A Clear Look at Tax Software
2008 Annual Survey of New York State Practitioners

By Susan B. Anders and Carol M. Fischer

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The survey used an online questionnaire format for the second year, providing an opportunity for a broad range of respondents to participate. Although the current survey asked many of the same questions that have been addressed in previous years, some questions were omitted or modified, and new questions were added, asking respondents to rank the most important software features for both tax compliance and tax research software, for processing tax returns online, and for furnishing tax returns to clients via the Internet.

Market Trends

The dominant vendors in the national tax software market continue to be CCH, Intuit, and Thomson. These vendors’ products represent 245 of the 266 (92.1%) tax preparation package ratings, and 204 of the 264 (77.3%) tax research software package ratings reported by this year’s respondents. Each vendor offers multiple tax preparation or tax research products.

The tax software industry continues to consolidate while using product differentiation to try to reach market segments. In recent years, CCH acquired ATX/Kleinrock to attract the low-cost, mid-sized-firm market, and TaxWise to attract smaller-firm, mid-range-cost customers. These acquisitions balanced CCH’s higher-end ProSystem fx and Tax Research Network products. Intuit’s mid-priced ProSeries is aimed at practitioners interested in tax-only software; its higher-end integrated Lacerte line is aimed at those looking for full-service accounting products. Thomson takes a similar approach. Its GoSystem Tax RS focuses on tax compliance, and its UltraTax CS within its CS suite focuses on accounting resources, both of which are in the higher-cost range. Thomson covers tax research with its low-cost PPC, in contrast to its higher-end RIA, and provides access to these two and other research products on its Checkpoint platform. The “Big Three” are not the only active acquisitive developers, however: H&R Block purchased TaxWorks, renaming the company RedGear Technologies. Interestingly, Block does not use TaxWorks in its own offices.

Methodology

The 2008 questionnaire was e-mailed to approximately 5,000 practitioners from the New York State Society of CPAs’ database of members with an interest in tax. A total of 245 usable surveys were returned, an increase over most prior years. With the advent of the online survey in 2007, it is likely that many more of 2007 and 2008 responses were provided by individuals who use the software on a day-to-day basis, including those who were not involved in the software selection process.

A profile of respondents (Exhibit 1) indicates that the 2008 survey respondents resemble those who responded in previous years, but provide greater representation of both smaller and larger practitioners and greater variation in size. The 2008 respondents also reported a higher number of tax-season professionals, but a lower percentage of their professional practice in tax, possibly indicating a broader range of participants.

Since this annual tax software survey began, participants have been shown to be less enthusiastic than software providers about industry trends. With respect to the trend toward marketing integrated product suites, one participant stated: “More and more tax software providers are trying to become one-stop shops. While this certainly has the ability to allow for ease of transfer of data, it is also very scary to become increasingly dependent on the same provider for most of my software needs.”

Survey respondents continue to rate “ease of use” as the most important feature of both tax preparation and tax research software, in contrast to vendors’ promotion of their technical support and training initiatives. Electronic filing has been a hot topic in tax- software industry publications, and many states have moved to mandate e-filing. CPA Journal survey respondents’ use of e-filing peaked on the 2006 survey before declining last year, but moved up again slightly for 2008.

Tax Preparation Software

Important considerations in choosing a tax software package or an online service include cost, ease of use, customer support, available features, timely updates, and user familiarity. Participants ranked the vendors on each factor using a scale from 1 (very dissatisfied) to 5 (very satisfied). Ratings for tax preparation software were favorable, generally consistent with prior years. Overall ratings for all factors increased slightly from 2007, heading back toward the 2002–2006 means. Ratings of each feature 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 18 of the most commonly used commercial tax-return software vendors, based on a review of print and electronic media. Approximately 86% of the 245 respondents indicated that they used at least one individual tax-preparation software package, and 18% rated more than one product. In total, 266 ratings were analyzed. The respondents reported using 12 out of the 18 tax return software packages; the ratings for these 12 vendors are summarized in Exhibit 2.

The mean overall satisfaction rating for the 12 software packages for 2008 was 3.97, as compared to the 2007 weighted average rating of 3.87, and the 2002–2006 mean of 4.12. On average, respondents were satisfied with the tax preparation software that they have been using, although ratings for some vendors declined while others increased. For some packages with a declining overall rating, the familiarity rating decreased as well. Respondents have previously expressed a preference for “plug and play,” and tax compliance partners may want to address the issue of staff training on tax preparation software.

Cost continues to be the least satisfactory feature of many tax preparation software packages. The overall cost rating increased, driven by improvements by ATX, GoSystem Tax RS, Intuit ProSeries, Lacerte Tax, and UltraTax CS. CCH ProSystem fx was the only product receiving 10 or more responses whose cost rating decreased.

More than 50% of the ratings received were for two software packages: CCH ProSystem fx (78 ratings) and Lacerte Tax (58 ratings), two of the higher-priced providers. In fact, CCH ProSystem fx and Lacerte Software have historically alternated in the number one and two spots for highest overall ratings. For 2008, however, UltraTax CS took over the number two position from CCH ProSystem fx.

In addition to CCH ProSystem fx and Lacerte Tax, four others received more than 10 ratings: ATX (13 ratings), GoSystem Tax RS (20), Intuit ProSeries (43), and UltraTax CS (33). Discussion of specific ratings and features will focus on these six packages. Drake Software, RedGear Tax Works, 2nd Story TaxACT, Tax$imple, TaxSlayer Pro, and TaxWise were each evaluated by fewer than 10 users; thus, the ratings for these vendors are presented for completeness, but should be interpreted with caution.

In terms of the overall rating, Lacerte Tax at 4.34 was the most highly rated of the packages with more than 10 users. UltraTax CS beat out CCH ProSystem fx for second place with an overall rating of 4.06. There was a substantial drop in the overall rating for third-place CCH ProSystem fx, to 3.88. ATX was close behind with an overall rating of 3.85, followed by GoSystem Tax RS (3.70) and Intuit ProSeries (3.65). ATX and UltraTax CS rebounded from prior declines, while Lacerte Tax’s overall rating has increased in each of the past three years. GoSystem Tax RS has remained constant for that same time period; however, CCH ProSystem fx and Intuit ProSeries have declined.

The increase in the overall ratings was reflected in a similar increase for the ratings of some individual features, also covered in Exhibit 2. Users were on the whole very satisfied, and some packages even showed improvement in cost ratings. The average ratings of most features, except cost, for all software packages were generally higher than 3.5. Customer support, which has been a major industry emphasis, showed an increased rating for GoSystem Tax RS, Lacerte Tax, and UltraTax CS, while ATX and CCH ProSeries fx declined. Survey respondents have previously indicated the importance of ease of use. Only ATX and UltraTax CS’s ratings improved for this feature; the other major rated packages all showed declines.

Exhibit 3 provides descriptive information about the tax preparation software users for the packages rated by more than 10 participants. Respondents rating CCH ProSystem fx, GoSystem Tax RS, Lacerte Tax, and UltraTax CS represent some of the larger firms in the sample, although the software was used by firms in all size categories. GoSystem Tax RS users represented fewer small firms than the other vendors. ATX and Intuit ProSeries 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

Respondents 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, that they used currently or in the recent past. Almost 68% of the respondents used at least one tax research software package, and 23% used more than one package. Survey participants were more likely to use multiple tax research products than multiple tax preparation packages, consistent with published software reviews and past results of this survey. In fact, it was not unusual for respondents to rate three or four tax research vendors. Exhibit 4 summarizes the ratings for these vendors.

In total, 264 ratings were received for the nine vendors. Of the vendors with at least 10 ratings, CCH had the most users at 84, followed by BNA (48), Kleinrock (36), Checkpoint (33), RIA (31), and PPC (20). LexisNexis, Tax Analysts, and Westlaw were rated by fewer than 10 respondents; while their ratings are presented for completeness, they should be interpreted with caution. In contrast to the tax preparation software ratings, the average ratings on the tax research software declined from 2007. For individual vendors, however, some features’ ratings indicated improvements.

Respondents ranked vendors on a scale from 1 (very dissatisfied) to 5 (very satisfied). The average overall rating for all nine vendors was 3.64, a decline from past years. The overall ratings for the vendors used by more than 10 respondents were similar, ranging from highest-rated PPC at 3.85; followed by Checkpoint (3.73), CCH (3.69), and Kleinrock (3.69), tied for third; then BNA (3.57), and RIA (3.32). The overall ratings for BNA, Kleinrock, and PPC improved, while CCH and RIA’s ratings declined. Similar to their related tax-preparation software’s decreases in overall ratings, CCH and RIA’s research resources showed a decrease in familiarity ratings. The order of the overall ratings for the tax research software has fluctuated from year to year, and while CCH has taken first or second place in prior years, it fell to third place in 2008. Checkpoint, Thomson’s research portal with links to both PPC and RIA, had not been included in prior surveys.

Examining the individual feature ratings, participants seem generally satisfied with timely updates and company reliability, although all feature ratings declined from the 2007 survey. Overall ratings for cost (3.26), ease of use (3.39), and customer support (3.41) were all below 3.5. The three providers that showed increases in overall ratings (BNA, Kleinrock, and PPC) showed improvement in at least two of these features. CCH and RIA, with overall rating decreases, had declines in at least two of the three features.

Exhibit 5 provides descriptive detail on the tax research software users. BNA, CCH, and Checkpoint were used by firms of all sizes, but were generally used more often by larger firms. PPC and RIA were most likely to be used by mid-sized firms. Kleinrock ratings came from users of all sizes, but were generally used more often by smaller firms. Kleinrock received the best cost satisfaction ratings, which may be related to a preference of smaller firms for this vendor.

Other Technology Issues

As a broad statement, changes in overall ratings for both tax preparation and tax research software generally run in the same direction as changes in familiarity. Similarly, tax research software products and most tax preparation packages whose overall ratings increased also demonstrated increased ratings in at least two of the following areas: cost, ease of use, and customer support. The industry focus on providing training does not mesh with the median five hours that respondents spend on software training, as reflected in Exhibit 6.

Corresponding to the short average training hours, Exhibit 7 indicates that ease of use is the most important feature for both tax preparation and tax research software users who responded to this survey. Cost, which has historically had the lowest ratings since this survey began, is the second most important feature for tax preparation software, and a close third for tax research software. Customer support comes in at number three for tax preparation software and number five for tax research software. Respondents want software that is easy to use, without substantial training or customer support calls. Interestingly, although familiarity does appear to be linked to overall ratings, it falls to last place among the most important features. This suggests that practitioners are willing to change to a less familiar package if they expect to benefit from improvements in other features.

Respondents’ use of e-filing stayed relatively flat, at around 75%, for the 2006 and 2007 surveys, but increased to 78% for 2008 (Exhibit 8). In responses to new questions added to the survey for 2008, 20% of participants indicated using online tax return software, and 55% send tax returns electronically to at least some of their clients. One respondent praised online preparation and research tools: “I have used Internet-based preparation and research software for the past five years, and would not go back to a local office-based software.”

Many tax software vendor websites (see Exhibit 9) promote tax preparation packages integrated with tax research software, as well as with accounting, payroll, financial planning, and document-management resources. Exhibit 8 shows that 39% of survey participants used tax preparation software bundled with other applications, up from 36% in 2007. Only 41% of these respondents reported that the tax software component was more important than the other applications, and another 43% stated that it was of equal importance. Several tax compliance providers are bundling their products with other vendors’ tax research resources; 30% of respondents purchased their tax research software in connection with their tax preparation software, down from 33% last year.

According to industry reports, payroll processing and payroll tax-return preparation are natural fits for some accounting firms. Regular charge hours, advances in payroll software, and the ability to transmit data over the Internet can make this client service an attractive option for CPAs. Almost 33% of participants provided payroll processing services, but less than 1% indicated plans to do so in the future. More than 83% of respondents prepared payroll tax returns; however, less than 3% processed more than 500 such returns each year.

Industry literature continues to promote outsourcing. Consistent with prior years, more than 94% of respondents indicated that they have not outsourced any tax return preparation, and only 2% of those who did not outsource were considering it. Thus, among survey respondents outsourcing is rare, and some practitioners may not have a good opinion of software vendors who do so, possibly influenced by being on the receiving end of outsourcing. One respondent stated: “Companies that outsource technical or customer support overseas are looked at negatively, and my perception of the vendor will suffer accordingly when these actions are taken.”

Analysis and Summary

Survey respondents indicated continued satisfaction with both tax preparation and tax research software—tax preparation ratings increased slightly, while tax research ratings showed a modest decline. The factors of cost, ease of use, and customer support, as well as familiarity in some cases, seem to have a strong bearing on overall ratings. In a decline from prior years, only 5% of respondents indicated future plans to switch tax preparation software, 2% reported intentions to switch tax research tools, and only 2% planned to switch both.

Ease of use continued to be one of the most important software features. However, increased training and familiarity may improve overall satisfaction with the software and reduce the need for calls to customer support. The median training time (five hours) is relatively low, which suggests that most software packages are already user-friendly.

Survey participants’ reported purchase of integrated packages increased slightly, although the percentage who acquired tax research software in connection with tax preparation software declined. Tax preparation software decreased as a major determinant of package choice. Survey participants reported a slight increase in an already high level of e-filing. The percentage of respondents who outsourced tax return preparation remained flat, and fewer participants indicated they were considering it.

Approximately 50% of survey participants indicated that their turnaround time to prepare tax returns had stayed the same over the past five years, while the other 50% were about evenly split between reporting an increase or a decrease. This may indicate that firms have already achieved good efficiency levels through the use of technology, and that further large-scale improvements in turnaround time are unlikely. Furthermore, respondents’ resistance to outsourcing may be due to concerns about the impact on turnaround time.

The authors appreciate the respondents’ input, which has provided important insights into New York State tax practitioners’ use of technology. Future surveys will continue to explore emerging issues in tax preparation and research resources.

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