It’s tax season. And whether the economy is up or way, way down, most working Americans have to file income tax returns, which is a business model that Intuit has built TurboTax around.
TurboTax, the flagship product of Intuit’s Consumer Tax Division, which is based near Carmel Valley, continues to expand market share as customers migrate to software from paper and pencil and/or more expensive tax preparers.
As of Feb. 14, the company said sales of TurboTax federal units were up 6 percent from last year. It does not provide a breakdown of state unit sales.
“There are 140 million people who have to file a tax return,” said Dan Maurer, general manager of the Consumer Tax Division. “Even if it’s a recessionary year, you still have to play. The question is, ‘What’s the easiest way to file?’ ”
Maurer says software sales account for 30 percent of the $20 billion market for tax preparation services. Professional preparers account for 50 percent of the market.
He considers H & R; Block, which offers storefront as well as online services, and TaxACT.com, owned by 2nd Story Software, his major competitors.
All three providers offer retail software and Web versions, along with a free version for those who only file the basic 1040 form.
Last year, 27 million people filed electronic tax returns, a 19 percent increase over 2007, according to the Internal Revenue Service.
The federal government provides most electronic forms that taxpayers can e-file for free, and it sponsors free e-filing services through private partners such as TurboTax for households with an adjusted gross income below $56,000 in 2008.
“A lot of people that go to a tax store don’t really enjoy the experience. They’ve brought all their tax documents; they’re sitting down next to someone else explaining what’s on their documents,” Maurer said.
Fraction Of The Time
Meanwhile, he claims that TurboTax software , which suggests all possible deductions and credits using an easy to understand question process , takes a fraction of the time compared with manual forms.
“It walks you through the process without realizing it with over 300 deductions and credits,” Maurer said. “I don’t know that any human that can fill out all the forms that see if you qualify for those.”
Intuit does not release specific market share, but Maurer says TurboTax unit sales exceed half its software sales.
Local CPA Rob Houskeeper says he’s lost a couple of clients this season to tax software. They were both retirees living on their shrinking IRA income. However, the bulk of his clients earn $150,000 to $250,000, with complicated estates, trusts and corporations.
“None of them have come in and said, ‘I’m going to do TurboTax.’ So far, it’s the retirees, where they’re saving money,” said Houskeeper, who teaches managerial accounting at San Diego State University.
Tax preparers who crank out easy returns for $250 apiece probably are losing customers, he says.
“My main concern is larger clients where they’re not likely to use TurboTax for their returns, but the question is: Are they still going to be in business,” he said.
Intuit has been in San Diego since its 1993 acquisition of ChipSoft, which owned TurboTax. Mountain View-based Intuit has 1,100 local employees , including 700 in the Consumer Tax Division that also includes the popular Quicken accounting software.
Last year, Intuit reported sales of $3.1 billion , with a quarter of the revenue coming from the Consumer Tax Division. The company recently opened a campus near Highway 56 and owns its own data center in San Diego.
Weather The Storm
But like everyone else, Intuit is trying to weather the economic storm. Earnings were down last quarter. The company earned 26 cents per share in the quarter ending Jan. 31, compared with 34 cents a share in 2008.
Revenues companywide were down 5 percent from 2008 to $791 million. Revenues for the Consumer Tax Division were $187 million for the quarter, down 25 percent from last year. However, Intuit says the numbers are skewed because more customers are using Online TurboTax, which is expected to generate more revenue in the quarter ending April 30.
Intuit deferred $70 million in revenues from the second quarter to the quarter ending April 30 based on sales for its CD desktop software, which is bundled with five federal e-filing products.
“Every year, we’re seeing a trend where the second-quarter revenue is weaker, and the third quarter is stronger,” said an analyst who asked that his name not be used. “You can see that retail units are either flat or decreasing and their Web units are going up substantially.”
For its Consumer Tax Division, Intuit’s revenue guidance on the year is unchanged at $1 billion to $1.04 billion, or 8 percent to 12 percent growth.
The company says it will have a better idea of the performance of TurboTax after the quarter that ends April 30.