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Tax prep software race heats up

Despite being the nation's largest overall tax adviser, H&R Block Inc. is a distant second in the tax preparation software race, chasing  Intuit Inc.'s popular Turbo-Tax, which leads the market with 71 percent.
/ Source: Kansas City Business Journal

Despite being the nation's largest overall tax adviser, H&R Block Inc. is a distant second in the tax preparation software race.

Intuit Inc.'s popular Turbo-Tax leads the market with 71 percent. The company, based in Mountain View, Calif., has specialized in tax prep software for 20 years. Intuit expects to build on TurboTax's 20 percent revenue growth last year with its first nationally televised ad campaign, which started in early January, spokesman Scott Gulbransen said.

"There are still 30 million people who prepare their taxes with paper and pencil," he said. "We think the opportunity for growth is certainly there, and it's huge."

Block may be second, but tax prep software is a two-horse race. TurboTax and TaxCut share 99 percent of an industry that generated about $200 million from selling 6.2 million boxes of software in 2003, market research firm NPD Group Inc. reported.

TaxCut is a key component in Block's stated goal of increasing its client base this tax season by 2 percent to 5 percent, to more than 19.5 million filers. Block got into the software business full force with its 1993 purchase of MECA Software Inc., which developed the original TaxCut.

The 2004 version of TaxCut more effectively leverages access to Block's network of tax professionals, said Chrys Sullivan, Block's director of software products.

Each page of the program provides an "Ask a Tax Advisor" link that allows the user to reach a tax pro via e-mail or by telephone at a rate of $19.95 a topic. The software has a new library of tax tips and churns out a customized report on a client's tax situation, including financial advice on issues such as opening an individual retirement account.

"This year, H&R Block is in a position like no other software company to deliver outstanding tax advice," Sullivan said.

Growth in software and online filing helped drive Block's 2.6 percent increase in pretax income, to $547.1 million, for its U.S. tax operations in fiscal 2003.

Block doesn't share specific numbers for its software business, but the company's preliminary tax season results from last year showed that the number of online and software clients increased 47.9 percent, to more than 2 million. Tax forms prepared in Block offices decreased 3.4 percent last year, to 15.9 million.

On, TaxCut's deluxe 2003 edition sells for $19.95 after a $5 mail-in rebate; TurboTax Premier 2003 sells for $29.95 after a $10 mail-in rebate.

Block Chairman and CEO Mark Ernst said online and software are increasingly important components of overall tax business. Block is unique, he said, in offering customers an integrated solution that includes digital channels, a financial advisory division and 10,000 tax offices.

"People can do business with us in our retail office or our software, or a blend of both," Ernst said.