Taxpayers Resisting the Lure of Online Prep

Trying to figure out what’s going on with online tax filing this year is a
taxing job in and of itself.

There are bunches of stats floating around out there, and we’ve all learned
by now that one company’s statistics can be another company’s accounting
errors. Can you say “pro forma”?

In any case, the mish-mash even has the IRS a bit worried. While 13 percent
more people filed electronically last year than the year before, the IRS is
worried that the rate of growth may be slowing. Its goal is to get 80 percent
of individual federal returns electronically by 2007, and it has a long way
to go.

Things may get better, but Jupiter Media Metrix says that in essence,
taxpayers are showing little interest in online tax prep this year.

The analysis and measurement firm says that doing-it-yourself online “has
failed to develop as a significant alternative to software-based and
professional tax preparation methods.”

One has to be careful here not to confuse apples and oranges, because there
are now multiple ways to file your taxes, and sales of software programs to
help folks prepare their 1040s are doing quite well.

And as the rush to April 15 began in earnest, traffic to online tax sites has
climbed. For the week ending April 7, jumped 51 percent in
traffic to 338,000 Web surfers as compared to 224,000 visitors the week
prior, according to Nielsen//NetRatings.

Traffic to soared 46 percent week-over-week to 534,000 surfers.
Traffic to grew 28 percent to more than 1.2 million, NetRatings said.

“With just a few days to go before the tax deadline, the Web expedites the
filing process and makes tax preparation less burdensome, giving surfers
added incentive to e-file,” says said Patrick Thomas, senior Internet analyst
at NetRatings.

But of course, there are a lot of nervous folks out there just surfing around
to see what help is available. And not all of those visitors are doing their
taxes online.

In fact, Jupiter’s survey, in February, found little year-over-year change in
the percentage of online consumers who prepare their tax returns using the
Web: 5.1 percent used TurboTax for the Web last year and the same percent
plan to use it this year; 0.6 percent used H&R Block’s “Do-It-Yourself
Online” last year and one percent plan to use it this year.

“Despite the fanfare, U.S. taxpayers are not interested in preparing their
tax returns online this year,” said Robert Sterling, Jupiter senior analyst.
“However, the news is not all bad. While the Web is a letdown as a
preparation vehicle, it is showing ever-greater potential as a preparation
resource. Media Metrix data show significant traffic
growth and depth of use at the major tax sites.”

Jupiter said that just under 31 percent of online households plan to file
their tax returns electronically this year, compared with the 30 percent of
all tax returns the IRS claimed were filed electronically last year.

Traffic to the various tax prep sites, including, of course, continues to show good
volume as people prowl around the Web, looking for answers. Media Metrix said
there were more than 112 million unique visitors (all told) to the various
tax sites in February.

Among the tax sites, drew 6 million visitors that month, drew 5.2 million and drew 3.7 million visitors,
according to Media Metrix. drew 6 million visitors in January,
according to Nielsen/NetRatings.

But lots and lots of these folks are “just looking.”

“Online tax preparation providers should concentrate marketing and product
development efforts on the tax preparers,” Sterling said. “There are still
great opportunities in automating data transfer between financial
institutions and accountants and in creating collaborative tools for
financial professionals to better manage client relationships year round.”

Meanwhile, NPDTechworld’s weekly retail software market tracking report shows
that for the current tax season (December 2001 to February 2002) unit sales
of tax software through retail outlets are up nine percent in year-over-year

From December 2001 to February of this year, 6 million units of tax software
sold through retail compared with 5.5 million units the year before, the
market information company said.

This translates to $181 million in revenue, compared with $146 million.

“Is there more growth on the horizon for this category? I think so,” said
Steve Koenig, senior analyst at NPDTechworld. “With extremely low
price points and unbelievable rebates on tax software, more and more
consumers are having a hard time avoiding these incredible deals and are
discovering the ease of doing taxes on the PC.”

As in previous years, Intuit dominates the market with its Turbo Tax and
Turbo Tax Deluxe titles, NPDTechworld said. Intuit currently commands 69
percent of the market in terms of unit sales and 78 percent of revenues
generated from tax software. Leading the charge is Turbo Tax 2001 Deluxe,
which alone carries 29 percent of unit sales and 37 percent of revenue this

Block Financial, Intuit’s closest competitor, maintained the market share it
built last year, by once again offering a lower average selling price.
Block’s market share based on year-to-date sales in 2002 is 31 percent of
units and 22 percent of dollar volumes.

Interestingly, the IRS’s salvation (what a strange phrase that is, huh?) may
come with the gradual increase in electronic filing by professional tax

“Professional accountants and tax preparers are getting on the e-file
bandwagon,” said Dan Manack, vice president of Intuit’s Professional Products
Group. “They have more clients asking for e-filing services and the benefits
to professionals are great — reduced paperwork, increased accuracy, filing
verification and fast refunds for their clients.”

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