Wooten. “We have preparer sites that we give to all our customers, and they can structure them whichever way they want,” he said. “They can do returns using our engine, or they can use our software locally.”

“Eventually, we’ll see more and more tax prep online,” he said, “but it makes sense to preparers to have the data file in their own office. Many of them feel uncomfortable having a third party storing their information. We’ll continue to look at when the timing is right for our customer base.”

Rome, Ga.-based Universal Tax is still looking at the ASP model, according to national accounts development manager Scott Crowley.

“We haven’t yet seen a lot of demand for this,” he said. “Many of our customers want to control their own data and not be dependent on a remote server. We will have a Web-based appointment scheduler. If the preparer can educate the customer to use this, it will bypass the need for some of the pro formas and organizers sent out in the past.”

Crowley added, “We think desktop is alive and well for some time, but we’re investigating what the next level will be, and we’re putting resources into it.”

Seattle-based Orrtax had a “virtual desktop” model two years ago, but chose not to pursue it, according to spokesman Paul Slagle. “We did the pilot project two years ago,” he said. “We think the technology is feasible and will be profitable in the future, but we’ve chosen not to expand our investment in this area at this time.”

A major barrier for the smaller vendors to implementing ASP technology is cost, according to GoSystem’s Bob Button, a product marketing manager. “It’s expensive to build and maintain a data center over the years, with security and equipment redundancy. That’s one of the reasons it’s not easy to get up and running at a high level.”

TaxWorks’ Haacke agrees. “It’s extremely expensive,” he said. “One of the reasons you see vendors getting gobbled up is that they can’t keep up with the technology.”

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