A Hard Look at Tax Software: 2004 Survey of New York State Practitioners

By Susan B. Anders and Carol M. Fischer

Tax practice continues to evolve as professional accountants incorporate technology into their practices to better serve their clients. The third annual survey of New York State tax practitioners was expanded in two respects:

• The authors surveyed a larger number of local and regional practitioners; and
• In addition to soliciting respondents’ ratings of individual tax preparation and tax research software, this year’s survey included questions on entity tax preparation software.

The study also obtained information about how tax practitioners use Internet resources and develop their own websites to better meet the needs of their clients. The survey was mailed to approximately 500 New York State practitioners selected from online listings and CPA directories. A total of 235 usable surveys (47% response rate) were returned and analyzed. Exhibit 1 presents a profile of the respondents. This profile demonstrates that most survey respondents would be characterized as representing small to medium-sized firms, with a median of 600 individual and 200 entity returns filed each year by five full-time tax practitioners in a firm in which 50% of the professional practice is in tax.

Individual Tax Preparation Software

For the third consecutive year, survey respondents rated the individual tax preparation software used in their practices quite favorably. Users ranked the vendors on a scale from 1 (very dissatisfied) to 5 (very satisfied). Important considerations in choosing a tax software package or an online service include cost, user friendliness, customer support, available features, updates, state tax software, company reliability, and user familiarity. The survey instrument listed 21 of the most commonly used commercial tax return software vendors, based on a review of print and electronic media.

Respondents were asked to write in the name of any package they used that was not listed on the survey. All 235 respondents indicated that they used at least one tax preparation software package. Respondents reported using 12 of the 21 tax return software companies; ratings for these 12 vendors are summarized in Exhibit 2.

Because some respondents used more than one software package, more than 235 ratings were analyzed. On average, respondents had been using their software package for more than 8 1/2 years. The average overall satisfaction rating for the 12 software packages rated by this year’s respondents was 4.21, indicating that the average respondent was highly satisfied. Consistent with previous years, the lowest overall rated category was satisfaction with cost.

More than 60% of the ratings received were for two software packages: CCH ProSystem fx (89 ratings) and Lacerte Software (77 ratings). These packages also received the two highest overall ratings (4.35 for Lacerte; 4.32 for CCH ProSystem fx). Ratings of individual features, also provided in Exhibit 2, are consistent with overall ratings, suggesting that respondents were generally satisfied with all aspects of the tax preparation software. While some users were dissatisfied with cost, they were generally very satisfied with features such as ease of use and customer support. With few exceptions, the average ratings of virtually all features for all software packages were higher than 3.

Three other packages received 10 or more ratings: Creative Solutions (38 ratings), Intuit ProSeries (28 ratings), and RIA GoSystem (14 ratings). All three of these products earned relatively high ratings. Because Accountants World, ATX Forms, Drake Software, Laser Systems TaxWorks, Tax$imple, Turbo Tax, and Universal Tax Wise were each evaluated by fewer than 10 users, the ratings for these vendors should be interpreted with caution.

For the five packages rated by more than 10 survey respondents, the ratings of individual dimensions and overall satisfaction were remarkably similar to the ratings for these packages in previous years. Exhibit 3 provides descriptive detail on the tax preparation software users for the packages rated by more than 10 respondents. While CCH ProSystem, Lacerte Software, and RIA GoSystem were used by firms in all size categories, their respondents represent some of the larger firms in the sample. Intuit ProSeries and Creative Solutions were generally used by firms preparing fewer returns, with fewer full-time tax preparers, and with 25% or more of their practice in tax.

Entity Tax Preparation Software

Survey respondents were also asked to rate the entity tax preparation software they used. This was a new line of questioning; the survey instrument listed 22 of the most commonly used tax return software vendors. Respondents were asked to write in the name of any package they used that was not listed on the survey. Most respondents indicated that they used at least one entity tax preparation software package. More than 87% of the respondents used the same vendor for both individual and entity software, while 8% used different vendors. Respondents reported using 15 different packages; the ratings for these vendors are summarized in Exhibit 4. The discussion focuses on packages rated by 10 or more respondents; although ratings for packages with fewer than 10 users are reported, they should be interpreted with caution.

Similar to individual tax preparation software, respondents generally rated themselves as being quite familiar with the entity software, using a package for an average of 8.4 years. The overall satisfaction rating of 4.18 is almost identical to individual tax preparation software.

More than 10 ratings were received for five different packages: CCH ProSystem fx (83 ratings), Lacerte (74 ratings), Creative Solutions (32 ratings), Intuit ProSeries (24 ratings), and RIA GoSystem (14 ratings). As with the individual tax preparation software, the top-rated vendor was Lacerte, with an overall rating of 4.32, closely followed by CCH ProSystem fx at 4.28. The only package with an overall rating below 4.0 was Intuit ProSeries at 3.88. Ratings of individual dimensions were generally quite favorable, with only cost receiving average ratings below 4.0.

Exhibit 5 presents firm information for the entity tax preparation software users for the packages rated by more than 10 respondents. Creative Solutions and Intuit ProSeries software were used almost exclusively by firms preparing fewer than 500 entity returns and with fewer full-time tax preparers than the others. CCH ProSystem and Lacerte software were used by firms in all size categories. RIA GoSystem appears to be used to a greater extent by larger firms.

Tax Research Software

This study also asked whether practitioners used tax research software to facilitate legal research. The survey instrument listed nine of the most commonly used tax research software vendors, based on a review of print and electronic media. Respondents were asked to write in the name of any package they used that was not listed on the survey. Most respondents indicated that they used at least one tax research software package, and many respondents used more than one package. In total, 395 ratings were received for the nine vendors (Exhibit 6). CCH had the most users, at 96, followed by RIA, BNA, Kleinrock, and PPC, all of which had more than 40 users, and Tax Analysts with 12 users. The other three vendors had fewer than 10 users; thus, their ratings should be interpreted with caution.

Again, users ranked the vendors on a scale from 1 (very dissatisfied) to 5 (very satisfied). The average overall rating for all nine vendors was 3.79, compared to overall ratings in previous surveys of 3.88 (2003) and 4.01 (2002). All of the average ratings on individual dimensions exceeded 3, however, and the average ratings for every individual dimension except familiarity were the same or actually increased relative to 2003. Most of the individual dimension ratings have slipped somewhat from the original 2002 ratings, but the decline is relatively small.

The overall ratings for the vendors used by more than 10 respondents were similar, ranging from the highest rated, PPC, at 3.87, to CCH (which was rated first in 2003), with a rating of 3.76. While survey respondents are not as satisfied with tax research software as they are with tax preparation software, this may be due to the less-structured nature of the questions that are addressed using tax research software, making it generally more challenging to satisfactorily resolve issues using this resource. In addition, firms are more likely to use multiple tax research software packages than multiple tax preparation packages.

This may afford them a better opportunity to make direct comparisons of the different features in the packages, or may preclude their developing a greater familiarity with a particular product. Use of multiple packages may also reflect users’ dissatisfaction with any single tax research software package to meet all of their needs.

Relative to the ratings from previous years, the overall satisfaction ratings for the tax research software are more volatile. This may be due in part to a large increase in the sample size from 84 (2002) to 168 (2003) to 395 ratings (2004). While only 8% to 9% of respondents indicated plans to switch tax preparation software, 13% plan to change their tax research software.

Exhibit 7 provides descriptive detail on tax research software users. The majority of the firms using the Tax Analysts software prepared fewer than 500 tax returns and had fewer than five full-time tax preparers; Tax Analysts had a larger percentage of users with 75% or more of their practice in tax than any other vendor. Kleinrock, PPC, and RIA were used by firms in all size categories. Compared to other vendors, BNA and CCH were used more often by larger firms, as measured by both individual returns prepared and full-time tax preparers.

Further information on the software vendors included in the survey can be found on their websites, listed in Exhibit 8.

Other Technology Solutions

Exhibit 9 summarizes responses to survey questions related to issues beyond the choice of tax return or tax research software. For most questions, the 2004 survey results are similar to those in 2003. While only 46% of the 2002 survey respondents filed individual returns electronically, 64% of both the 2003 and 2004 respondents indicated that they filed individual returns electronically. The percentage of respondents already using an online organizer has remained relatively stable, with 13% of respondents indicating that they did this in 2004; however, there has been a continued increase in respondents planning to use one soon: 40% in 2004, as compared to 36% in 2003 and 32% in 2002. Fewer tax practitioners express an interest in processing returns via an application service provider, and only 12% took advantage of this technology in 2004. Many tax practitioners and their clients may still have concerns about the degree of security provided by web-based data transmittal and information processing.

The majority of respondents purchased CD-ROM–based tax research software in 2004, and an increased percentage of respondents conducted tax research via a proprietary Internet site. Most respondents have also developed their own websites to better serve their clients. Exhibit 10 summarizes the extent to which New York practitioners who responded to this survey use the Internet as a form of outreach to clients and potential clients. The reasons for creating a website have not changed much over the three years of this survey, but the commitment to using firm websites appears to be strong, as the majority of respondents use the website for multiple purposes.

Analysis and Summary

The 2004 survey respondents reported a high level of satisfaction with both individual and entity tax preparation software. Although ratings of tax research software have slipped somewhat, respondents still rate these products relatively positively. Survey participants also indicated a relatively high level of reliance on the Internet in their tax practices, as well as use of a firm website. While it is likely that computer-savvy practitioners would be more inclined to respond to the survey, a response rate of almost 50%, combined with a larger sample size, provides evidence that New York State practitioners are embracing technology to better meet the needs of their clients and to position themselves for the future. For practitioners considering tax preparation or research software, the ratings provide valuable information on their colleagues’ opinions.

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