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John Hewitt, Liberty Tax ServiceIn what its management says was a highly unusual move, Liberty Tax Service encouraged franchisees to open stores in November. That came as the company expects the Affordable Care Act and President Obama's executive order on immigration to drive millions of new filers into the tax preparation market over the next two years.

The impact of those two factors should drive more taxpayers to seek assistance and dampen the growth of self-prepared returns, CEO John Hewitt during this week's earnings webcast for the second quarter ended October 30. Those expectations have led Liberty to take an unusual step.

"This is the first time in my more than 45 years in the tax industry that I have ever encouraged franchisees to open before January 1," he said. Many stores opened on November 15 and more than 1,000 are now operating.

Hewitt says more than 1,200 franchisees and their employees have obtained health insurance licenses while others are renting space to insurance agents. The company is in negotiation with others. Liberty is marketing to customers to come to stores to ascertain any issues they may face with ACA.

"We are actively calling our customers. In some cases we are starting their tax returns," Hewitt says. He notes that returns cannot be filed until the season is begun by the Internal Revenue Services.

Hewitt also expects that there will millions on new filers because of the new immigration policy. However, he believes many will wait until 2016 and file only after they have assurance they are not likely to be deported.

"We believe the president's action opened another door and provided a new class of taxpayer," Hewitt said.

The company has ramped up operations to reach Hispanics. There are 600 Liberty offices that are certified to reach Spanish speakers. And 60 stores have been opened under the company's new SiempreTax+ brand. While the number of stores may not seem high, the total is much larger than for the first year of any tax store chain.

"SiempreTax is the biggest opening in tax franchise industry," Hewitt said.

The ramp up to handle the expected influx of new customers increase the company's loss in a quarter in which it typically loses month. Liberty lost $11.3 million in the recently completed quarter, compared to a loss of $8.5 million a year ago. Revenue reached $7.7 million, up 5.7 percent from $7.3 million in last year's corresponding period

Meanwhile, Liberty expects the number of its locations in Walmart will decline. Hewitt said the retail giant "for the first time in 20 years" increased rents dramatically. Rents tripled or quadrupled, he continued. Moreover, Liberty had access only to the sites that Jackson Hewitt, which operates 2,800 Walmart locations, does not want.

Liberty also has dropped a zero-franchisee fee program it started in response to the recession. "What we decided to do was copy the H&R Block model with no franchise fee and a higher royalty," Hewitt said. However, he continued, "We concluded it was unsuccessful and we discontinued that effort."

Last modified on Tuesday, 09 December 2014
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