The Fundamentals: Tax research software

August 30, 2024 9:00 AM

With all the software solutions now offered on the market, choosing the right fit for your firm can be highly intimidating, even for those who are technologically inclined. This is why Accounting Today has launched a new series we call The Fundamentals, where we explore the basics of selecting different kinds of software.

The next entry in this series focuses on tax research software, the solutions used by tax professionals to do things like comb through the Tax Code, examine court cases, and learn of new risks and opportunities. Any tax firm that handles clients of even moderate complexity will need this kind of software, but selecting the wrong one might lead to paying a lot of money for a product that makes no difference to the work — or even makes it harder.

This is why we talked to firms with strong tax advisory practices to find out what they look for in their tax research software, as well as their guidance for other professionals who may not know where to start when it comes to buying a software package. They include:

Jeff Bowden, co-leader of the tax department and an executive committee member of Top 100 Firm Anchin;
Travis Hersom, chief information officer for Top 100 Firm Baker Newman Noyes, and Dan Gayer, a tax principal with BNN;
Barry Sunshine, a tax partner with Top 100 Firm Armanino;
Brent McDaniel, chief digital officer with Top 100 Firm Aprio; and,
Deon Harmon, chief growth officer with Davis Davis and Harmon.

Our experts shared their thoughts on the key differentiators for tax software, the have-to-have versus the nice-to-have features, what can be ignored, red flags, green flags, common mistakes, price points and overall advice on selecting the best tax research software.

Key Differentiators

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Before even starting to evaluate tax research packages, firms need to have a clear understanding of what exactly they're evaluating them for in the first place. What makes one solution better than the other? Which differences matter? And which differences don't?

The big differentiator that everyone mentioned is obvious: usability. No one wants to be stuck with software that's clunky and difficult to use — it doesn't matter how powerful a solution is if people can't use it effectively in the first place.

For tax research, another obvious differentiator is content, such as source documents and editorial guidance that helps interpret them, as a solution coming up short in this area can severely limit what an accountant can do for their client. The ability to integrate with other systems is also something people should keep in mind, as nowadays firms make extensive use of software integrations to maintain an efficient workflow and avoid data silos.

Many of our experts also mentioned price as a factor, but it is not the factor technology leaders should look at when evaluating software packages.

Other key differentiators commonly mentioned include:

Features and capacities: How many are there, what are they, and how do they align with your firm's specific business needs?
Industry recognition and reputation: Has the product already proven itself in the marketplace?
System performance and compatibility with existing systems: Does your firm have the right infrastructure to run this solution effectively?
Customer support: How available is customer support and service, does it support multiple channels, and how responsive are company reps to firm needs?
Updates: How often is the software updated or maintained, and how well?
AI: What is the vendor's position on artificial intelligence, how is it integrated into the solution, and can it be interacted with through a natural language interface?
Customizability: How easily can you customize software features to fit your needs?
Firm "fit": Does the software, overall, fit with your firm's objectives, or is it more suitable for a different kind of business?

The Have-to-Haves

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When it comes to the absolutely non-negotiable features — the kinds that any tax research software package worth its sale absolutely needs to have to even be worthy of consideration — content is king. It needs to be current, it needs to be accurate, it needs to be understandable and, above all, it needs to be germane to your firm's particular needs. This pertains not only to the source material in the software itself but also the firm's own internal data, when utilized as an information resource.

What's more, experts agreed that the software should not just deliver the information but be able to contextualize and interpret it in specific situations. The ability to navigate through this information easily, as well as perform searches, is also important with regard to content, as it does little good to have all the information if you can't find where it is.

Other have-to-have features mentioned by our experts include:

Being web or cloud-based, which can help make the technology accessible and keep costs lower relative to desktop applications.
Formal risk assessments aligned to the appropriate industry standards.
Robust security features aligned with your firm's cybersecurity strategy, such as a federated login for safeguarding data and ensuring seamless information sharing and compliance.
A well-planned roadmap for future feature releases to ensure long-term viability and relevance.
Hyperlinking within documents that allows users to navigate seamlessly between related statutes or cases.
A customizable newsfeed that keeps users up to date and provides analysis for significant new tax legislation.
The ability to export data, supporting not just PDFs but word processing formats like Microsoft Word.
AI-enabled features.

The Nice-to-Haves

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This question drew a wide array of answers in contrast to the relative uniformity we saw with the previous question. The only real point of commonality cited by several experts was that, while not strictly necessary, having at least some integrations with other solutions makes things a lot easier, whether that be with highly specialized tools focused on particular industries, or with the firm's own workpaper and tax prep software. Firms often use many different solutions, and the ability for them to communicate with each other can be vital to an efficient workflow. Without them, professionals are stuck constantly switching between logins and applications, which eats up time better spent on tax research.

Other nice-to-have features named by our experts include:

Mobile functionality, whether via app or web, which provides on-the-go access to information.
Collaboration tools that allow users to integrate results into client deliverables easily.
Usage history that shows prior searches and enables bookmarking of search results.
Plugins that integrate the research platform into regular internet browser searches.
Decision-tree tools that analyze common questions.
AI and/or expert-drafted client letters and memos on common technical topics that can be customized for particular situations.
API support for federated search engines, particularly if a firm uses multiple search products.
Reports and dashboards that provide visualization of research content.
Workflow or task automation.
Annotation tools that allow users to highlight, take notes and make comments directly on documents, especially if they are integrated with other tools.
The ability to customize the user interface.

The Red Flags

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The red flag most commonly cited by our experts has less to do with the product itself and more to do with who is selling it: poor customer service and support. This extends to every aspect of the firm's relationship with the vendor, including implementation support, IT troubleshooting, staff training and even later upgrades. If it's clear a vendor does not care about the firm, why should the firm care about their products?

Technology leaders felt the best vendors are the ones who form an ongoing relationship that provides robust support without having to jump through a thousand hoops or wait on hold all afternoon. Similarly, if the company has consistently poor feedback from customers, especially in critical areas like support and reliability, it might be seen as a good indication to find an alternative.

Other red flags that scream "Stay away!" include:

The software hasn't been updated recently and there don't seem to be plans for doing so in the near future.
Content is not updated in response to legislative or regulatory changes.
Updates that seem too good to be true, which often indicates underdelivery.
Rigidity in customizations.
A closed architecture that has not embraced cloud or API strategies, which could indicate an immature platform with limited resources.
Lack of primary source citation, especially when using AI systems.
Complete lack of AI systems, which indicates not keeping up with modern advances.
A complete and exclusive reliance on AI systems.
No clear future vision or roadmap, suggesting the software may not evolve to meet future requirements.
No advanced search capabilities.

The Green Flags

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Unsurprisingly, many of the green flags that indicate a quality product were inversions of the red flags, especially when it comes to customer relations.

Several of our experts cited openness and transparency as positive indicators that a vendor would be worth their time. This includes being upfront and clear about their pricing, with no hidden fees; being open about their product roadmaps for future development as well as their long-term development strategy; and honest in their compliance with hitting delivery dates.

Similarly, just as poor support was seen as a red flag, good onboarding with comprehensive training resources plus responsive support teams are a positive sign. Technology leaders also recommended looking for good reviews, not just online but from peers.

Other green flags include:

The ability to actually test the software before committing to a purchase.
The vendor understands how a tax practice actually works, and backs this up with information and resources fitted specifically to one.
A good balance between efficiency and comprehension so you can conduct research properly without having to wade through irrelevant information.
The vendor has the resources to invest in AI.
Integration with other software applications in the domain.
An intuitive user interface.
Widespread adoption among firms.
Consideration of various levels of tech-savviness when it comes to use.

The biggest mistakes

When it comes to the common pitfalls and mistakes firms make when selecting tax research software, two things were raised over and over by our experts. The first is not taking the time to fully understand what it is the firm is, or is not, buying. Firms need to have a clear understanding of what specific problem they are trying to solve in order to even determine whether a particular software package is the answer, which often has to do with the size of a firm and the composition of its client base. A poor fit on either front will just lead to complications down the road.

The other point mentioned over and over again was that while price is important, it must not be the only factor considered when evaluating software packages. More than anything, a firm should absolutely not simply go with the cheapest option possible: Cheaper software might save money, but can extract even greater costs in terms of inefficiencies.

Other common mistakes include:

Having multiple solutions doing the same or similar tasks.
Selecting software that does not integrate well with existing systems.
Selecting software with too many features that will never get used.
Not considering change management, especially how much people will need training on the new system.
Not getting buy-in on the new system from the staff.
Thinking of tax research as a standalone product versus something intertwined with other software and the work the firm does on a regular basis.
Not transitioning to newer, more effective platforms once it's clear the current one no longer meets their needs.

Price

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Prices for tax research software can vary widely based on the size of a firm, what features are used, and how comprehensive the solution is.

Depending on what's needed, firms could pay anywhere from a few thousand for bargain software to a few hundred thousand for high-end packages. And even within these categories, there is still great variation on price. As a result, many of our experts declined to name specific dollar figures, though many reiterated the point that it's not a good idea to go solely for the cheapest option.

Deon Harmon of Davis Davis and Harmon, said that a midsized firm with 10 to 20 tax professionals looking for a bargain option might expect to pay between $4,000 and $8,000 annually. An average priced solution with more features might range from $15,000 to $50,000 per year for a same size firm, the cost depending on user licenses, scope of services, cloud compatibility and other factors. Those pursuing a premium solution with powerful features might expect to pay between $100,000 to $200,000 annually.
Travis Hersom, from BNN, said that firms might expect to pay $100,000 or more for higher-end solutions. Theoretically, if one only uses public research tools, like Microsoft Copilot, the cost could be $0 but he did not recommend people do this.
Barry Sunshine from Armanino said that, for a larger firm with complex needs, costs can escalate into the mid-five figures depending on the number of users; for enterprise firms, this can go into the six figures. Limiting the number of people with access can help control costs, but this must be weighed against firm needs.

Other Recommendations

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Beyond the guidance already offered, our experts made the following recommendations to firm leaders:

Anchin's Jeff Bowden: "Do your due diligence. Assess solutions using the information provided in the above responses to ensure you are selecting a software package that meets your firm's needs today and in the future."
BNN's Travis Hersom: "Selecting a solution that keeps its data set current is critical. Take the time to comprehensively identify the requirements and desired outcomes of your approach to enhancing your services through a software/solution acquisition. Firms should also have a thoughtful change management strategy defined as you embark on the implementation of any new technology."
Armanino's Barry Sunshine: "For most firms, the first step should be determining the specific services and work you perform and the research gaps you currently have, then build a software library that supports those areas effectively. Firm leaders must be forward-looking and demand that any software products include AI capabilities in the very near future."
Aprio's Brent McDaniel: "The key is to ensure a solid return on investment. The software should fit seamlessly into the firm's existing architecture, integrate well with other applications, and maintain high security standards. It's essential to choose a solution that not only meets current needs but also has the potential to scale and evolve with the firm's future requirements. Prioritizing usability, support, and a clear development roadmap will help make an informed and strategic decision."
Davis Davis and Harmon's Deon Harmon: "Evaluate different pricing packages, and consider a la carte options to avoid paying for unnecessary tax types or states. A practical tip is to always request a trial period if it's not already offered, and test multiple software options with the same research tasks to ensure a fair comparison. [Also], don't hesitate to negotiate or ask for a discount, especially with more expensive packages. There's often room for flexibility since firms typically stay with a selected platform for an extended period, and transitioning to new software is a process no firm wants to undertake frequently."