So a few days ago we came across this year-end tax tips video from the fine folks who make TurboTax. However, what caught our eye occurs around the 2:40 mark. New for 2012, TurboTax will be offering free live tax assistance via Enrolled Agents, Tax Attorneys and CPAs. So what’s so significant about this? Well, before there is any speculation, you have to know the back story.
For many years, if you were preparing your taxes you either paid someone to do it or you would get the forms and do it yourself. Many of you will remember grabbing that pencil/eraser and spending hours filling out forms until you couldn’t stand it anymore. And if you don’t remember that, you sure remember your parents doing it! Well, with the proliferation and acceptance of the PC, the rise of tax preparation software began soon afterward. Now if you wanted to do your taxes on your own, you no longer had to spend countless hours to do so.
Gradually over the past 10 years or so, there has been a steady rise in the number of “digitally prepared” returns. The initial assumption is often that the increase is due to a market shift from retail to online preparation. However, Internal Revenue Service statistics show that the growth in digital preparation, which has overwhelmingly benefitted TurboTax, has largely been at the expense of pen-and-paper preparation. Assisted preparation has remained about 60 percent of the market for the past decade, while do-it-yourself has stayed at roughly 40 percent.
So if the market share has remained unchanged, why does it seem like retail preparers have been struggling? Well the short answer is through the loss of certain complimentary bank products (e.g. the Refund Anticipation Loan or RAL), retail preparers have seen revenues decline. Combine that with the fact that the sluggish economy means stagnant job growth (which translates into stagnant tax return growth) and the result is flat to declining performance at your local tax shop. Thus the performance declines of the Blocks and Jackson Hewitt’s of the world really isn’t a result of customer shifts, but more so poor product performance.
So back to the original question, why is Intuits move to hire tax professionals significant? Well, we believe the answer is twofold. Firstly, if the market has always been heavily skewed to assisted or retail preparation, then those customers have been conditioned. When that customer switches to a digital DIY solution and encounters a problem, what is the result? They’ll either call customer service, the IRS or a friend in search of an answer, and in extreme circumstances they may give up on the product and go back to assisted preparation. Thus, we believe that Intuit is trying to address these facts so that converts to their product have a positive experience and will become repeat customers.
The second part of the answer is a little more speculative so it needs to be taken in that context. Over the years, technology has become more integrated into our lives. With that, the ability for the customer to service themselves from any and everywhere has also increased. This has resulted in the decline of the explicit need/desire of customers to venture to a brick and mortar location. Retail tax preparation has lagged on addressing this and hasn’t been quick to embrace “online” service solutions for delivering their product. With that said we believe Intuit is trying to secure market share in what may be the next emerging tax preparation distribution channel; online assisted preparation.
Will this become the “future” in terms of how individuals have their returns prepared? Who knows, but if history is any indication, the retail channel probably won’t retain its prominence in the years to come. While there will always be a need for certain individuals to visit a physical site (e.g. individuals without access to technology, small businesses, etc.), ultimately you will probably see an increased shift towards some hybrid model. Thus the answer to this posts question, we don’t think retail/professional tax preparation is dead, we just think it’s evolving.