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Jackson Hewitt, Inc. Business Information, Profile, and History

tax company county offices

339 Jefferson Road
Parsippany, New Jersey 07054
U.S.A.

Company Perspectives:

When it comes to taxes, we all can use a little bit of help--someone to guide us and someone we can trust. With over 3,000 offices nationwide, Jackson Hewitt is committed to the millions of Americans who rely on us as their tax preparer. Fast. Jackson Hewitt will expedite your tax return. With the development of electronic filing as the IRS's preferred method of filing returns, Jackson Hewitt is leading the way with its state-of-the-art computer-based filing capabilities. Electronic filing significantly limits the time it will take for you to receive your return and refund. Accurate. Accuracy is critical. The winning combination of Jackson Hewitt's exclusive ProFiler tax software and more than 10,000 skilled tax professionals ensures we take advantage of all the recent tax law changes. Professional. Possibly in no other area is customer service more important than tax preparation. Jackson Hewitt prides itself on taking care of the customer from the tax interview process to providing timely refund.

History of Jackson Hewitt, Inc.

Jackson Hewitt, Inc. is the second largest tax preparation service in the United States. The company has more than 3,300 franchised outlets in 48 states and the District of Columbia and prepares more than 2.2 million tax returns annually. A quarter of its offices are located inside Wal-Mart and Kmart stores. The company also offers tax refund-anticipation loans, free electronic filing, tax-preparation training, and tax audit representation. Jackson Hewitt was acquired by Cendant Corporation in 1998.

Beginnings

Jackson Hewitt was founded in 1982 by John Hewitt, a former employee of tax-service giant H&R Block. Hewitt, a college dropout, had worked his way up to the position of regional manager after starting with Block in 1969. Feeling that tax preparation could be improved by the use of computers, he worked with his father to create a program that would streamline the client interview process. When they were unable to sell it to Block or other tax services, Hewitt and his wife decided to go into business for themselves. They assembled a group of a dozen investors and purchased the six-location Mel Jackson's Tax Service of Norfolk, Virginia in 1982, later renaming it Jackson Hewitt. For the next several years the company grew slowly, adding a handful of additional outlets.

In 1986, the year the IRS began to experiment with computerized tax filing, Jackson Hewitt began selling franchises. By the following tax season there were 22 offices. In October of 1989 the company received its biggest break to date when the Montgomery Ward department store chain contracted with it to open offices in 169 stores around the country. Ward rival Sears had for years been host to H&R Block in its stores. Unfortunately, the sudden growth surge was too much for Jackson Hewitt to handle, and to avoid entering bankruptcy during the height of tax season the firm closed 67 offices. By the end of 1990 the company had made a return to profitability, however, and eventually opened more locations in Ward stores.

Jackson Hewitt's competitive edge was provided by its Hewtax Software (later known as ProFiler), which took a tax preparer through a series of questions. Each response generated additional queries depending on the answer, a so-called "decision tree" format. An affirmative response to a question about stock ownership, for example, would trigger more specific questions about the stock. The software could also transfer all of the appropriate information to the state tax form from the federal one, as well as yield a completed electronic return that could be filed instantly to expedite a client's refund. Hewitt claimed that use of the software saved it 10 percent in labor costs. It also required less training time for new employees than industry leader Block (which was still not fully computerized) and resulted in more consistent results for customers.

The Number Two Tax Return Preparation Service by 1992

By the 1992 tax season the Jackson Hewitt chain had grown to 515 offices in close to 30 states, up from 299 locations the year before. The company itself owned less than 5 percent of the total. It prepared 311,000 returns for taxpayers during the year, which helped yield annual revenues of $7.4 million and net earnings of $182,000. Industry leader H&R Block was still far larger, with more than 7,000 locations and revenues of $699 million, but Jackson Hewitt had nonetheless become the country's second largest tax preparation chain. The following year saw the company raise $2.5 million in funds for expansion from a venture capital company and move into new headquarters in Virginia Beach, Virginia.

The company's franchisees often came from the ranks of its preparers, ten of which worked at an average outlet. Jackson Hewitt put the seasonal workers through its own "tax school" to prepare them for the 13- to 15-week tax season in the winter and early spring of each year. The school also was offered to the general public for those who wished to learn more about doing their own taxes--and Jackson Hewitt actively recruited from such students to find its own employees. Work as a tax preparer meant long hours and occasional stress as taxpayers argued over the legitimacy of their deductions. The company put boxes of tissue around its offices for clients who became teary-eyed when they did not get the tax breaks they had hoped for. For a franchisee, the startup cost was between $35,000 and $50,000, which included a $20,000 franchise fee and the costs of renting office space and purchasing equipment. Jackson Hewitt took a 12 percent royalty out of the office's earnings, and also charged 6 percent for advertising costs.

The company, with 900 offices in 37 states by 1993, was beginning to get noticed by the media. Jackson Hewitt was ranked 18th best franchiser in Success magazine and was listed as one of Inc. magazine's 500 fastest-growing private companies. The firm soon began making plans to go public, which took place in January of 1994 on the NASDAQ exchange. No new stock was issued, however, with the company's 700 investors' private shares simply converted into public ones. The move was made in part because the firm's accounting requirements were already close to those of public firms, and also to boost its profile to spur more franchise sales. During 1994 Jackson Hewitt experimented with operating several locations as combined tax office/mail service firms, seeking to give the company's franchisees additional sources of revenue during the eight months of the year when there was little work. Most of the company's income came during the fourth quarter of the fiscal year, with losses generally reported for the first three.

In early 1994 Jackson Hewitt made a deal to set up offices in some Sam's Club stores on a trial basis. The company hoped that it would lead to a systemwide contract with sister chain Wal-Mart, which could mean as many as 400 additional locations. The test was a success, and in the fall Jackson Hewitt made plans to open 18 offices in Wal-Mart stores, leasing space for use as combined tax preparation and business/mail service sites. The company also filed suit against H&R Block during the year, alleging that the industry leader's ad slogan "Nothing's Faster, Nothing's Easier" was untrue, as Jackson Hewitt's service was both faster and easier than Block's. The suit was dropped after a federal judge refused to halt the $5.5 million ad campaign.

Problems Caused by Changes in Tax Rules in 1995

Jackson Hewitt received more unwelcome news in 1995 when a change in federal tax rules eliminated an automated "direct deposit indicator" for refunds, which had been used by the firm and its associated lenders to pre-approve clients for the popular refund anticipation loans that were offered for a fee. Income from these loans, which had become a welcome service for many cash-strapped taxpayers, accounted for nearly a quarter of the company's $18.6 million in 1994 annual revenues. After the rule change, Jackson Hewitt was forced to raise its requirements for the loans, which reduced the number of applicants eligible for them. Although many taxpayers were able to switch to the firm's "accelerated check" refunds, this was less profitable for the company. The 1995 tax season proved a difficult one for all concerned, angering those taxpayers who found out they would not get instant tax refunds, as well as others whose checks were partially held back due to additional last-minute IRS rule changes. In some locations customers threatened company employees with violence, and a near-riot at a Florida office required police intervention.

At the end of the 1995 filing season, Jackson Hewitt, "battered" by the effect of the tax rule changes, according to CEO John Hewitt, was hanging on by a thread. The firm's franchisees reportedly had not paid $3.5 million in fees to the company, which soon was nearing default on several loans from NationsBank. During the remainder of the year, 96 offices were closed. There was a management shakeup as well, and the firm began seeking a new CEO, with John Hewitt shifting his focus to long-term strategy from day-to-day operations. In June of 1996 newcomer Keith Alessi, who had most recently served as vice-chairman of supermarket chain Farm Fresh, Inc., was appointed to the top post. Three months later John Hewitt resigned from the company. Vowing to remain in the tax business, Hewitt later announced plans to form tax preparation services in Canada, England, and Australia, with the United States to follow when a two-year noncompete period was over.

The 1996 and 1997 tax seasons saw the company's fortunes improve dramatically, with earnings figures up and franchise numbers jumping from less than 1,400 to about 1,900. The 1997 total included 300 new locations inside Wal-Mart stores, where there were now 500 Jackson Hewitt offices chainwide. Federal tax changes that made filing more complicated played into the company's hand, with more taxpayers feeling the need to seek professional assistance. The firm's stock price began to soar, and one million new shares were offered in the summer, raising more than $18 million. By October the share price had grown tenfold since the beginning of the year, reaching $50.

Acquisition by Cendant in 1997

In December the company announced that it was being acquired by HFS Inc. for $480 million, which further boosted the share price. Before the sale was complete, HFS merged with another firm and changed its name to Cendant Corporation. Cendant owned a number of well-known franchise operations, including Ramada Inn, Days Inn, Avis Rent-A-Car, and realty chains Coldwell Banker and Century 21. In March of 1998, following completion of the acquisition, CEO Keith Alessi left Jackson Hewitt to head financially troubled TeleSpectrum Worldwide Inc. of Pennsylvania. With his stock options and a number of shares purchased on the open market, Alessi reaped a $20 million payoff from his time with Jackson Hewitt.

Under Cendant the company instituted a strategy of aggressive expansion. A total of 1,000 new offices were added by the start of the 1999 tax season, bringing the company up to a total of nearly 3,000. Experiments with kiosk locations in shopping malls and offices at Century 21 real estate agencies also were being tried. A national advertising campaign was soon launched, using the theme "Because you work hard for the money, we're going to work hard for you." The ads were targeted at both general and Hispanic audiences, with several television spots shown during Super Bowl pre-game programs. The company's customer base was, in large part, middle- and low-income taxpayers, many of them Hispanic Americans, who found it worth the typical fee of $100 to $150 to avoid having to navigate the increasingly complicated tax codes, as well as to get an accelerated refund check.

Following the 1999 tax season Jackson Hewitt named Daniel Tarantin president and moved the company's headquarters to Cendant's home base of Parsippany, New Jersey. The company also earmarked $30 million for the acquisition of independent tax preparation offices through Tax Services of America, which was its largest franchisee and partly owned by the firm. The company was now actively selling all of its remaining centrally owned locations. Meanwhile, deposed founder John Hewitt's startup Liberty Tax Service had grown into the third largest tax preparation chain in the United States, and he soon leased the former headquarters site of Jackson Hewitt in Virginia Beach, Virginia, vowing to beat the company that had spurned him.

In 2001 the company began opening offices in Kmart stores around the United States, following a successful trial run in select cities. The year also saw several new initiatives, including the issuance of MasterCard cash cards so customers could draw on their accelerated refund accounts, and the creation of a Premier Tax Service to handle more complicated returns. Some Jackson Hewitt locations began to offer ATM machines where clients could cash their refund checks on-site, as well. Independent tax service acquisitions continued throughout the year, with more than 3,300 offices, owned by 600 franchisees, operational by year's end. The company reported that it had handled a record 2.2 million returns during the 2001 tax season.

With the backing of Cendant, Jackson Hewitt was aggressively nipping at the heels of industry giant H&R Block. The company's future growth would continue to be dependent on the whims of the IRS to some extent, but it appeared clear that increasing numbers of Americans were becoming accustomed to hiring a service to do their taxes and to expedite their refund.

Principal Competitors: H&R Block, Inc.; Liberty Tax Service.

Chronology

  • Key Dates:
  • 1982: John Hewitt and investor group buy six-location Mel Jackson's Tax Service.
  • 1986: Franchising of Jackson Hewitt offices starts.
  • 1989: The company begins to open sites in Montgomery Ward stores.
  • 1992: The firm goes public on the NASDAQ exchange.
  • 1994: Offices begin opening in Sam's Club and Wal-Mart stores.
  • 1996: Keith Alessi is named CEO; John Hewitt leaves the firm.
  • 1998: The company is purchased by Cendant Corporation.
  • 1999: The rate of expansion increases; the company sells its remaining sites to franchisees.
  • 2000: Offices begin opening in Kmart stores.
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