Users Flood Tax Sites - But Not for Filing

As the April 15th filing deadline approaches, consumers are flocking to tax sites. But according to a new report released by Jupiter Media Metrix (Nasdaq: JMXI), most visitors are doing research rather than filing online.

Online tax preparation may have gotten off to a flying start in the early days, but the growth of online filing has slowed to a crawl, according to the report.

"Despite the fanfare, U.S. taxpayers are not interested in preparing their tax returns online this year," Jupiter analyst Robert Sterling said.

Tepid Growth

According to the Jupiter report, 31 percent of online households intend to file their taxes over the Web this year, up from the 30 percent reported by the Internal Revenue Service (IRS) last year. The IRS plans to receive 80 percent of all returns electronically by 2007.

According to Forrester analyst Jaime Punishill, the online tax market grew 400 percent in 2000 and 140 percent in 2001, but it will grow just 50 percent in 2002.

Punishill said the growth forecast is relatively tepid partly because there have been no major innovations or improvements to generate consumer interest in the online filing option.

Appeals to Pros

In addition, only a few companies are offering free online tax preparation this year. Instead, many are offering small discounts.

Both Sterling and Punishill said there is more online potential in the professional tax-preparation market than in the consumer market. They said professional preparers would welcome an easier way to file on behalf of their clients and may be more comfortable using the Web to do so.

"Professional tax preparers will jump at the opportunity to eliminate redundant and tedious data entry," Punishill said.

Getting Ready

Although online filing is showing little growth, Sterling said, Web users are flocking to tax sites to prepare for the tax filing process.

Unique visits to tax sites rose from 3.1 million in October to 16.5 million in February, according to Jupiter.

The most popular site was Intuit, with 6.2 million unique visitors in February, followed by TurboTax with 5.3 million and H&R Block with 3.7 million.

TurboTax was the most popular online filing service, with 5.1 percent of survey respondents planning to use it to file their 2001 taxes -- the same percentage that used it for 2000 taxes.

H&R Block came in second, with 1 percent of respondents planning to use its online filing program, up from 0.6 percent last year.