A Clear Look at Tax Software
2007 Annual Survey of New York State Practitioners

By Susan B. Anders and Carol M. Fischer

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This year’s survey, the sixth of its kind, was sent to a broader range of respondents and also introduced an online questionnaire. It also includes more tax preparers employed below a firm’s decision-making level. A software industry emphasis on improving customer support and differentiating package features was explored through new questions that yielded some surprising responses.

The consolidation of tax software vendors represents a continuing trend. During the past year, CCH acquired TaxWise and ATX/Kleinrock. Dunphy Systems was purchased by Creative Solutions, and the last DOS-based package was removed from the market. Three vendors now dominate the tax software market: Intuit (Lacerte and ProSeries), CCH (ProSystem, ATX, TaxWise, and CPA Software), and Thomson (Creative Solutions and RIA). These vendors’ products represent 200 of the 205 (97.6%) tax preparation package ratings and 177 of the 232 (76.3%) tax research software package ratings reported by this year’s survey respondents, mirroring the marketplace.

Vendors continue to make notable efforts to expand their markets and upgrade their products. The availability of electronic filing features is increasingly important, as more states have moved to mandate e-filing and taxpayers are increasingly aware of refund-anticipation loans and the ease of e-filing. Survey respondents’ use of e-filing appears to have peaked in last year’s survey (2006), the year New York State required mandatory e-filing by tax practitioners preparing 100 or more returns using computer software.

Vendors are also focusing on ensuring adequate technical support and training. Interestingly, however, this year’s survey results suggest that tax preparers prefer a product that is easy to use, making technical support and training less of a concern.

Methodology

The 2007 survey was modified to facilitate electronic distribution via the web-based “Survey Monkey” program. Thus, although the survey asked many of the same questions as in previous years, some questions were omitted or shortened, and new questions were added regarding the most important software features for both tax compliance and tax research software, regarding hours of software training required and regarding customer support.

The survey was e-mailed to approximately 5,000 New York State practitioners from the New York State Society of CPAs’ database of members with an interest in tax, as well as a database of past survey participants. A total of 153 surveys were returned, consistent with the number of survey respondents in most prior years. It is noteworthy that past surveys were mailed to firms, whenever possible addressed to the partner, manager, or supervisor in charge of the tax practice. In contrast, this year’s survey was e-mailed to a much larger database of practitioners, making it possible for multiple individuals at a single firm to complete the survey. Also, it is likely that many more of this year’s responses were provided by individuals who use the software on a day-to-day basis, or by individuals who were not involved in the software selection process. This contrasts with past surveys, which were typically completed by the senior tax associate within a firm.

A profile of respondents (Exhibit 1) indicates that the 2007 survey respondents resemble those who responded to the survey in previous years, but provide greater representation of smaller practitioners and greater variation in firm size. The 2007 respondents also report a somewhat higher number of tax-season professionals and a higher percentage of professional practices in tax.

Tax Preparation Software

Important considerations in choosing a tax software package or an online service include cost, ease of use, customer support, available features, updates, and user familiarity. Users ranked the vendors on each factor using a scale from 1 (very dissatisfied) to 5 (very satisfied). Overall, the ratings for the tax preparation software were favorable, generally consistent with prior years. Although the ratings for all factors declined slightly from prior years (as shown in Exhibit 2), ratings of each feature still averaged well over the midpoint for all factors except cost, which has been the lowest-rated feature of the tax preparation software products since this survey was first conducted in 2002.

The survey instrument listed 21 of the most commonly used commercial tax return software vendors, based on a review of print and electronic media. Approximately 93% of the 153 respondents indicated that they used at least one individual tax preparation software package, and 24% used more than one product. In total, 205 ratings were analyzed. The respondents reported using 11 out of the 21 tax return software packages; Exhibit 2 summarizes the ratings for these 11 vendors.

The mean overall satisfaction rating for the 11 software packages rated by this year’s participants was 3.87, as compared to the prior year’s weighted-average rating of 4.12. The average respondents were satisfied with the tax preparation software that they have been using, although the ratings for most vendors declined. This may be due to the increase in the proportion of respondents from staff levels or other positions who were not responsible for selecting the software. Tax compliance partners may want to examine the issue of increasing staff training on the tax preparation software that the firm uses.

Cost continues to be the least satisfactory feature. Cost ratings declined the most for ATX, Creative Solutions, and RIA GoSystem; CCH ProSystem fx, Intuit ProSeries, and Lacerte Software remained closer to last year’s responses. Accounting Technology’s “Tax Software Special” (October 2006) reported that Intuit has been emphasizing price competition, apparently to the satisfaction of customers. Conversely, ATX raised its prices about 5%, which may have been responsible for the large decrease in its cost ratings.

Almost half of the ratings were for two software packages: CCH ProSystem fx (57) and Lacerte Software (45), two of the higher-priced providers. CCH ProSystem fx and Lacerte Software have historically alternated between the No. 1 and 2 spots in the survey. Four other vendors received more than 10 ratings: Creative Solutions (28 ratings), ATX (23), Intuit ProSeries (23), and RIA GoSystem (14). Discussion of specific ratings and features will focus on the aforementioned six packages. CPA Software, Drake Software, Tax$imple, TaxWorks, and TaxWise were each evaluated by fewer than 10 users; the ratings for these vendors are presented for completeness, but should be interpreted with caution.

The software packages with the most respondents were also the highest rated overall. Lacerte Software had a strong increase in its overall ratings from 2006, while the ratings for ATX, CCH ProSystem fx, Creative Solutions, and Intuit ProSeries declined, apparently influenced by the perceptions of small-firm or staff-level users. RIA GoSystem’s category ratings suffered a major decline in the 2006 survey compared to prior years; its 2007 overall rating remained consistent with 2006.

The dip in overall ratings was reflected in similar declines for the ratings of some individual features, also provided in Exhibit 2. On the whole, users were very satisfied, although, as noted, cost continued to be the greatest source of dissatisfaction. The average ratings of most of the features, except cost, for all software packages were generally higher than 3.5. Customer support, which has been a major industry emphasis, showed a substantial decline in ratings, below 3.5, for Intuit ProSeries and RIA GoSystem, while ATX and Lacerte software showed an increase. Most other features received similar ratings as prior years, although Intuit ProSeries users reported a lower rating than in 2006 for available features.

Exhibit 3 provides demographic information about the tax preparation software users of the packages rated by more than 10 participants. Respondents rating CCH ProSystem fx, Creative Solutions, Lacerte Software, and RIA GoSystem represent some of the larger firms in the sample, although those companies’ software was used by firms in all size categories. RIA GoSystem users represented fewer small firms than the other vendors. ATX, Intuit ProSeries, and TaxWise were used by firms preparing fewer returns, with fewer full-time tax preparers, and with 50% or more of their practice in tax.

Tax Research Software

Practitioners were also asked to rate any of the nine most commonly used tax research software vendors (based on a review of print and electronic media) with which they had experience. Almost 87% of the respondents indicated that they used at least one tax research software package, and 24% used more than one package. Use of multiple tax research packages is consistent with published software reviews. The ratings for these vendors are summarized in Exhibit 4.

In total, 232 ratings were received for seven vendors. Only eight users provided ratings for LexisNexis; its ratings are presented for completeness, but should be interpreted with caution. Additionally, some Tax Analysts users did not respond on all features, making its ratings less interpretable. In contrast to the tax preparation software ratings, the average ratings on the tax research software remained similar to 2006, with the exception of declines in ratings for cost and customer support. This may be due to the inclusion of a larger proportion of smaller firms and staff accountants in the participant pool. Timely updates and company reliability reflected higher ratings than in 2006.

Respondents ranked the vendors on a scale from 1 (very dissatisfied) to 5 (very satisfied). The average overall rating for all seven vendors was 3.77, very similar to past years. The overall ratings for the vendors used by more than 20 respondents were very similar, too. The rankings of the tax research software fluctuate year to year, but CCH has taken first or second place in the past three years. Use of multiple products may reflect users’ preferences for features that are not available on a single product. It could also reflect the need for a different perspective or second opinion.

Exhibit 4A provides descriptive detail on the tax research software users. Although BNA, CCH, and RIA are used by firms of all sizes, in general, they were used more often by larger firms, while Kleinrock and PPC ratings came from the smaller firms. LexisNexis appeared to be used by firms at the smaller and larger ends of the scale. Kleinrock and PPC received the best cost-satisfaction ratings, which may be related to the preference of smaller firms for these vendors.

Other Technology Issues

The tax preparation and research software industry seems to be focused on several major issues: training and customer support, e-filing and other technological improvements, continued integration of vendors and packages, and outsourcing. Exhibits 5, 6, and 7 report survey responses on these issues.

While vendors have been emphasizing training and customer support, and this survey has reported declines in customer support ratings of some vendors, it is interesting that Exhibit 5 indicates that respondents’ median software training time is only five hours; the median number of calls to customer service was 10; and the median time on hold was approximately five minutes. Exhibit 6 indicates that customer support is not considered the most important feature for either tax preparation or research software. Respondents want software that is easy to use, and they don’t want to spend a lot of time on training; they do not want to have to call customer support either. “Plug-and-play” is an attractive feature for many survey participants.

When asked to select the most important feature for tax preparation software, respondents chose ease of use, followed by available features. Although individual ratings varied substantially, ease of use was the modal choice for users of Creative Solutions, Intuit ProSeries, and Lacerte Software. Available features was the modal choice for ATX, CCH ProSystem fx, and RIA GoSystem. Tax research software users, as well as participants who did not indicate use of any particular package, overwhelmingly selected ease of use as the most important feature.

Overall cost ratings have historically received the lowest ratings since the first survey, in 2002. Cost almost always receives the lowest rating for the individual vendors as well. Only 7% of tax preparation software respondents, and 15% of tax research software respondents, selected cost as the most important feature.

Respondents’ use of e-filing maintained a peak of approximately 75% since the prior year, as reported in Exhibit 7. New York State lowered the maximum tax return preparation level required for e-filing in 2006, so most respondents have adopted e-filing. Nationwide, tax professionals are responsible for 70% of the e-filed tax returns. All software vendors listed in Exhibit 2 participate in the IRS’s Federal/State E-file Program.

Many tax software vendor websites, as listed in Exhibit 8, promote tax preparation packages integrated with tax research software, as well as with accounting, payroll, financial planning, and document-management resources. Exhibit 7 shows that 36% of survey participants indicated that they used tax preparation software bundled with other applications, down from 44% in 2006. Half of these respondents reported that the tax software component was more important than the other applications, and another 36% stated that it was of equal importance to the other products. Several tax compliance providers are bundling their products with other vendors’ tax research resources, and 33% of respondents purchased their tax research software in connection with their tax preparation software, up from 17% last year.

More than 94% of respondents indicated that they have not outsourced any of their tax return preparation, but 5% of that group were considering it. The strong push for outsourcing options offered by software vendors has died down, but industry literature indicates that the concept is not going away.

Analysis and Summary

The 2007 survey respondents continue to report satisfaction with both tax preparation and tax research software. The change in the survey population, from senior tax software decision-makers to NYSSCPA members with an interest in tax, broadened the range of responses and generally lowered the overall and individual ratings. Tax compliance partners and managers who select the tax software may want to consider that the employees using the software may not be as satisfied as the individuals making the purchasing decisions.

Although ratings of tax software have decreased slightly, respondents generally express satisfaction with most of their features. Only 12% of respondents indicated future plans to switch tax preparation software, and 16% reported intentions to switch tax research tools. Two areas that saw decreases in ratings (cost and customer support) were not considered by respondents to be the most important features of either tax preparation or research software.

The median hours of training to use tax software (five hours) is relatively low, suggesting that most software packages are already user-friendly, or possibly that users are not taking advantage of all of the functionality that the products offer. Given the number of tax returns that the average respondent prepares, the median of 10 calls to customer support does not seem very high. Furthermore, wait times of five minutes are within reason. Increased training, however, may improve satisfaction with the software and reduce the need for calls to customer support.

Although survey participants’ reported purchases of integrated packages have declined, the percentage of those who acquired tax research software in connection with tax preparation software almost doubled. Additionally, tax preparation software appears to be a major determinant of package choice. Respondents continued to report a high level of e-filing, for both New York State and federal returns. Finally, there was a slight increase in the percentage of respondents who outsourced tax return preparation or were considering it.

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

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