Back in the day when electronic tax return filing began, everyone charged a fee for electronic filing. The firm I worked at charged $30, largely because – like many smaller firms – we didn’t actually do the filing. We would send the file off to a third party provider, who charged us $25 a return. Like most electronics and software, as more players entered the market, the cost dropped, and before long we were able to do our own e-filing. While the cost still wasn’t free, it was considerably less, and by then the cost was no longer a separate line item – it had been built into the overhead (it helped when the IRS started pushing firms to e-file). Surprisingly, while many firms have followed suit and built-in the e-filing costs, some small firms (one near me comes immediately to mind) still separately charge clients to e-file returns.

Early on, states recognized how e-filing could be beneficial – it sped up processing time, allowed for intergovernmental crosschecking (now your state could see if you were telling them the same thing you were telling the IRS) and saved money be requiring less staff. So to encourage people to e-file – and to take advantage of the increasing number of people self-preparing electronically – states began offering their own e-file programs, usually limited to people of a certain type (say, singles with incomes below certain dollar amount, or people filing ‘basic’ returns (no Schedule D, etc.)). This, of course, competes with the paid service offered by firms like Intuit, which means that instead of offering programs like TurboTax at a slight loss or breakeven price (and making it up on the e-file fees), they will have to make it profitable. Of course, this will inevitably mean lost sales (because some people are price sensitive), so things could get interesting.

Or…you could do what Intuit seems to be doing. Hire lobbyists to kill the free e-file programs. That way, you force users to use your e-file program, which you offer free to certain users at first, then slowly and quietly push the ‘better’ prospects – those who could afford to pay, such as a single person making $125,000.00 – into the paid e-filing. Don’t think it will happen? Don’t bet on it. It will be interesting to see how this plays out, and if Intuit can force other states to do the same.