JACKSON HEWITT Franchise Complaints

286 thoughts on “JACKSON HEWITT Franchise Complaints”

• I almost bought a Jackson Hewitt right before last tax season. Thank God i did not since bankruptcy seems to be coming very soon.

• The management of Jackson Hewitt Tax Service is clueless. The industry is changing before JTX Management’s eyes and they couldn’t see it before and certainly cannot see it now.

  Franchisees are either failing left and right or in outright survival mode. MANY, if not shackled by their one-sided franchise agreements, would leave the system and do much better to survive on their own.

• I heard there is no way they will be able to offer RAL is the same 50% of office that did not offer them last year. How can they ever compete with the firms that do?

• If the franchisor cannot offer a RAL this year, a large number of franchisees which are not renewed will simply go independent.

• Michael,

  Wouldn’t they have non-competes for like 2 years even if they don’t renew?

• John;

  1. I am assuming that if there is no RAL, then the franchisor is going into some sort of court supervised reorganization.

  2. Many of the JH franchisees live in states which many enforce the non-competes.

  3. If the franchisor is taken over by a trustee, then I am not sure that they are going to spend any money trying to enforce some non-competes.

  This is legal information and not legal advice, please contact your own franchise attorney.

• Wow, seem like it is a mess! I would hate to be one of the previous successful franchisees who will be hurt from this, through no fault of their own.

• What happens to franchisees if Jackson Hewitt files for bankruptcy? Will they be able to use the name Jackson Hewitt and continue to do business that way or will they lose their business?

• Not sure. They would not lose their independently owned and operated businesses, but they may have to (or want to) flip their signs.

• When a franchisor is in either liquidation/receivership/bankruptcy, then franchisees must be very careful to honor their franchise agreements, get competent legal advice, and organize beforehand.

  Virtually all of your actions are going to be scrutinized by a Court, so don’t engage in self help remedies.

  For example, Herb’s suggestion that the franchisee would have to take down their signs is wrong and may involve contempt of Court.

  Get good legal advice from an experienced attorney as a group.

• Why are there not more franchisees worried about what is going to happen to their business? Seems like a very scary situation. Basically this company went from being one of the top franchises to own to one of the worse in about 2-3 years. What happened?

• John – ALL franchisees are very concerned. I guess they are not posting here since this is the first time I’ve even seen a category for JH on this site. This would be an excellent case study on how NOT to run a franchise. Jim Cramer (even as nutty as he sometimes is) said something so true the other day (paraphrasing): Bad management can do far more damage to a company than 5 or 6 good competitors. Well, JH has been through 3 regimes of bad management and some of the remnants of each one are still around.

  Michael – Good points and to clarify, they may have to flip their signs if JH restructures and the new owner does not pick up their agreement.

• I would guess that most franchisees are not worried about because they just won’t pay their royalties anymore and save 21%. What is the company going to do about it?

  On a separate question, does anyone have any idea how many returns does an average Jackson Hewitt do, or used to do before this mess? I remember a couple of years ago someone trying to sell one of these for $250k, he swore he did $200k in revenues and netted $100k for working 90 days of the year.

• The company has a tough legal department and could sue their franchisees to enforce the contract. In addition, some franchisee tax return fee payments flow through JH and they could withhold their royalties that way.

  Check their annual filings and do some division for per return office averages and I bet the numbers are way down. The recession along with poor, inattentive management is killing this company.

• Well if they are losing money and may file bankruptcy. Don’t you think the legal department will not have enough resources to go after all the franchisees who are not paying their royalties.

• I would imagine that it depends on which type of bankruptcy they would be filing. Bankruptcy does not always mean “game over.” If it is a restructuring, then the court and the debtors will do everything possible to collect and maintain their cash flow. I don’t know what would happen in a full bankruptcy.

  Again, JH (franchiser) has franchisee tax return fee payments that flow through them and they have the right (and have exercised it in the past) to withhold their unpaid royalties.

• Just out of curiosity, what do you get from Jackson Hewitt after paying 21% in royalties?

• Lately…a whole lot of grief…plus tax software (preparation and office management), use of the brand and “operating system,” operations and tax support, an over-priced bank product deal (assuming they even have something for everyone), and marketing spend/support (6% of the 21% goes to support the marketing department plus some media spend).

• What is JH Franchisees liability for tax return errors if the client did not purchase the Gold Garantee?

• Jackson Hewitt Franchisees are supposed to cover 100% of all penalties and interest from the date of error discovery, which is usually an IRS Letter. I think there are some provisions that the Franchisor will cover in the event of software errors. Some Franchisees are pro-active and review returns that tend to be more error-prone to increase accuracy and decrease potential P&I. In addition, Jackson Hewitt’s software has some built-in error/audit checking capabilities. In a properly run operation, P&I should be a very low cost of doing business.

• Will Jackson Hewitt be offering RALs in all their stores? I heard HR Block will offer through HSBC and Liberty Tax Service through Republic but JH will only have it in 50% of stores. Isn’t this a competitive disadvantage?

• RALs are scarce in the industry right now. To my knowledge no RAL program has been officially announced for any RAL Bank. HSBC is being sued by H&R Block. HSBC has wanted out of the deal with Block for years and is likely using the excuse of the IRS removing DI to play their hand. This industry can go in many directions at this point. Two things are for certain: 1) the government is playing a big role in slowing down the RAL train and 2) many independent tax firms who are either too small or have too high of a RAL delinquency rate will not have RALs this year.

• Herb,

  What do you think will happen to the Jackson Hewitt and Liberty tax in the future assuming there will be no more RALs starting in 2012. I am looking to getting in one of these two in a low income area, which previously relied on RALs. They will still have to file their taxes, won’t they still use one of these two firms? Do you think the bad economy was the bigger problem last year for Jackson Hewitt, or was it the RAL issue, or actually could it be that Liberty Tax is taking clients away from Jackson Hewitt?

• I would stay away from Jackson Hewitt. Rumor has it bankruptcy is inevitable after April 2011. Company will disappear, you will have nothing left but some computers and a rented office and some furniture.

• Yes, it is dicey to consider JH in their current financial state, but bankruptcy restructuring could be good for them if JH emerges stronger. You certainly have to weigh a lot on the industry and the players: 1) Do you believe that brick still has a place in the retail tax industry? Do you believe the RAL will survive in some form or fashion? Do you believe that lost RAL/unemployment customers will return to brick? If no RAL exists, then will the RT product be enough to keep former RAL customers in brick? If yes or maybe to #1’s, then 2) Are you better off as an independent tax firm or a franchise? If Franchise, then which one? What are there average returns per office? HRB has the deepest pockets but probably the least opportunity (although there were rumors of their “re-franchising” parts of their system and they have an imbed Franchise called Express Tax that they sell.) JTX is in trouble, but maybe some distress sales are possible there. Liberty is the third one in the game and that could be a problem in some saturated markets. A lot to consider…

• BTW I don’t think Liberty took much away from JH last year. Even their CEO admitted that on one of his media calls. Of course, the future could be different.

• Liberty might be able to take some JH people away but it will be up to each individual franchisee. Liberty does not have any National Television Advertising which if they had could have taken more market share from JH.

• Bill,

  Why do you think you need National Television Advertising to get market share. JH had Magic Johnson ads on TV and now they are filing for bankruptcy.

• Not trying to offend anyone here, but the correlation between the awful Magic Johnson ads and the possibility of bankruptcy is laughable. The reason bankruptcy is a possibility is a series of comedic and downright stupid management decisions by JH management from the last 6 or so years. The most egregious decision IMO was borrowing money to buy back their stock. Now, they can barely service their own debt from borrowing so much money to repurchase overpriced stock.

  To the point of national advertising, I believe that the RAL Business (which is the main business that JH is engaged in) is highly sensitive to the RAL/loan products offered in the office, the location of the office, and the people in the office. National advertising is further down the list in my opinion. In the fast food and other industries national advertising is much more important if not mission critical for many chains (for example, check out what Domino’s Pizza has done recently).

• Herb,

  Are you a current franchisee? Other than repurchasing their own share, what other mistakes do you feel Jackson Hewitt has committed in the last few years. Do you think LIberty opening 3500 stores in the last few years, most of them right next to Jackson Hewitt has contributed to the lost market share?

• Yes, I am. I think that many factors weigh on the RAL-dependent tax offices/franchises overall: recession, over-saturation/competition, and RAL availability are the three biggest right now. Fortunately for H&R Block, they have a good and developed brand name and March-April business to lean upon and were not hit as hard in the recession. Of course, they need RALs and are in litigation with HSBC to get them. My guess is they will have them.

  Regarding Liberty and other new kids on the block, I would not want to be in this business as a newcomer right now. Lots of competition, pricing pressures and probably no more RALs await this part of the industry with the low-cost competitor (online filing) breathing down our necks.

  Other mistakes JH made:
  o They stole franchisee bank rebates and kept them, thereby forcing themselves to become even more dependent upon bank products and the RAL

  o They took away pricing flexibility in the application fee so they could raise their revenue on the bank products

  o They took on hundreds of millions of dollars in debt to buy-back their over-inflated stock to prop up their stock price. This debt now sits on their balance sheet hamstringing the company.

  o They had no foresight to see that this industy (banks and preparers) was going to be regulated sooner or later. Instead of being like HRB and lowering interest rates to save the RAL and soften attention from consumer groups and regulators, they kept prices high and caused JH and the banks to become big targets for the government.

  o They had the gall to tell the IRS to “go fly a kite” when they came questioning some franchisee’s clearly lax due diligence practices and thereby causing a flurry of audits on many franchisees. Of course, this led to over-compliance, scaring preparers, customers, etc. and cost us tons of business. In fact, it took this event to force them into actually investing in a Learning Management System.

  o They had zero foresight to catch the largest growth wave in our industry since the 90’s e-file wave: Online Filing. Their first foray was in 2010 and they are way behind.

  o They kept 75% of their RAL Business in a clearly failing bank in Santa Barbara Bank & Trust only to find out too late that the OCC was slamming the door on them. In addition and while any logical person could see the potential SBBT failure, they never bothered to update their software to accomodate any other RAL banks, so some Franchisees had to switch their software in January in order to have RALs.

• As a result of JH (mis)management keeping 75% of their RALs in the collapsing SBBT, only 50% of the Franchisees in the country had RALs in 2010.

• Herb has got many things right in my opinion. JH’s franchisees failed to expand their territory because it wasn’t worth to them because of JH’s short term greed. This caused a spiral – less territories, more short term greed, less expansion.

  I entirely agree with Herb that JH’s responsibilities as a franchisor were in part to defend the integrity of tax preparation. They were completely out to lunch with respect to the RAL attacks.

• Article on Yahoo Finance

  Jackson Hewitt: On the Verge of Bankruptcy

  With 3 million tax returns prepared per year, about 3% of all tax returns prepared by a professional, JH (JTX) is unique in the sense that it’s the only one of the “big three” tax preparation firms that is both primarily concerned with franchising and is publicly traded. The corporate arm operates the 11% of the JH corporately owned units and works on developing corporate partners, such as with Wal-Mart (WMT), as of 2010. The president, Harry Buckley, has made it unequivocally clear that “we are a franchiser and we want to increase franchise locations as a percentage of total locations, not the other way around.” Even that 11%, nearly a thousand locations, management is looking to slim down:

  We are looking at new and different approaches to get company-owned locations back in the hands of motivated franchisee entrepreneurs such as selling individual offices rather than whole markets where it makes sense.

  In 2010, Mr. Buckley has stated that they’re beginning to phase out the national advertising campaign performed in conjunction with Magic Johnson and that there’ll be “less emphasis on national advertising and a renewed focus on our regional and local marketing activities.” For the 2010 tax season, the franchisees were provided a local promotional packet and marketing plan with mailings for the first part of the tax season, January 15th through February 28th, and the second through April 15th. These mailings are overwhelmingly directed towards lower-middle and lower earnings households.

  This year represents an arrangement with Wal-Mart in introducing about 1,750 kiosks to their storefronts, benefiting from the high foot traffic of individuals within the desired demographic that Wal-Mart serves. Of these, 75% have been reserved for franchisees and 25% for the corporately-owned operation. This Wal-Mart partnership represents a return to JH’s roots as contracting with a big box retailer, first Montgomery Ward 1989, which took JH from a handful to over 500 locations within three years.

  On August 5th, 2010, the IRS announced that it would no longer be informing providers of refund anticipation loans if a tax payer has any back taxes due. By virtue of this, RALs may have to be made at a higher interest rate, much like credit cards, to account for defaults if a particular tax payer had significant tax obligations and decided not to pay back the loan. H&R Block (HRB) settled earlier this month in its lawsuit with HSBC (HBC) to provide financing for RALs despite the new underwriting variables. JH has had to switch from bank to bank to find a reliable provider that will service RALs at all of their locations, as the agreement with their creditor requires.

  Put plainly, JH is on the verge of bankruptcy. Creditors nearly forced it into bankruptcy in May of last year, but management was able to negotiate favorably to avoid such proceedings. The IRS’s decision to make RALs difficult to provide make meeting the terms the creditors have stipulated virtually impossible. As it stands, 50% of JH’s locations provide RALs. Those locations that don’t do RALs experience 20% less revenue. Keeping creditors at bay requires keeping the RALs at or near 100% by Oct 1st 2010, which hasn’t happened. With $260 million in long term debt subordinate to the stock, the market has priced JH at virtual bankrupt pricing.

  Failure of the management can be attributed to stock buybacks with borrowed money while the stock was sky high, taking until 2010 to provide an online feature to do taxes, and reliance on a single small bank to provide RALs. Look for a bankruptcy in the near future.

• The business environment is constantly changing. Those that believe they have the best system and do not adapt will be swallowed by those that constantly innovate. Consumers get tired of boring brands and poor management along with politicians including the IRS who can damage a system or put it out of business. It is my belief that the “Tax Only” franchise model is a dinosaur. This was a great idea in the past as many franchisees were able to create wealth working only in the tax season. Unfortunately as more tax companies were created along with software available for the independent tax shop the population has more choices. The increased choices ultimately diluted the market and locations originally preparing hundreds or thousands of returns continued to see their market share decrease.

  Fiesta Auto Insurance and Tax Service is the only national franchise system that incorporates both a full service insurance agency and tax service. Our franchise owners have a year business opportunity that provides more options for success. Most Fiesta Auto Insurance customers visit the office to make their monthly insurance payments. Having a customer visit monthly improves our customer loyalty and builds customer rapport. This loyalty translates into creating tax customers and places our franchisees in a position of building a business instead of searching for clients every December.

  Consider the tax only model where they have a customer visit once or twice to complete the tax process. Then they do not see their client for another year. If the client does appear again they will most likely have the tax return prepared by a new face as most hire seasonal help. How much loyalty will that customer have to the brand based on one or two visits and then twelve months of nothing? Having RAL’s is not the issue. The tax only models cannot brand year round to the consumer and therefore are forgotten. The tax only franchise system is a dinosaur and will continue to see declining results until they ultimately fail or innovate.

  If you are interested in a solution to the current tax only opportunity please visit http://www.FiestaFranchise.com and contact our offices for more information.

  John Rost
  President
  Fiesta Insurance Franchise Corporation

• This article is not 100% true, especially the following statement: “H&R Block (HRB) settled earlier this month in its lawsuit with HSBC (HBC) to provide financing for RALs despite the new underwriting variables.”

  HRB has announced the following:
  “KANSAS CITY, MO, Nov 11, 2010 (MARKETWIRE via COMTEX) — H&R Block confirmed that while its lawsuit is pending with its RAL provider, the parties have been engaged in discussions in an attempt to settle the litigation to confirm the availability of settlement products. The company did not disclose any details of the discussions, which are confidential, and there is no assurance that any settlement can be reached. In the meantime, the company is continuing to prepare to vigorously pursue its claims at the hearing scheduled for next Monday, November 15.”

  Regarding JH, I cannot see their lending bank forcing bankruptcy right now. They are on the doorstep of tax season, which is a payday for everyone. Restructuring after tax season is much more likely.

• While I agree with Herb that the lenders are not going to force JH into bankruptcy until after this tax season, since this is a foregone conclusion many things will unravel before the middle of April.

• That is what i am thinking… why would franchisees keep paying the royalties to this morons that are running the company out of business?

• Testaipira – The answer is very simple: we are under contract and obligated to do so. There are some Franchisees who have taken the path of not paying and have been terminated and subsuently sued. I will venture to say that there are probably others who have withheld paying just to make it to next tax season. They also could have made arrangements to pay later. It is also possible that JH could withhold payment directly from delinquent franchisee payment files (for RALs and RACs) next season to correct any possible balance due situations.

• Herb Melonby

  Since when do people simply do what they are under contract and obligated to do when they are desperate and angry. I am thinking what is going to happen in reality. Before terminating and suing someone you have to have deep pockets to pay lawyers. JTX is out of money!!!!

• Thanks all for sharing honest thoughts. I was ready to buy two of the existing JH territory in Huston. This discussion saved me from a big mistake.

• Good move Tim J. You should look into other tax franchises that are actually growing and adding offices not one that is closing offices and very close to bankruptcy!!!

• At this point, it is risky to buy a new or existing retail tax franchise. While some of these franchises are allegedly growing, I believe that the quality of growth is not there. Talk to franchisees and review Item 19 carefully in the FDD.

  While the climate could change with job employment coming back and some franchises having possibly better access to RALs than independent tax firms, it is still dicey. Tax preparer regulation is another wild card in this industry, too.

  Of course, great risk can yield great rewards and/or great failure. If you believe things will work out in this industry, then bargains are abound.

  Probably the safest buy in the retail tax space IMO is either an operation that has a fairly steady business which is not completely dependent on RALs or an operation that has good access to RALs and didn’t take too much of a hit during the recession. Of course, if RALs go away, then the latter could be a problem.

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• Stock is trading at .80… talk of bankruptcy…. No RAL….. Offices closing….

  Wasn’t this company always ranked as one of the top franchise opportunities just a few years ago?

• What is going on with HR Block’s RALs this year? What about Jackson Hewitt? I understand they will only have 50% of their offices with RALs. Is that true? Which office will have RALS and which wont?

• looks like they will have RAL coverage after all?

• Rumor has it a bunch of Franchisees are not paying their royalties because they are furious with the Franchisor for going bankrupt. Is this true? What is the future of this company?

• What is up with the stock being up 33% today?

• Jackson Hewitt ruined my life about 13 years ago when they persuaded me into buying a new ‘Franchise’ territory’ in Alabama. They flat out lied to me. Once I got my family moved to Alabama, and when I went to purchase my business licenses for the five storefronts I was going to open; the official at the business license office said ‘glad you all are back’. I didnt know what he meant by that so I asked him. He went on to explain that Jackson Hewiit had in fact been established in the town previously and that those owners ripped off a bunch of people and left town. I was dumbfounded by his comment and become very worried. Needless to say, and totally innocent, it was just one month before tax season and I was already committed so I had to move on as I had already sold everything to buy these supossed ‘new’ franchise areas. Once I opened the doors it was a disaster as former people who had been ripped off before began attacking me and my employees. Jackson Hewitt should be put out of business. And, had I not been so young, I would have pusued legal action against them I would still pursue after all these years, but I probably cannot. I specifically asked them about these areas being ‘virgin’, and they said the areas were. They lied and cost me everything I had. I am only now, after over a decade recovering from my financial nighmare that thier lie created.