The CPA Journal

A Hard Look at Tax Software

By Susan B. Anders and Carol M. Fischer

In Brief

Wide Usage and High Satisfaction

In a survey of New York State CPA firms, the authors find a high level of satisfaction with tax preparation and research software. Tax practitioners prepare taxes using software from an array of vendors, research tax problems using a variety of Internet and computer resources, and market and develop tax practices with their firm’s website. They also use the growing number of electronic filers and other new technologies. The CPA Journal plans an annual update on tax software. If your vendor was not covered, if you would like to participate, or if you have other comments for the authors, please e-mail the editors at cpaj@nysscpa.org with “tax software” noted in the subject line.

hrough computer technology, local and regional tax practitioners have access to many resources that were once available only to firms able to develop these resources internally. An obvious, and important, tax compliance resource is tax return preparation software. Tax practitioners also use computers in legal research, information gathering, and communication with clients.

The authors surveyed local and regional practitioners in New York State about their choice of tax preparation software and their assessment of their current software. The survey also asked respondents to rate tax research software and addressed how tax professionals use technology to complement other aspects of tax practice. Finally, the survey assessed the extent to which New York practitioners use their own website to communicate with clients and develop potential clients.

The survey instrument was mailed to 196 New York State CPA firms selected at random from an online phone directory. Sixty-five completed surveys were received. Since the survey focused on tax software and Internet usage, nonrespondents might not use such resources to the same extent or in the same ways as the survey respondents.

Tax Preparation Software

Tax practitioners face more changes in tax preparation software than just the annual reforms in the tax law. The tax software industry has witnessed substantial consolidation and the growth of online tax services for professional preparers.

There are several important things to consider when choosing a tax software package or an online service, including cost, user-friendliness, customer support, available features, updates, state-specific features, company reliability, and familiarity. The survey examined 23 of the most commonly used tax return software vendors, based on a review of print and electronic media. All 65 respondents indicated that they used at least one tax preparation software package, eight packages in total, as seen in Exhibit 1. Several firms used more than one product; consequently, 72 total ratings were received. CCH ProSystem fx and Lacerte Software had the most users, at 22 each. Intuit ProSeries, Creative Solutions, and RIA GoSystem had nine, eight, and seven users, respectively. Three of the companies (ATX Forms, Drake Software, and TaxWorks) had only one or two users, so their ratings should be interpreted with caution.

Respondents ranked the vendors on a scale from 1 (very dissatisfied) to 5 (very satisfied). The average overall rating for all eight vendors was 4.40, which indicates that users were highly satisfied with their tax preparation software. The highest overall rated vendor was Lacerte (4.57), followed by Creative Solutions (4.50), and Drake (4.50). Ratings of individual features (also in Exhibit 1) are generally consistent with these high overall ratings. The notable exception was the dissatisfaction with cost.

User familiarity ratings were similar to the overall ratings, with the exception of Drake, which had a lower familiarity rating. This may be because Drake has grown substantially in recent years by acquiring several other tax software vendors. Given that only two respondents rated Drake Software and their familiarity ratings were low, the ratings for Drake may be less reliable than the others.

Exhibit 2 provides descriptive detail on the tax preparation software users. CCH ProSystem fx and Lacerte Software were generally the most used vendors across all categories. Lacerte was the most used by larger firms (1,000 or more returns); CCH ProSystem fx was the most used by smaller firms (less than 1,000 returns).

Tax Research Software

The survey also asked whether practitioners used tax research software. The survey listed seven of the most commonly used tax research software vendors, based on a review of print and electronic media. Sixty-four of the 65 respondents indicated that they used at least one tax research software package. Because some firms used more than one product, a total of 84 ratings were received. The ratings are summarized in Exhibit 1-A.

RIA was clearly the most popular choice, with 31 users. CCH, Kleinrock, and BNA had 18, 16, and 13 users, respectively. Three of the companies (Matthew Bender, PPC, and Tax Analysts) had three or fewer users; their ratings should be interpreted cautiously.

The average overall rating for all seven vendors was 4.01 and no product rated less than 3, indicating that the average respondent was satisfied with the software. Similar to the tax preparation software, respondents rated most of the features for all of the products as satisfactory (except cost). The highest overall rated vendors were PPC (4.33) and BNA (4.23). The user familiarity ratings were generally lower than the overall ratings and lower than those for the tax preparation software.

Exhibit 2-A provides descriptive detail on the tax research software users. CCH was the most used by larger firms (1,500 or more returns); RIA was the most used by smaller firms (fewer than 1,500 returns). Further information on all of the software vendors can be found on their websites, as listed in Exhibit 3.

Other Technology Solutions

Exhibit 4 summarizes the responses to survey questions on other technology issues. Tax practitioners face an increasing number of options among online compliance resources. Although two-thirds of the respondents used a tax preparation software vendor that provided online electronic filing, only 46% filed individual returns electronically. Similarly, two-thirds of the vendors provided online return preparation, but only 12% of the respondents processed returns through an application service provider (ASP) or used an online organizer. Many tax practitioners and their clients may still have concerns about the degree of security provided by web-based data transmittal and information processing. On the other hand, a sizable minority of respondents not currently using these features plan to adopt them within the next five years.

Tax practitioners seemed more comfortable with high-tech approaches to tax research, the lower user familiarity ratings notwithstanding. Two-thirds purchased CD-ROM–based tax research software, and half conducted tax research via proprietary Internet sites. Many of the respondents used the IRS, New York State Tax Division, and other state websites at least occasionally.

The Internet has changed the way that business is conducted and generated. Many CPA firms are developing their own websites to take advantage of this new technology. Exhibit 5 summarizes the extent to which respondents use the Internet as a form of outreach to clients. Half of the respondents had a firm website. Of those firms with websites, 84% used the website to market the firm to new clients and 63% used the site to allow clients to contact the firm. More than half market new services to existing clients and provide an online client newsletter on their websites.

Analysis

In general, the survey respondents indicated a high level of satisfaction with both tax preparation and tax research software, although concerns about cost were evident. Respondents also demonstrated a relatively high level of reliance on computer resources available via the Internet. While it is important to recognize that computer-savvy practitioners were more likely to respond to the survey, these findings suggest that New York State CPAs are embracing computer technology.

For those CPAs not currently taking advantage of computer technology, the results of the survey suggest that it may be time to start. The high levels of satisfaction with software indicate that the programs are worthy of serious consideration. It appears that software vendors have been responsive to customer concerns and tailored their offerings.

Susan B. Anders, PhD, CPA, is an assistant professor and
Carol M. Fischer, PhD, CPA, a professor, both at St. Bonaventure University, N.Y.