FACTORS INFLUENCING TAXPAYERS INTENTION TO ADOPT FREE ELECTRONIC TAX FILING (FREE FILE)

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1 FACTORS INFLUENCING TAXPAYERS INTENTION TO ADOPT FREE ELECTRONIC TAX FILING (FREE FILE) Alex P. Barrios B.A., California State University, Sacramento, 2003 THESIS Submitted in partial satisfaction of the requirements for the degree of MASTER OF ARTS in COMMUNICATION STUDIES at CALIFORNIA STATE UNIVERSITY, SACRAMENTO SPRING 2010

2 2010 Alex P. Barrios ALL RIGHTS RESERVED ii

3 FACTORS INFLUENCING TAXPAYERS INTENTION TO ADOPT FREE ELECTRONIC TAX FILING (FREE FILE) A Thesis by Alex P. Barrios Approved by:, Committee Chair Dr. Barbara O Connor, Second Reader Dr. Diego Bonilla, Third Reader Dr. Elaine Gale Date iii

4 Student: Alex P. Barrios I certify that this student has met the requirements for format contained in the University format manual, and that this thesis is suitable for shelving in the Library and credit is to be awarded for the thesis., Graduate Coordinator Dr. Mark Williams Date Department of Communication Studies iv

5 Abstract of FACTORS INFLUENCING TAXPAYERS INTENTION TO ADOPT FREE ELECTRONIC TAX FILING (FREE FILE) by Alex P. Barrios This thesis studied the factors influencing taxpayers intention to adopt free internet tax filing services, referred to by the Internal Revenue Service as free electronic tax filing (Free File). Focusing on how the digital divide can explain why there is a knowledge gap between internet users who utilize online programs and those who do not, this study drew upon previous diffusions of innovations research to examine whether relative advantage, compatibility with internet experience, complexity, and perceived risk influenced taxpayer s intention to adopt Free File. Information was gathered through the administration of a survey to a convenience sample of internet users at 2 free income tax preparation events that took place on February 6th and February 13th, 2010 in Sacramento, California. Each participant was provided an informational brochure which explained what Free File is and participants were pre-screened to ensure they were internet users and eligible for Free File based on their annual household income (less than $56,000). The data was analyzed using multiple regression analysis and measured participants intention to adopt based on their perceptions of Free File. The results showed that relative advantage, compatibility with internet experience and perceived risk were significant predictors of intention to adopt. Perceived complexity was not a v

6 significant predictor. Almost half of the participants were not previously aware of Free File and the findings suggest that lack of awareness of the benefits of Free File is an inhibitor to adoption. Some of the limitations of the study were that participants were not able to test the program on a trial basis, only intention to adopt was measured (not actual adoption), and there are some theoretical issues with the statistical method used to perform the analysis (multiple regression)., Committee Chair Dr. Barbara O Connor Date vi

7 TABLE OF CONTENTS Page List of Tables... ix List of Figures...x Chapter 1. INTRODUCTION...1 The Digital Divide Issue... 2 Relevance of the Current Study LITERATURE REVIEW...7 Electronic File (E-File) and Free File... 7 Importance of Free File Diffusion of Innovations Relative Advantage Compatibility Complexity Perceived Risk Research Question and Hypothesis METHODS...34 Research Design Sample Data Collection Data Analysis vii

8 4. RESULTS DISCUSSION CONCLUSION Implications Limitations of the Study Suggestions for Future Research Summary Appendix A. Free File Questionnaire...62 Appendix B. Sample Brochure...67 Appendix C. Script for Surveyors...68 Appendix D. IRS Publication Appendix E. Statistical Results...70 References...85 viii

9 LIST OF TABLES Page 1. Table 3.1 Operational Defintions of Constructs...37 ix

10 LIST OF FIGURES Page 1. Figure 2.1. Federal Individual Income Tax Preparation and Filing Data...8 x

11 1 Chapter 1 INTRODUCTION As the internet becomes more popular, a number of industries and government agencies are switching to online services. For example, the banking and grocery shopping industries that have traditionally conducted business in a face-to-face setting are now offering customers the ability to conduct transactions online. Companies in each of these industries are investing money to develop websites that offer their clients the convenience of being able to shop or bank from home or work at any time of the day. Although internet services in many industries are becoming increasingly popular, will websites offering free internet tax filing services, also known as Free File, be just as popular among consumers? As a result of the E-Government Act of 2002, there are already a number of government agencies and programs that are offering services online (Festa, 2002). According to the Pew Internet Research Center, 82% of internet users (61% of all adults) have used the internet to access a government service or visit a government website (Smith, 2010). The federal government is trying to increase the number of taxpayers who electronically file their tax returns because it will save money and provide benefits to society (United States General Accounting Office, 2002). Although internet tax filing services have been around for over a decade, the fact is that most Americans are still not adopting them (Internal Revenue Service, 2008). The low adoption rates are of particular concern to Congress who asked the Internal Revenue Service (IRS) to significantly increase the percentage of Americans who electronically file. Achieving this goal is important to federal and state governments because they can

12 2 lower their operating costs and paper usage if more filers submit their returns electronically. The Digital Divide Issue The low adoption rates for Free File are also of concern to communication studies scholars who are concerned with the digital divide. The digital divide is the gap between people with effective access to digital and information technology and those with very limited or no access at all (Umar, 2010). Another definition of the digital divide by Rogers (2003) is the gap that exists between individuals advantaged by the Internet and those individuals relatively disadvantaged by the Internet (p. 468). The digital divide is an important concept in the current study because free online tax filing programs were developed to help middle and lower income people who do not necessarily have the resources to pay for a private tax preparer. These people can save money by taking advantage of Free File. Furthermore, increased adoption rates will have a positive consequence on the government who will also save money on the cost of processing tax returns. Those are the intended individual and societal benefits of this program. However, the Pew Research Center study found that most people who use government services and information online have higher incomes and education levels. Those with lower incomes and education levels are less likely to use the internet to access government services (Smith 2010). The potential benefits of Free File have been recognized by leading organizations in the field. In fact, in 2009, the IRS Free File program received the Software and Information Industry Association s (SIIA) Special Award for Innovation in Public

13 3 Service. SIIA President Ken Wasch said, The program provides the highest level of service to the public in delivering free electronic government services to those in need, while encouraging innovation in the private sector (Bramlet, 2009, 2). However, simply having this technology available does not automatically yield benefits. Adoption rates must increase for any benefits to be reaped. Wasch s 2009 comment that the program delivered a service to those in need is not necessarily an accurate statement for everybody (more on Free File adoption rates will be discussed in chapter 2), as the Pew Research Center points out. When it comes to Free File internet tax filing programs, the scope of the digital divide goes beyond just making sure that most people have access to high speed internet. Users would ideally need access to high speed internet so they can utilize all of Free File s features. For example, high speed internet allows a user to quickly download a copy of their return using adobe acrobat reader. People must also have the knowledge and ability to use Free File, as well as the proper equipment and an understanding of how the applications can help them. Otherwise, access alone is not the issue. According to Madden (2009), 79% of American adults are now online. With a large majority of the population already online, other issues, such as who utilizes the internet and how it is being utilized, are important in understanding the adoption of internet tax filing. Simply having access to the internet and using it does not assure that people are going to utilize it to its full potential. Rogers (2003) predicted this would be one of the issues associated with the digital divide. That is why Rogers viewed the digital divide as more than just an issue of access. Rogers wrote:

14 4 The access divide is replaced by a learning-divide (in which certain individuals lack the skills of computer and/or Internet use), a content-divide (in which less educated individuals may not be able to comprehend the content of Web sites created by highly educated individuals), and other types of divides. (p. 469) Rogers (2003) predicted that access alone is not the issue. The learning divide and the content divide also inhibit people from adopting innovations. In the case of Free File, low adoption rates may not necessarily be an issue of access as the current study will show. For example, among non-internet users in California, only one in five are interested in using the Internet, stating lack of interest as the main reason for their nonuse (Baldassare, et al. 2009). Lack of interest results because applications and content do not relate to peoples needs. Another issue is affordability. It costs more money to have broadband. It also costs more to invest in a computer and software needed to operate these programs. According to a study by the California Public Utilities Commission, lack of access, affordability, and relevant applications and content are all explanations for why gaps in broadband usage exist (Bradshaw 2006). Relevance of the Current Study There is no question that the rate of Free File adoption among lower income taxpayers must increase for the technology to benefit society. Public and private investments have been made to develop Free File programs offered at reduced or no cost to taxpayers who earn annual household incomes of less than $56,000. Failure to increase the adoption rate among potential users means taxpayers who could otherwise be filing their taxes online for free, will instead spend money to hire a tax preparer or will do

15 5 it themselves and risk failing to claim all of their credits. The fees private tax preparers charge usually cost the taxpayer a significant amount of their refund. The more a taxpayer spends for tax preparation services, the less money that will end up in their pockets. Saving money is particularly important to lower income families the same populations that Free File services were developed to serve. Hence, the purpose of this study is to identify the factors that will influence taxpayers intention to adopt Free File. Learning this information will help increase adoption rates. It will also help explain why current adoption rates are low. Although the IRS conducted very basic research on electronic tax filing (e-file) and Free File (i.e., user surveys and statistical data), no further research has been conducted in this area. However, there are many studies that examine the factors that influence the adoption of other online services, such as banking and grocery shopping. Many of these studies have been centered on Everett Rogers diffusions of innovations theory. Specifically, the attributes of relative advantage, compatibility, and complexity have been significant predictors of adoption. The current study examined whether findings of diffusion studies related to online grocery shopping and online banking were related and helpful in explaining the factors that influence attitudes toward adoption of Free File internet tax filing services. The current study was conducted in Sacramento, California and participants were recruited at two Volunteer Income Tax Assistance (VITA) sites Grant High School and Charles Jones Career and Education Center. To encourage an adequate sample size, taxpayers who agreed to participate in the study were entered into a raffle to win a $100

16 6 cash prize. As a Senior Field Representative for State Assemblymember Dave Jones, I was responsible for coordinating outreach and promoting the two tax events to the general public. The results of this study may not be generalizable as the sample population was limited to a convenience sample of taxpayers who attended the tax workshops. All participants earned an annual household income of $56,000 or less. Because the purpose of the study is to understand the factors that influence adoption among taxpayers who are eligible for Free File services, using a convenience sample of VITA clients was appropriate to ensure the sample meet this criterion. The remainder of this study includes a literature review of relevant research, followed by a proposed methodology section, and attachments (example questionnaire, instructions for surveyors, and a sample promotional brochure). Key terms used throughout the remainder of the paper include electronic tax filing (also referred to in the research as e-file, internet tax filing or online tax filing), Free File, diffusion of innovations theory, relative advantage, compatibility, complexity, and perceived risk.

17 7 Chapter 2 LITERATURE REVIEW The topics to be discussed in the literature include electronic file (e-file), Free File, the importance of Free File, diffusion of innovations research (specifically, the attributes of relative advantage, compatibility, and complexity), and perceived risk. Research and information related to these topics will be highlighted in this section. Electronic File (E-File) and Free File Online tax filing, or e-file, services have increased in popularity over the last 10 years. E-file is the electronic filing of a tax return to the IRS. For taxpayers who earn an annual income of less than $56,000, there is a special IRS program called Free File. The Free File program provides free federal income tax preparation and electronic tax filing services for eligible taxpayers through a partnership between the Internal Revenue Service (IRS) and Free File Alliance, LLC a group of private sector tax software companies (IRS, 2009). All participants in the study were eligible for Free File based on their earnings. According to the IRS (2009), some of the benefits of Free File are: Free tax preparation and e-filing if your adjusted gross income was $56,000 or less in The use of simple questions and inserting your answers on the correct forms. The ability to file your taxes any hour of the day or night. Getting a faster refund in as little as 10 days with direct deposit. Knowing that your return is safe and secure. Saving paper.

18 Perhaps the most important government document related to electronic filing is the IRS s 2008 Advancing E-File Study Phase 1 Report (see Figure 2.1). 8 Figure 2.1. Federal individual income tax preparation and filing data (as of tax year 2006) (IRS, 2008, p. 1). According to the IRS (2008) report, Congress set a goal of achieving an 80% e-file rate by The report is a major effort to collect, synthesize, taxpayer and preparer behaviors, related programs and effort, and options for expansion to help the IRS validate and launch future studies, research, and other activities to meet the congressionally set goal of an 80% e-file rate. (IRS, 2008, p. 1) According to the IRS (2008) report, there are a number of ways that tax returns can be prepared and filed using paper or electronic means (p. 1). Figure 2.1 simplifies the complex array of choices into three main combinations of preparation and filing for individual tax returns: Prepared on a computer and filed electronically through e-file.

19 9 Prepared on a computer, then printed and filed on paper. (The IRS calls these types of filers V-Coders.) Prepared on paper and filed on paper (IRS, 2008). The IRS e-file program began in 1986 and in its first year, 25,000 returns were submitted. Electronic filing has grown substantially since then. According to the IRS study, over 87,000,000 (about 60%) of individual tax returns were e-filed in the 2008 filing season. However, the 60% figure quoted in the study does not necessarily reflect the number of taxpayers who actually self-prepared and electronically filed their tax returns. Many of those returns were prepared by a third party tax preparer or company and then electronically filed on the taxpayer s behalf. Under those circumstances, the taxpayer is paying the tax preparer or company a preparation and filing fee. This means the taxpayer is not taking advantage of a Free File service and is spending more than is necessary to file their taxes. To assess the number of taxpayers who self-prepare their taxes on a computer and electronically file on their own behalf, a simple three-step calculation using the figures represented in the data must be performed. This calculation revealed that the actual number of self-prepared and e-filed returns was approximately 17%. This approximate estimate was generated using IRS data shown in Figure 2.1 and performing the following calculations: 1. The approximate percentage of taxpayers who self-prepared their return using a computer: 0.89 (% of total computer-generated returns) x 37 (% of total

20 10 self-prepared returns) = 33 (approximate % of self-prepared/computergenerated returns). 2. The percentage of e-filed returns that were computer-generated: 0.58 (% of total e-filed returns) x 89 (% of total computer-generated returns) = 52 (approximate % of e-filed returns that were computer-generated). 3. Determining the percentage of self-prepared e-file returns: 0.52 (approximate % of e-filed returns that were computer-generated) x 33 (approximate % of self-prepared/computer generated returns) = 17 (% of self prepared e-file). According to the results of the calculation, approximately eight of 10 taxpayers are not preparing their own tax return and e-filing. That is a fairly low adoption rate considering that e-file has been around since Although the results of the 2008 IRS survey help to provide basic statistics for e-file users, the study did not indicate what percentage of users had qualified or filed their return using a Free File service. To better understand the characteristics of Free File users, the IRS released the 2008 Free File Survey report. A telephone survey was conducted and the sample consisted of 1,802 users who had free filed in the 2008 tax filing season. The results showed that 92% of total users cited convenience as a reason for choosing Free File. Other reasons cited by users as key factors in choosing Free File were cost (79%) and ease of use (65%). The survey also found that 92% of users indicated they intend to use Free File again the following year. Another significant finding was that 97% of Free File users in the survey indicated they were very confident or somewhat confident that the information provided during the Free File process was secure.

21 11 Importance of Free File There are significant societal benefits for increasing the adoption of Free File services to income eligible taxpayers. First, the government can save operating and paper costs. The more taxpayers who submit their returns electronically, the more money the government will save. In a 2002 report to the House of Representatives Subcommittee on Oversight, Committee on Ways and Means, the United States General Accounting Office wrote: In a March 2000 study prepared for IRS, a national consulting firm presented a range of cost-reduction estimates depending on changes in several variables, such as the number of returns filed electronically, and assuming several operational changes, such as making additional business forms available for electronic filing. Using 1999 expenditures as the baseline, the consultant s annual cost-reduction estimates ranged from $27 million to a best case of $243 million starting in (p. 2) If the cost savings estimate is correct, the overall beneficiaries of e-file adoption would be taxpayers. If the IRS can save money on what it costs to process tax returns, then those tax dollars can be diverted to other programs. Second, individuals who use Free File would benefit economically. Aside from the convenience of being able to file their taxes at any time from home or work, they would also be saving money. A 2008 report by the Department of the Treasury titled Many Taxpayers Who Obtain Refund Anticipation Loans Could Benefit from Free Tax Preparation Services highlighted the importance of increasing adoption of free tax

22 12 preparation services such as Free File among lower income populations. The report highlighted: Millions of taxpayers borrow against all or part of their expected tax refunds to receive their money more quickly. This is accomplished through short-term loans that cost taxpayer s fees and interest payments. Many of these taxpayers are eligible for free tax preparation services offered by the Internal Revenue Service (IRS) and its partners. (p. 2) When low income taxpayers who could otherwise be self-preparing and filing their taxes for free are losing significant amounts of their tax refund to refund anticipation loans and tax preparer fees, it diminishes legislative and congressional intent to subsidize the incomes of these families through the implementation of tax credits such as the Earned Income Tax Credit (EITC) and Child Tax Credit. The fact that technology to help connect lower income families to these programs exists but is not being utilized furthers the argument in support of government funding for broadband expansion to lower income communities. However, until there is research to help explain the factors that will increase adoption of Free File and outreach strategies developed based on these findings, these trends will most likely continue. Diffusion of Innovations Findings from the IRS (2008) Free File survey indicate that two of the most significant reasons for choosing Free File were convenience and ease of use. These factors derive from diffusion of innovations theory the driving theory behind this study. Diffusion research centers on the conditions that increase or decrease the likelihood a

23 13 new idea, product, or practice will be adopted by members of a given culture (Rogers, 2003). According to Rogers (2003), the process of making a decision about an innovation is described as the innovation-decision process. This process describes how an individual passes from gaining initial knowledge of an innovation, to forming an attitude toward the innovation, to making a decision to adopt or reject, to implementation of the new idea, and to confirmation of this decision. This process consists of a series of choices and actions over time through which an individual or a system evaluates a new idea and decides whether or not to incorporate the innovation into ongoing practice (p. 168). The innovation-decision process is a five step process. The five steps are: 1. Knowledge An individual is exposed to an innovation s existence and gains an understanding of how it functions. 2. Persuasion The individual forms a favorable or unfavorable attitude toward the innovation. 3. Decision The individual engages in activities that lead to a choice to adopt or reject an innovation. 4. Implementation The individual puts the innovation to use. 5. Confirmation The individual decides to adopt or reject the innovation. (Rogers, 2003, pp ) This study took place at the persuasion stage of the innovation-decision process. The persuasion stage is critical because it is the stage where attitude formation occurs.

24 14 The persuasion stage is where an individual forms a favorable or unfavorable attitude toward an innovation. According to Rogers (2003): Such perceived attributes of an innovation as its relative advantage, compatibility, and complexity are especially important at this stage. In developing a favorable or unfavorable attitude toward an innovation, an individual may mentally apply the new idea to his or her present or anticipated future situation before deciding whether or not to try it. (p. 175) Therefore, if an innovation is to eventually be adopted, having a potential adopter develop a favorable attitude toward the innovation is an important first step. Findings from the Public Policy Institute of California in collaboration with the California Emerging Technology Fund show that when it comes to attitude, more than 80% of Californians are at least somewhat comfortable using modern technology (Baldassare, et al. 2009). Therefore, it shall be assumed that most internet users in this study will be comfortable using Free File. As Rogers (2003) stated, relative advantage, compatibility, and complexity are especially important at the persuasion stage. Therefore, the subsequent literature review will provide a summary of relevant research findings related to these attributes. Another attribute which will be covered in the literature is perceived risk, which is also a relevant construct in the study. In the next few paragraphs, a summary of the literature related to each of the aforementioned constructs will be reviewed within the context of performing online transactions. There are no diffusions studies of internet tax filing, or for that matter, any

25 15 academic research studies in this area, so the corresponding review of literature related to relative advantage, compatibility, and complexity will be based on diffusions research of other related online services. In particular, research in the area of online grocery shopping and online banking will be provided. Online banking and online grocery shopping services were chosen as parallel because of the characteristics they share with internet tax filing services and how those characteristics relate to the attributes of relative advantage, compatibility, complexity, and perceived risk. In particular, online grocery shopping and online banking services share the following characteristics with internet tax filing services: Users enjoy the convenience of being able to perform transactions online from home, work, or wherever is convenient at a reduced cost and at any time of the day (relative advantage). Users of online banking and online grocery shopping must be familiar with the internet and usually have previous experience performing similar transactions online (compatibility). Users must have the ability and skill to perform transactions online in order to use these services (complexity). Users are required to release private information or make this information available over the internet in order to use these services (perceived risk). Although internet tax filing services are distinct from online banking and online grocery shopping services, the characteristics they share are adequately similar. Therefore, research findings for these services will be used to help explain the potential

26 16 factors that may influence the adoption of internet tax filing services. The next few sections will provide information related to research findings based on diffusion of innovations theory (or similar theories) and how attributes derived from this theory (relative advantage, compatibility, complexity, and perceived risk) have helped to predict individual adoption patterns of online banking and online grocery shopping. Relative Advantage The first key construct in this study is relative advantage. Rogers (2003) defined relative advantage as the degree to which an innovation is perceived as being better than the idea it supersedes (p. 15). Furthermore, the degree of relative advantage is often expressed as economic profitability, as conveying social prestige, or in other ways (p. 229). The more an individual perceives an innovation provides them with a relative advantage, the more likely they are to adopt it. The results of the 2008 IRS Free File study found support for that concept as 92% of users described convenience as a reason for using Free File and 79% mentioned cost as a reason for adoption as well. Past literature has also shown that perceived relative advantage characteristics are significantly and positively related to the adoption of new innovations (Holak & Lehmann, 1990). Verhoef and Langerak (2001) conducted a study to identify the factors that led to consumers adoption of electronic grocery shopping in the Netherlands. Perceived relative advantage was defined as the degree to which consumers perceive electronic grocery shopping to be superior to in-store shopping (p. 277). Relative advantage was measured using a three-item scale consisting of shopper excitement, time savings, and not

27 17 having to be dependent on store hours. Self-administered questionnaires were mailed to over 2,500 households. From that sampling frame, 415 surveys were mailed back and used in the final study. Analyzing the data using correlation tests, the researchers concluded perceived relative advantage was positively related to intention to adopt electronic grocery shopping (p. 282). A number of other studies, particularly in the area of online banking, also concluded that relative advantage, or similar factors, are positively related to adoption or intention to adopt. Sathye (1999) conducted a study of Australian banking customers perceptions of online banking. Sathye implemented a mail survey that provided a sample size of 589 business and personal banking clients. The data showed that 68% of these banking clients were not clear about the benefits and added value that internet banking offers. An even more revealing statistic displayed in the results section of Sathye s study is that 81% of the non-adopters surveyed indicated they were unaware of the benefits of online banking. The high number of Australian banking clients who failed to find relative advantage in online banking may help to explain why, in 1996, only 1% of banking transactions in Australia were being conducted online (Ernst & Young, 1996). Tan and Thompson (2000) researched the attitudinal, social, and perceived behavioral control factors that influenced adoption of internet banking. Using a web survey as their instrument, they received responses from 454 banking customers in Singapore. Relative advantage was defined in terms of how much advantage and convenience it offered to consumers and was measured on a six-item scale in terms of how much easier it made conducting bank transactions, greater control of finances, ability

28 18 to manage more efficiently, convenience, effectiveness, and usefulness. Processing the data using regression analysis, Tan and Thompson found support for their hypothesis: The greater the perceived relative advantage of using internet banking services, the more likely that internet banking will be adopted (p. 9). Although the results were limited to internet users in Singapore, the study provides support for the positive relationship that exists between relative advantage and intention to adopt online banking. Ekin and Polatoglu (2001) conducted an exploratory investigation of Turkish consumers acceptance of internet banking by investigating the factors that influence customers acceptance of internet banking services. An survey was sent out to select customers of Garanti Bank in Turkey to explore the actions they were likely to take and investigate their satisfaction level regarding the use of IB services (p. 156). Relative advantage was defined in terms of price, convenience, and performance. The researchers achieved a sample size of 114 participants and, after performing factor analysis, created the savings dimension that consisted of the cost savings, time savings, and self-service characteristics of internet banking services (p. 159). The results indicate that early adopters and frequent users of internet banking services were very satisfied in the cost, time savings, and self-service characteristics of internet banking and were likely to make positive recommendations about the service to their peers. The study s findings provide further support that characteristics of relative advantage (cost savings, time savings, and self-service characteristics) are positively related to adoption. In other online banking-related research, Cunningham and Gerrard (2003) performed a qualitative study of consumers in Singapore. After interviewing eight

29 19 adopters of internet banking and eight non-adopters of internet banking, they found that both adopters and non-adopters thought the service was convenient. However, more adopters found it convenient than non-adopters (p. 23). Hamilton, Hewer, and Howcraft (2002) surveyed a cross section of 286 consumers in a study of consumer attitude and the usage and adoption of home-based banking in the United Kingdom. The authors concluded that 70% of banking customers believed the lower fees offered by internet banking were a fairly important, important, very important, or extremely important factor in encouraging adoption of internet banking. Furthermore, approximately 73% of the customers also found improved service quality and time savings as important factors in encouraging adoption. Finally, in a comparison of adopters and non-adopters of internet banking, Kwon, Lee, and Schumann (2005) found current adopters of internet banking appear to perceive convenience and quick service as important attributes, compared to persistent non-adopters (p. 431) and their hypothesis that consumer perceptions of convenience as an important attribute will be positively associated with their adoption levels of internet banking (p. 418) was fully supported. The findings provide further evidence to support that relative advantage (convenience, cost savings, better service quality, time savings, and quicker service) is positively related to adoption, or is a factor in encouraging adoption of internet banking. The findings suggest that perceived relative advantage in the adoption of online banking and online grocery shopping does in fact consist of the perceived benefits of the service. Therefore, for the purpose of this study, relative advantage is defined as the degree to which taxpayers will perceive Free File to be a more beneficial way to file their

30 20 taxes. This construct is operationally defined in terms of ease, control, efficiency, convenience, usefulness, and time savings. The operational definitions are also provided in Table 3.1. Compatibility Another important construct in this study is compatibility. Rogers (2003) defined compatibility as the degree to which an innovation is perceived as consistent with the existing values, past experiences, and needs of potential adopters (p. 240). Because online tax filing requires the user to have enough skill to be able to fill out online forms and respond to questions prompted by the program, users should have some past experience using the internet. Given the nature of internet tax filing, past experience using the internet is perhaps the greatest indicator of compatibility for the proposed study. Data results from the 2008 IRS Free File Survey also provided support for this concept as 92% of Free File users indicated they intend to use Free File again in the future. In other words, those who used Free File will continue to use it as a result of their previous experience. This section provides a summary of research related to compatibility and internet experience as it relates to online banking and grocery services adoption. The more an innovation falls in line with a person s beliefs and values, the more likely they will intend to adopt it. Although a number of studies have provided empirical support for the positive correlation between compatibility and adoption, results vary. Some of these findings are highlighted in this section.

31 21 Langerak and Verhoef (2001) found perceived compatibility is related positively to the intention to adopt electronic grocery shopping (p. 282). On the other hand, Kwon et al. (2005) found: Adoption factors such as compatibility... did not differ among current adopters and prospective adopters... [but] the odds of being a prospective adopter over a persistent non-adopter increase 1.44 times when a consumer uses the computer heavily for his/her work compared to light use of the computer for work. (p.432) Cunningham and Gerrard (2003) found adopters of internet banking perceived the selfservice technology to be more compatible to them (p. 24) and also some non-adopters would have low levels of PC skills and this may strongly influence their decision to not apply for an internet bank account (p. 24). On the other hand, Sathye (1999) found only 32% of customers cite resistance to change as a reason for non-adoption of online banking (p. 331). Other findings indicate there is a positive correlation between adoption, previous internet experience, and other forms of compatibility. Hansen, Jensen, and Solgaard (2004) conducted a study based on the theory of reasoned action and theory of planned behavior in predicting online grocery buying intention (p. 539). Online surveys were self-administered and a sample population of 1,022 Danish consumers and 1,058 Swedish consumers were included in the study. The researchers tested whether a consumer s intention to perform a certain behavior may be influenced by the normative social beliefs held by the consumer (p. 540). This concept was operationally defined and measured by the level of agreement with the following statements: (1) electronic shopping of

32 22 groceries is attractive to me in my daily life, and, (2) buying groceries via the Internet is well-suited to the way in which I normally shop groceries (p. 543). Analyzing the data using a two-step approach (factor analysis and then a linear regression test) Hansen et al. found that social normative influence could be of high importance to a consumer when considering online grocery buying (p. 547). Previous studies also found evidence that non adopters of electronic mediums were resistant to change. For example, Hamilton, Hewer, and Howcraft (2002) found wealthier and older respondents placed particular emphasis on face-to-face contact [and were also] less inclined to use the telephone or internet banking (p. 117). The findings were consistent with early research on technology in financial services focused on the adoption of ATMs that revealed that a significant factor for non-use, especially among older consumers, was the preference for conducting financial affairs through a human teller (Zeithaml & Gilly, 1987; Kwan, 1991). Karjaluoto, Mattila, and Pento (2002) researched the effect of different factors affecting attitude formation towards internet banking in Finland (p. 261). They studied four factors related to compatibility: prior computer and technology experience, personal banking experience, and reference group influence. Personal computer and technology experience were defined as the use of PC s, the Internet, and (p. 262). Personal banking experience was defined as customer satisfaction/dissatisfaction of the delivery channel in use, on the one hand, and intention to change banking behavior, on the other hand (p. 263). Reference group influence was defined as an extensive construct, referring to all the people who influence on consumer behavior (p. 263). Karjaluoto et

33 23 al. conducted a mail survey of 1,067 individual bank customers in Finland. Analyzing the data using factor analysis, they found prior computer experience, prior technology experience, personal banking experience, and reference group affect attitude towards online banking as well as online banking usage (p. 266). Their results indicate there is a positive correlation between elements of compatibility and attitude towards online banking, with prior internet/computer experience serving as a key measure of compatibility. Lin, Tang, Wang, and Wang (2003) examined the effect of computer selfefficacy, among other variables, in relation to intention to use internet banking. Computer self-efficacy was defined as the judgment of one s ability to use a computer (p. 506). They conducted 123 telephone interviews with a sample representative of a cross-section of the Taiwanese population. Factor analysis was used to test their research model and results showed that computer self-efficacy s total effect on behavioral intention is positive (p. 514). The Lin et al. study was limited because it did not measure actual behavior. Laforet and Li (2005) studied consumers attitudes of online and mobile banking in China. A convenience sample consisting of 128 participants from six major cities in China were interviewed and t-tests were used to analyze the relationship between the different variables. The research findings revealed non-users tend to rate that they had no prior computer experience while the opposite was true with users (p. 374). The results provided further evidence to support that prior computer experience is related to adoption and, once again, is a factor in measuring compatibility.

34 24 Lee and Lee (2001) examined the relationship between internet purchasing experience and the likelihood to adopt internet banking. They investigated whether consumers decisions to adopt internet banking was need-based or skill-based. Internet purchase behavior was operationally defined based on two factors: (1) How many times the respondent had purchased products through the Internet in the last 12 months, and (2) How willing the respondent was to provide credit card and purchase information through WWW/ (p. 106). An internet survey was administered to 1,600 participants and the data was analyzed using a structural equation modeling approach followed by a set of regression analyses. Results showed previous internet purchase behavior positively affected consumers likelihood of adopting internet banking (p. 107). Their results confirmed previous findings that prior experience with technologies may influence consumers future adoption of similar technologies (Dabholkar 1992; Dickerson & Gentry, 1983; Hirschman 1980). Black, Ennew, Lockett, and Winklhofer (2001) conducted a qualitative examination of important determinants in the adoption decisions of consumers of internet financial services. Using focus group interviews to garner detailed responses from 12 participants who had previously purchased some type of goods or services over the internet, 12 who had purchased goods or services (including financial services) over the internet, and 12 who had not, they found significant differences between the three groups. In particular, the degree to which an innovative channel such as the internet is compatible with the individual s past experiences and values appears to have a significant impact on willingness to adopt (p. 395).

35 25 Tan and Thompson (2002) operationally defined internet experience as a combination of internet usage (span of use, frequency of use, intensity of use, and diversity of use) and internet skill level. Their results found support for the hypothesis that the greater the experience with using the Internet, the more likely that internet banking will be adopted (p. 10). Tan and Thompson s findings are consistent with the previous studies cited in this section. However, their study was unique in the sense that it provided internet experience as a broader construct comprised of internet use and skill, whereas other studies separated the two and provided different operational definitions for similar constructs (Cunningham & Gerrard, 200; Karjaluoto et al., 2002; Laforet & Li, 2005; Lee & Lee, 2001; Lin et al., 2003). Furthermore, Tan and Thompson were the only researchers to group internet experience along with compatibility in the formation and measurement of a new construct, compatibility with internet experience. This construct is similar to that of Kwon et al. s (2005) definition of compatibility which was compatibility with the internet and computer technologies (p. 428). The findings of this study also found a positive association between prior internet experience and adoption level of internet banking. Most prior studies (with the exception of Tan and Thompson, 2002) categorized internet experience and compatibility as separate constructs. However, relevant literature (Gerrard & Cunningham, 2003; Karjaluoto et al., 2002; Laforet & Li, 2005; Lee & Lee, 2001; Lin et al., 2003; Tan & Thompson, 2000) provided support for the assertion that studies examining compatibility in online settings utterly rely on prior internet experience as a key factor in measuring the construct. For this study, the relationship between

36 26 compatibility and previous internet experience is significant enough that it merits special consideration. Elgarah, Hightower, Johnson, and Van Slyke (2008) warned researchers not to mechanistically reuse (p. XX) scales when conducting diffusions research (particularly in relation to relative advantage and compatibility) because mechanistically reusing scales developed for a particular context may lead to a variety of undesirable effects (p. 50). Elgarah et al. s concerns should be taken into consideration because elements of compatibility measured in previous diffusions studies may not necessarily match with what is intended to be measured in the current study. In striving for accuracy and to avoid taking a one size fits all approach, a constricted version of the compatibility construct is proposed for the current study. The construct will be termed compatibility with internet experience and is adapted from Tan and Thompson (2003). For this study, compatibility with internet experience is defined as a taxpayer s previous internet use and their level of skill in performing online functions. The operational definition of this construct consists of span of use, frequency, intensity, diversity, skill, and knowledge of using the internet. The operational definition is also provided in the methodology section of this paper. Complexity Rogers defined (2003) complexity as the degree to which an innovation is perceived as relatively difficult to understand and use (p. 257). The more difficult a user perceives an innovation to be, the less likely they are to adopt. Data results from the 2008 IRS Free File Survey also supported this concept, as ease of use was cited by 65%

37 27 of users as a reason for adoption. A number of research studies have established a negative correlation between complexity and adoption. Langerak and Verhoef (2001) defined perceived complexity as the degree to which consumers find electronic grocery shopping difficult to understand (p. 277). They measured perceived complexity using a five-item scale consisting of statements related to complexity, level of difficulty ordering products, how problematic it is to compare products, how hard it is to find products, and complexity in relation to not being able to feel and see products. Results were that perceived complexity is related negatively to the intention of consumers to adopt electronic grocery shopping (p. 282). Hansen et al. (2004) measured perceived behavioral control as a determinant of behavioral intention. Perceived behavioral control was conceptualized as the consumer s subjective belief about how difficult it will be for that consumer to generate the behavior in question (p. 541). It was measured using a five-item scale consisting of statements related to complexity, difficulty finding products, difficulty ordering products, a reverse-coded item, and difficulty receiving groceries purchased over the internet. Results showed that perceived behavioral control was only slightly found to affect buying intention (p. 547). Other studies measured complexity in terms of user-friendliness and perceived ease of use. Chow, Luk, and Wan (2004) investigated the factors influencing customers adoption of banking channels in Hong Kong. User-friendliness was measured in terms of ease of use and clarity of service instructions. Data was gathered through the administration of a telephone and mail survey. A sample size of 314 bank customers was

38 28 obtained. The data was analyzed using factor analysis and correlation tests were run to test the relationships between the remaining variables. Chow et al. found: Beliefs about the convenience of internet banking were not correlated with its adoption.... What really mattered were the other three attributes of the channel (i.e., informativeness, user-friendliness, and assurance). These are the areas in which channel managers have to work hard. (p. 270) Their findings showed that complexity was a greater factor in determining adoption than other attributes. Lin et al. (2003) defined perceived ease of use as the extent to which a person believes that using a particular system will be free of effort (p. 503). It was measured using a four-item scale consisting of statements related to whether internet banking was clear and understandable, whether it was easy to learn, whether it would be easy to become skillful, and whether it would be easy to use. Lin et al. found perceived ease of use exerting a stronger influence than both perceived usefulness and perceived credibility (p. 513). Other online banking research studies also concluded that there were negative relationships between complexity and adoption. Ekin and Polatoglu (2001) and Cunningham and Gerrard (2003) both found support for negative correlations between a user s level of perceived complexity and their level of adoption. For this study, complexity will be defined as the level of difficulty the taxpayer perceives it will be to use Free File. Because internet tax filing requires more of a user s time and the user is prompted with more questions, it can be argued that it is more

39 29 complex than online banking and online grocery shopping. Therefore, it will be necessary to operationally define complexity accordingly. The operational definition of this construct consists of mental effort, difficulty, simplicity, and complexity. The operation definition is also provided in the chapter 3. Perceived Risk Perceived risk has been previously defined as a consumers uncertainty about decision outcomes and possible negative consequences associated with a particular choice (Dowling & Staelin, 1994). The more risk an individual perceives, the less likely they are to adopt an innovation. Perceived risk is not one of the original attributes of Rogers (2003) diffusion of innovations theory. Bauer (1960), Webster (1969), and Ostlund (1974) introduced risk as an additional dimension in diffusion and adoption. Research shows that a negative correlation exists between perceived risk and adoption, making it a relevant construct in this study. A review of the literature revealed that previous studies related to perceived risk identified security concerns as a main factor in defining and measuring the construct. Rotchanakitumnuai and Speece (2003) conducted a qualitative research study of corporate banking clients in Thailand. Seven adopters of internet banking and eight non adopters of internet banking were interviewed using a face-to-face technique. After performing a content analysis of the interviews, they concluded that internet banking users perceived lower levels of concerns with security, transaction reliability, and trust of the bank than did non internet banking users. Rotchanakitumnuai and Speece s findings matched those of Sathye (1999), who found that security concerns were a barrier to the

40 30 adoption of online banking, but differed from Gerrard and Cunningham (2003) who found security concerns of online banking high in both adopters and non adopters in their study of Singapore banking clients. Hamilton et al. (2002) defined perceived risk as focusing upon the importance of trust and the security of different delivery channels (p. 113). Their survey found that 84% of customers found security either fairly to extremely important, while approximately 83% of customers thought fear of the likelihood of errors as important factors in discouraging adoption. Hamilton et al. defined perceived risk as focusing upon the importance of trust and the security of different delivery channels (p. 113). Kwon et al. (2005) defined perceived risk as associated with consumer uncertainty about decision outcomes and possible negative consequences associated with a particular choice (p. 419). They measured it using a three-item scale consisting of the size of the service provider (in terms of assets), familiarity with the provider, and transaction security. The importance of each attribute was recorded on a five-point Likert scale (p. 424). They found transaction security was found to be an important service attribute, differentiating persistent non adopters and prospective adopters from adopters (p. 428). In measuring the attitude of consumers in China, Laforet and Li (2005) found among the security concerns, hackers and fraud were identified as the main concerns for not using online banking services (p. 373). Lin et al. (2003) identified a new construct, perceived credibility, as a new factor that reflects the user s security and privacy concerns in the acceptance of Internet banking (p. 501). Perceived credibility was measured using a two-item scale consisting of whether customers believed internet banking would divulge personal information and whether they felt secure in conducting

41 31 banking transactions online. Their study found perceived credibility was a predictor of adoption and concluded that compared to other online banking research based on trust or perceived risk, perceived credibility had the higher ability to predict and explain the intention of users to adopt Internet banking (p. 514). Chow et al. (2005) measured assurance in terms of security of customer information and accuracy of transaction information and found bank customers believed internet banking provided the least assurance among four banking channels (branch banking, ATM, telephone, and internet). Meanwhile, Ekin and Polatoglu (2001) characterized perceived risk within a reliability dimension [which included] financial, physical, or social risks associated with trying an innovation (p. 161). They measured it testing customers perceptions of online banking s reliability, security, and whether privacy was maintained. They found customers who use internet banking for the longest time or who use more of its services, find internet banking to be very reliable (p. 162). Tan and Thompson (2000) measured risk using a three-item scale consisting of confidence over security aspects, concern about internet banking transactions being known to others, and whether internet banking transactions can be tampered with by others. The same conclusions as other studies were reached the lower the perceived risk of using internet banking, the more likely that internet banking will be adopted. For the current study, perceived risk will be defined as how secure the taxpayer feels about Free File. It is operationally defined in terms of security, fear of knowledge known to others, and tampering. The operational definition is also provided in Table 3.1.

42 32 Research Question and Hypothesis Based on the review of the literature and relevant research findings, the following research question is presented: RQ: What are the factors influencing taxpayers intentions to adopt Free File? Hypotheses based on the research question and relevant findings are also proposed in relation to each of the attributes examined in the literature review. First, because the research findings found relative advantage to be positively related to adoption of internet banking and grocery shopping, the following hypothesis is proposed: H1: Internet users with higher levels of perceived relative advantage will be more likely to adopt Free File. Second, most of the research findings in the literature review found compatibility, specifically, compatibility with internet experience, to be positively related to adoption of internet banking and grocery shopping. Therefore, the second hypothesis is: H2: Internet users with higher levels of perceived compatibility with internet experience will be more likely to adopt Free File. Third, the research found that complexity was negatively related to adoption of internet banking and grocery shopping. Therefore, the third hypothesis is: H3: Internet users with higher levels of perceived complexity will be less likely to adopt Free File. Finally, perceived risk was also found to be negatively related to adoption of internet banking and grocery shopping. Therefore it is presumed:

43 H4: Internet users with higher levels of perceived risk will be less likely to adopt Free File. 33

44 34 Chapter 3 METHODS This section provides a description of the methodology used to test the hypotheses. An explanation will be provided for the research design, sampling process, collection and tabulation of data, and the procedures used to analyze the data. Research Design A quantitative research design was used to test each of the four hypotheses outlined at the end of chapter 2. Each hypothesis was tested using multiple regression analysis to measure the size and direction of the correlation between the dependent variable (intention to adopt) and the independent variables (relative advantage, compatibility with internet experience, complexity, and perceived risk). This method of analyzing data was chosen for this study because, according to Wright (1979), the multiple regression model allows us to examine the effects of several variables simultaneously on the dependent variable (p. 147). Because the objective of this study was to test the relationships between relative advantage, compatibility with internet experience, complexity, perceived risk, and each participant s intention to adopt Free File, the multiple regression test seemed fitting. However, there were some limitations associated with using a multiple regression approach for this study (more about this in the limitations section). The scales developed to measure relative advantage, compatibility with internet experience, complexity, and perceived risk were adapted, for the most part, from Tan and Thompson (2000). Tan and Thompson conducted a similar study using multiple

45 35 regression analysis to measure the relationship between these same variables and adoption of internet banking. Their study tested the relationship between adoption of internet banking and three factors attitude, subjective norms, and perceived behavioral control. Within the attitude factor, Tan and Thompson tested the correlation between relative advantage, compatibility with internet experience, complexity, perceived risk, and adoption of internet banking. They found that individuals who felt online banking provided a relative advantage were more likely to adopt it. They also found that compatibility with internet experience and lower levels of perceived risk were also more likely to predict adoption. On the other hand, the hypothesis that lower levels of perceived complexity would lead to a larger likelihood of adopting internet banking, was not found to be a significant predictor. The research design for the Tan and Thompson (2000) study was based on diffusion of innovations theory and tested the relationship between each variable and its relationship to the adoption of online banking. Therefore, it serves as a good model for the current study. Using parts of the Tan and Thompson (2000) research design, scales for this study were adapted for relative advantage, compatibility with internet experience, and perceived risk. For the complexity scale, only one item was adapted from Tan and Thompson. The rest of the complexity scale consisted of four new items created specifically for this study. The four new items to measure complexity were developed because internet tax filing programs require more time and effort to operate than online banking programs. The complexity scale items used by Tan and Thompson to measure

46 36 complexity in online banking were not used for this study because the way the questions were phrased would have required the participant to have actually used the program in order to make an assessment about the level of complexity experienced. For example, one of the items in the Tan and Thompson scale asked participants to respond to the following item: Using internet banking can be frustrating (p. 17). This question could only be asked in retrospect. The current study asked participants to answer questions based on their perception of complexity, so a question framed in such a way that requires a person to answer in retrospect is not appropriate. Therefore, new scale items were created that tested how the perceived levels of complexity would be associated with intention to adopt. The three new complexity scale items measured participants perceived levels of complexity, simplicity, and difficulty to operate. The fourth item was a reverse coded item. The new complexity scale is shown in Table 3.1. A new scale was also developed to measure intention to adopt and is also shown in Table 3.1. The resulting seven-item scale for relative advantage (adapted from Tan & Thompson, 2000), 13-item scale for compatibility with internet experience (adapted from Tan & Thompson, 2000), five-item scale for complexity (one item adapted from Tan & Thompson, 2000; the other four items are new), three-item scale for perceived risk (adapted from Tan & Thompson, 2000), and five-item scale for intention to adopt (newly created) are shown in the questionnaire (see Appendix A). Operational definitions of the constructs are provided in Table 3.1.

47 37 Table 3.1 Operational Definitions of Constructs Construct Dimensions Scale Derived From Relative advantage Compatibility with internet experience Complexity Perceived risk Intention to adopt ease, control, efficiency, convenience, usefulness, time savings span of use, frequency, intensity, diversity, skill, knowledge mental effort, difficulty, simplicity, complexity security, fear of knowledge known to others, tampering likely, planning on using, suspect will use, probably use, not use (reverse) Tan & Thompson (2000) (6 items) Made for this study (1 item) Tan & Thompson (2000) (8 items) Tan & Thompson (2000) (1 item) Made for this study (4 items, 1 reverse-coded item) Tan & Thompson (2000) (1 item, reverse coded) Made for this study (2 items) Made for this study (5 items, 1 reverse-coded) In addition to the scale items, the questionnaire also asked participants to provide demographic data regarding whether they knew how to use the internet, their age, sex, income, education level, primary language, and whether they were previously aware of Free File. Sample A convenience sample was used to collect the data. Participants were recruited at two free tax assistance workshops that took place on February 6, 2010 at the Charles A.

48 38 Jones Career and Education Center and February 13, 2010 at Grant High School in Sacramento, California. Only people who indicated they knew how to use the internet were eligible to participate in the study (this criterion will be discussed in detail later in chapter 3). These tax assistance workshops were hosted by the Volunteer Income Tax Assistance (VITA) program. The VITA program provides free tax help for low or middle income individuals in Sacramento who earn less than $56,000 a year. The tax events were organized by the Sacramento Coalition for Working Families and Assemblyman Dave Jones. I chose these two sites to conduct the study because they were the closest VITA sites in the area and the people in attendance fit the description of the type of person I wanted to study (taxpayers earning less than $56,000). Assemblyman Dave Jones created the coalition in 2005 when he learned millions in federal tax refunds went unclaimed by Sacramento county residents (Kim, 2010). The coalition is made up of a number of community partners whose mission is to connect low and moderate income people to services that help them achieve self-sufficiency. Having a large turnout at the tax events was important so that there would be enough people in attendance to ensure an adequate number of participants in the study. As a member of Assemblyman Jones staff, I was responsible for organizing the events and conducting outreach to promote the events to the community. Therefore, to ensure many people would attend the events, I mobilized coalition members to distribute flyers to their networks (see Appendix B for a sample brochure). Over 250,000 promotional flyers were distributed in six different languages. The result was that both VITA events were well-attended and yielded a high number of people from which to draw a sample. A

49 39 combined total of 250 people attended these two events. Four other tax events took place after February 13th, but, due to academic deadlines, people attending those events were not asked to participate in this study. Approximately $80,000 was raised from both private and public sources to fund outreach for these events and accompanying VITA sites. Together, over 12,000 people in the Sacramento area were served by a VITA site. Data Collection Of those who attended the February 6th and February 13th events, only internet users who were non adopters of Free File were asked to participate in the study. Only internet users were sought because a person must know how to use the internet in order to use Free File. To ensure adequate participation from this targeted demographic, I, and two volunteer surveyors (both trained by me to administer the questionnaire), approached taxpayers at the workshop and asked if they knew how to use the internet (see Appendix C for the script for surveyors). If the person replied yes to the question about whether they knew how to use the internet, they were informed about the study being conducted and asked if they wanted to participate. Those who did not know how to use the internet were not asked to participate. Those who knew how to use the internet and agreed to participate were provided a participant consent form and asked to fill it out. Upon completing the consent form, they were provided with IRS Publication 4821 (see Appendix D) that explained Free File. It was important to make sure every participant knew what Free File was so that lack of awareness would not theoretically be a factor in determining whether or not the participant would intend to adopt Free File. Rogers (2003) wrote, an innovation typically comes with such questions as What is the

50 40 innovation? How does it work? and Why does it work? (p. 172). In this case, if a participant did not know what Free File was, then it would not have been possible to accurately measure their intention to adopt, because lack of awareness would have been a determining factor. Without understanding what Free File is or how it works, the participant would not have had all of the information needed to answer the questionnaire. Therefore, this study measured participants intention to adopt Free File based on the information they read in IRS Publication Data Analysis Overall, 104 people participated in the study. All of the data collected from the questionnaires was placed in a Statistical Package for the Social Sciences (SPSS) data file. Each item on the questionnaire was entered separately and once all the data was entered into SPSS, all like scale items were combined. The resulting scales were previous internet use (UseInternet), Free File awareness (FFAwareness), sex, education level (Education), age, primary language (language), relative advantage (RelAdvantage), complexity, perceived risk (Risk), compatibility with internet experience (IntExperience), and intention to adopt Free File (Intent). The reliability of the scales was tested using Cronbach s alpha. The reliability value of each scale was as follows: relative advantage =.958, complexity =.790, perceived risk =.721, compatibility with internet experience =.873, and intention to adopt =.788. To further enhance the reliability of the scales, one item was removed from each of the following scales: complexity, risk, and intention to adopt. Removing these items increased the Cronbach s alpha value for each of these scales to the following:

51 41 complexity =.828, risk =.973, and intention to adopt =.971. Increasing the Cronbach s alpha value for each of these scales improved their internal consistency. Results were then run for both the original scales and the improved scales (see chapter 4).

52 42 Chapter 4 RESULTS The descriptive data were as follows: All participants indicated they knew how to use the internet. The average age was approximately 38 years, with the age range being between 17 and 67 years. Males comprised 36.5% of the participants and 63.5% were female. Approximately 4% had an education level less than high school, 22% indicated high school as the highest level of education they had completed, 48% had some college, and 26% had a college degree or higher. Approximately 82% of participants indicated English was their primary language, while approximately 18% responded that their primary language was a language other than English. Approximately 53% of participants indicated they were previously aware of Free File, while 47% were not previously aware of Free File. Three of the four hypotheses (H1, H2, and H4) were shown to be consistent with the data after analyzing the data under both the original and improved scales. One hypothesis (H3) was not shown to be a significant predictor of adoption. The final results of the data can be found in Appendix E. The first hypothesis (H1: internet users with higher levels of perceived relative advantage will be more likely to adopt Free File) was shown to be significant at the.005 level (relationship is significant when p <.05) when running the first test on the original scale. The second test (with the improved scale for intent) was also shown to be significant (p =.00). These results are consistent with previous research that shows a

53 43 positive correlation between relative advantage and adoption (Ekin & Polatoglu, 2001; Langerak & Verhoef, 2001; Tan & Thompson, 2000). The second hypothesis (H2: internet users with higher levels of perceived compatibility with internet experience will be more likely to adopt Free File) was shown to be significant at the.008 level under the original scale. Under the improved scale, the relationship was once again shown to be significant as p =.011. These results are also consistent with previous research showing a positive correlation between compatibility and adoption (Black et al., 2001; Karjaluoto et al., 2002; Laforet & Li, 2005; Langerak & Verhoef, 2001; Lee & Lee, 2001; Lin et al., 2003; Tan & Thompson, 2000). The third hypothesis (H3: internet users with higher levels of perceived complexity will be less likely to adopt Free File) was not shown to be significant under both the original and improved scales (p =.979 for the original scale, p =.319 for the improved scale). Tan and Thompson (2000) also found that there was not a significant relationship between complexity and adoption in their study of internet banking. An explanation as to why this might be the case will be discussed in chapter 5. The fourth hypothesis (H4: internet users with higher levels of perceived risk will be less likely to adopt Free File) was shown to be significant at the.007 level under the original scale. The relationship was also shown to be significant.024 level under the improved scale. These results are also consistent with previous data which shows a negative correlation between these two variables (Ekin & Polatoglu, 2001; Gerard & Cunningham, 2003; Hamilton, et al., 2002; Kwon et al., 2005; Laforet & Li, 2005; Lin et

54 44 al., 2003; Chow et al., 2005; Rotchanakitumnuai & Speece, 2003; Tan & Thompson, 2000). In summary, all scales were deemed reliable. Relative advantage was shown to be positively correlated with intention to adopt. Compatibility with internet experience was also positively correlated with intention to adopt. Perceived risk was negatively correlated with intention to adopt. There was no significant relationship between complexity and intention to adopt. These results mean that for the most part, attributes pertaining to the diffusion of innovations theory predicted adoption behavior for Free File (or at least intention to adopt).

55 45 Chapter 5 DISCUSSION The results showed that relative advantage, perceived risk, and compatibility with internet experience were all significant predictors of intention to adopt Free File. For the most part, the results of this study are consistent with the results of previous diffusion of innovations studies related to online banking and online grocery shopping (Black, et al., 2001; Ekin & Polatoglu, 2001; Gerard & Cunningham, 2003; Hamilton, et al., 2002; Karjaluoto et al., 2002; Kwon et al., 2005; Laforet & Li, 2005; Langerak & Verhoef, 2001; Lee & Lee, 2001; Lin et al., 2003; Chow et al., 2005; Rotchanakitumnuai & Speece, 2003; Tan & Thompson, 2000). The similarities in results can be explained in most part because of the characteristics these online programs share with each other (convenience, familiarity with the internet, ability to perform transactions online and required to release private information over the internet). One of the major findings of the current study is that despite only using an informational brochure to describe the program, similar conclusions were reached when testing the relationship between adoption and relative advantage, compatibility, and risk. It is important to note that the current study did not measure actual adoption behavior. The conclusions drawn about likelihood to adopt were all based on participants perceptions of Free File based on the informational brochure they were provided. The relationships between each variable are based solely on perception, not actual usage or adoption. Therefore, it may be possible for future diffusions studies to measure adoption behavior (or at least intention to adopt) without actually having to provide participants

56 46 with access to the online program. This is one implication of the current study. On the other hand, the results for the complexity variable were not necessarily consistent with most research findings of online banking and online grocery shopping (Cunningham & Gerrard, 2003; Ekin & Polatoglu, 2001; Langerak & Verhoef, 2001). Previous studies of online banking and grocery shopping found that there was a negative relationship between the level of complexity and adoption rates. The more complex users thought the programs were, the less likely they were to adopt them. In the current study, this relationship was not found to be significant. There may be several possible explanations why in this study, complexity was not found to be negatively related to intention to adopt. First, this study did not actually require participants to try using the Free File program and it did not test for actual adoption. What this study measured was participant perceptions of Free File based on the informational material provided in IRS Publication Therefore, participants may not have had a good sense of exactly how complex the program was to operate. In contrast, most of the previous online banking studies asked participants for their attitudes toward online banking in retrospect (after they had used the program). Therefore, the responses in the current study may have differed if they had actually had the opportunity to use the Free File program. Second, the IRS informational brochure promoting Free File (IRS Publication 4821) is written in a way that it could have persuaded the reader to think the program is easier to use than it actually is. Publication 4821 states that Free File is a very user friendly and simple way to prepare and e-file your own federal tax return (p. 1). The

57 47 language in this brochure used to describe Free File makes it appear very easy to use. This language may have influenced participants perceptions. Again, without actually logging on to the program and trying it out, each participant could not accurately assess what their ability to use the program really was. Third, it may be that the education level of most participants was a factor in why Free File was not perceived as complex to use. Approximately 74% of participants had achieved some level of college or higher. The sample population was highly educated, so their experience with computers and their level of comfort in using computers may have been higher than it would have been among a less educated population. Furthermore, their perception about how easy it is to use Free File may have been significantly biased as they most likely have experience using other types of internet programs and may have felt this program would be easy to use as well. The final results may have been different if the participants in this study had been less educated and not as familiar with how to use web-based programs. The higher education level of participants in the current study (almost 75% had some college experience or more) was not something I had expected. For the most part, when working with a population that is eligible for VITA s free services, I would have expected a less educated sample. Those who are eligible for VITA earn lower wages than the average college educated person. A possible explanation for why the VITA clients were more educated than expected is because of the current bad economy and high unemployment rate. More college educated people than usual are losing their jobs or being furloughed as a result of the bad economy. This could explain why the sample

58 48 population was more educated than I had originally anticipated. My observations lead me to believe there are two main reasons why Free File is not being used more by the public. One reason is that many people still do not use the internet or feel comfortable filing their taxes using the internet. Another reason is that even among those who do use the internet, there are still many who are not aware of Free File or its benefits. As was described in the Public Utilities Commission study, a possible explanation for the broadband gap and/or adoption of web programs such as Free File, is that users have to be able to relate to, and find value in the applications and content of a website (Bradshaw 2006). If they do not find value in the content or cannot use the applications, they will not adopt it. In the next few paragraphs, I will discuss these two issues. First, more than half of those who received assistance at the VITA sites did not fill out the questionnaire claiming they did not use the internet. Of the 250 people who received tax assistance between the two events, only 104 filled out the questionnaire. Only those who claimed they knew how to use the internet were asked to fill out the questionnaire. The majority of taxpayers at these events did not participate, meaning that they were not internet users. They would not be able to use Free File to do their taxes simply because they would not have the knowledge of the application or the interest. This is consistent with the findings of Bradshaw s Public Utilities Commission report which highlighted that the broadband gap can be explained by one of the three following broad categories: (i) issues concerning access, (ii) issues concerning affordability, and (iii) issues concerning applications and content (p.1).

59 49 I did not keep track of demographic information for people who were not internet users and could not participate in the study. However, my observation and estimate is that most people who did not participate were either Latino and did not speak English, or they were elderly. Although the observations are purely anecdotal, they support findings from the Public Utilities Commission study which found that Non-English speakers and those over the age of 65 are less likely to have broadband in the home. The study found that only 13% of those who over the age of 65 used broadband in the home (Bradshaw, 2006). Meanwhile, the Public Policy Institute study found that only 61% of Latinos are using the Internet in California (Baldassare, et al., 2009). Therefore, it is not surprising that most of the taxpayers at the events who did not use the internet, also happened to be elderly or Latino. The aforementioned observation helps explain why Free File adoption is not widespread, especially among the populations it is intending to target. If a person is not able to use the internet or a computer, then there is no way they can do their own taxes using Free File. Although the results of this study show that potential users are more likely to adopt Free File if they perceive value in its attributes, the conclusions drawn are only limited to those who know how to use the internet. The results of this study are therefore not applicable to people who do not use the internet, are not comfortable with their ability to use the internet, or do not have access to it. Second, there are still many people who do not know about Free File. Given that the participants in this study were a highly educated group of internet users, the fact that more than 46% of them were not previously aware of Free File is alarming. This statistic

60 50 reveals that Free File has not been promoted heavily enough to its targeted audience. Furthermore, although 53% of participants were previously aware of Free File, they were obviously not persuaded to use it to file their taxes this year. Free File could have been more heavily advertised, and the advertisements could have done a better job of communicating the benefits of the service and explaining the security of the program. The makers of Free File should address both of these issues if they want to increase adoption rates among internet users. Finally, there are factors other than internet experience and lack of awareness preventing people from using Free File. For example, some participants who indicated they would not use Free File in the future manually wrote on their questionnaires that they would rather have a tax expert do their taxes for them. Although this observation is purely anecdotal and was not measured, it appears to be a relevant comment and was repeated several times by participants who chose to write comments at the end of their questionnaire. For many of these people, simply knowing that someone with expert knowledge is preparing their tax return is the kind of reassurance they need when filing taxes they simply do not trust their own ability to do taxes. The self-efficacy of each participant in relation to their own perceived knowledge of how to do their taxes is not a factor that was measured in this study. Because Free File requires more knowledge and time to use than other online programs such as online banking and grocery shopping, one s perception of their own ability to do taxes (even with assistance from an online program) could be a significant factor in determining whether a person chooses to adopt Free File and this should be measured in future studies.

61 51 From a personal perspective, these results helped me develop a better understanding of what factors influence a person s willingness to adopt Free File. In my five years working with the VITA program, a common assumption was that people do not use Free File simply because they find it too complicated to use. However, the results of this study do not necessarily show that assumption to be entirely correct. To the contrary, people who participated in this study seemed very open to the idea of using Free File based on its relative advantages and how it appears to be compatible with their lifestyle. Complexity did not appear to be an issue. Among internet users who believed themselves capable, lack of awareness of the program and not understanding its benefits seemed to be better explanations of why Free File was not previously adopted. Another observation I came across when conducting this study is that many of the people we approached who did not know how to use the internet were non-english speakers. Of those that did not speak English, the majority spoke Spanish. Although I was able to communicate with them in Spanish and ask them if they knew how to use the internet, the response was overwhelmingly no. There were approximately 12 Spanishspeaking clients at each site and almost all of them did not participate in the study because they claimed they did not know how to use the internet. There were also many seniors who did not participate for the same reason. This final observation highlights a bigger issue the digital divide. The digital divide is more prevalent among those who do not speak English and the elderly, as was discovered when conducting research for this study. Online programs like Free File promise great societal benefits to low income families (many of which do not speak

62 52 English). However, these programs are not necessarily effective because the communities that could benefit from them in many cases do not have the technical competence to go online and use the programs. Until we close the digital divide, there will always be a group of people who will miss out on the benefits of online programs such as Free File. Therefore, it would make sense for the makers Free File and the government to invest in programs that help teach people how to use computers and the internet particularly in lower income communities and those where English is not a first language.

63 53 Chapter 6 CONCLUSION The results showed that relative advantage, compatibility with internet experience, and perceived risk were all significant predictors of intention to adopt Free File. With the exception of complexity, these results are consistent with the findings of previous studies related to online banking and online grocery shopping (Black, et al., 2001; Ekin & Polatoglu, 2001; Gerard & Cunningham, 2003; Hamilton, et al., 2002; Karjaluoto et al., 2002; Kwon et al., 2005; Laforet & Li, 2005; Langerak & Verhoef, 2001; Lee & Lee, 2001; Lin et al., 2003; Chow et al., 2005; Rotchanakitumnuai & Speece, 2003; Tan & Thompson, 2000). Anecdotal evidence suggests that non English speakers (primarily Latinos) and the elderly were the least likely to participate in the study because they lacked the ability and skills to use the internet. Of the 250 people who attended the tax workshops, only 104 people said they were internet users and participated in the study. This low participation rate suggests that lower income people (at least those earning under the VITA guideline maximum of $45,000) are less likely to be internet users. Implications The implications of this study provide some empirical data to explain the factors that influence the adoption of Free File. The results of this study (assuming there are no violations of the assumptions of linear regression models) indicate that relative advantage, compatibility with internet experience, and perceived risk are all significant predictors of adoption. Knowing this information is valuable to advocates of Free File

64 54 because it helps them understand what attributes of Free File will persuade more members of the public to adopt the program (assuming they are internet users). If adoption rates increase, it is assumed taxpayer s will save money and so will the government. Furthermore, the results provide evidence to support Rogers (2003) theory that the digital divide goes beyond the issue of access. Because 46% of participants in this survey did not previously know about Free File, the results speak volumes about the general lack of awareness of Free File internet tax filing programs and how that influences adoption. As Rogers predicted, new technologies are plagued by more than just the digital divide. The knowledge divide and content divide are now becoming significant issues inhibiting adoption as well. As advocates of Free File continue working to improve adoption rates, they cannot ignore these critical issues. Furthermore, the fact that many people continue using in person tax preparation services such as VITA should be taken into consideration. If adoption rates for internet tax filing do not improve, then it is important that the government not squander resources by investing more than is necessary for these programs. Doing so could promote unintended consequences such as diverting resources away from programs such as VITA which actually do provide a good service to low income individuals and families and do not require any level of skill or equipment. It has already been revealed in this study that Free File has a problem promoting and advertising itself to internet users (46% of internet users in this study did not know what Free File was). But this study has revealed another problem with Free File The

65 55 fact that the populations Free File can help most (the elderly, non English speakers, lower income individuals, etc.), are less likely to be internet users. This is a problem with Free File that should be of great concern to both communication scholars who study the digital divide, the makers of Free File programs, and the government. Some of these issues could be resolved by making simple changes such as developing content in other languages or providing free telephone customer service operators who could help internet users less confident in their ability to navigate the program. Limitations of the Study As with all studies, this study had limitations. First, the current study only measured intention to adopt and not actual adoption behavior. The taxpayers surveyed had already completed this year s tax return at the tax workshop, so measuring whether or not they will actually adopt Free File for the next tax season would require a longitudinal study. It would not be known until the taxpayer completes next year s tax return in 2011, whether they actually used Free File. Not being able to measure actual adoption behavior is a big limitation in this study. Second, this study measured a participant s intention to adopt based on the information he or she received in IRS Publication The information provided in this publication is limited and may not provide the taxpayer with all of the information needed to make a decision about whether to adopt. The publication is informational only. Participants were not given the opportunity to use the technology and test it out for themselves. Had the participants been able to use the technology on a trial basis, the results may have been different. Using the technology or providing tutorials for

66 56 participants was not an option in the current study because there were not enough computers available on site for participants to undergo a tutorial. Future studies should provide participants with a hands-on tutorial of the program and then test attitudes regarding the program after using the technology. Third, the results of the current study may not be generalizable because participants were only from Sacramento. This study should be viewed as a convenience sample case study of taxpayers living in Sacramento and not reflective of the general population. Conclusions were drawn without performing an analysis of the linear regression residuals; therefore, not verifying if the assumptions for this specific statistical test were violated. Suggestions for Future Research Future studies should measure the attitudes of taxpayers in multiple parts of the state or country to determine if attitudes are similar across a larger cross section of the population. The current study was limited to Sacramento because due to time constraints and limited resources, travel and/or coordination with VITA sites in different parts of the state was not possible. Although Sacramento is a very diverse city and the Capitol of one of the most diverse states in the Country, future studies should seek participation from multiple parts of the state and/or country if the results are to be considered generalizable. Future studies should also attempt to achieve a sample population of internet users who are less educated and compare those results with the results of the current study (which had an unusually high number of participants with some college experience or higher). Because those who participated in the current study tended to be more educated,

67 57 there may be differences between the behavior of this population and the behavior of participants with lower levels of education. Future studies should assess whether there are differences in how these subgroups perceive Free File. The challenge may be that it will be harder to find taxpayers who meet the criteria and are also competent enough to use internet programs and Free File. This brings up another issue for future research that researchers should keep track of which taxpayers indicate they are able to use the internet and which are not. Knowing what the demographics are of the non internet users who get help at VITA sites might reveal new information such as whether language barriers or lack of knowledge are the reasons why they are not going online to file. One of the major draw backs of this study was that it did not measure whether a participant actually adopted Free File. As mentioned in the limitations section, this would require the researcher to track the participant s behavior during the next tax season when they will once again file taxes. Therefore, future researchers should consider conducting a longitudinal study that measures actual behavioral patterns over a longer period of time. For example, the researcher could assess whether the participant intends to adopt Free File and then check with them the following year to find out if they followed through with their intent. Future researchers could even take the study a step further by checking in with the participants annually to find out whether they continue to use Free File on an annual basis. It should also be studied whether adjustments to content of Free File sites would help to increase adoption. If Free File websites were written in Spanish or other languages, it might increase usage. Therefore, future research should explore whether

68 58 translating material or changing website content will help get non English-speaking internet users to visit and use the site. In addition to content changes, the makers of Free File should study whether adding additional support services such as a 24-hour customer service phone line would help get more people online using the program. One of the advantages of online banking is that most banks offer a toll free customer service line where users can ask questions if they are confused. Free File does not offer this kind of additional assistance to its users. Future studies should assess whether adding features such as a 24 hour customer service line would increase adoption rates. The current study did not give participants the opportunity to use the Free File program on a trial basis. Therefore, future studies should measure the relationship of the predictor variables only after participants have tried the program on a trial basis. Participants should test the program first, and then answer questions related to their attitudes and perceptions of it. Conducting a study in this fashion will provide researchers with a more accurate representation of participants attitudes toward Free File and whether they will actually adopt it. Finally, future researchers should consider using a qualitative approach. Conducting a qualitative study could help identify other variables that may influence the adoption of Free File. Since a quantitative approach only allows researchers to test for specific variables, a qualitative study may shed light on other issues that were not taken into consideration by the current study. For example, in this study, one participant wrote a note on their survey stating that they would not use free file because they did not trust their own ability to do taxes and wanted a professional to do it for them. This is an

69 59 example of a factor that may influence adoption of Free File but could not be captured by quantitative nature of the current study. A qualitative approach would allow the researcher to have more flexibility to identify the factors, perceptions, and attitudes that influence adoption. Summary This study provided both an insight into what factors influence current internet users to use Free File, while identifying potential reasons why non internet users would not be able to use it. Among the reasons why internet users would choose to adopt Free File in the future, perceived relative advantage, compatibility with internet experience, and a sense that the program is secure, were all factors that influenced intention to adopt. Among the reasons why people would not use Free File, are lack of awareness and lack of ability to use the internet. Free File faces two major obstacles moving forward. First, a large quantity of the population it intends to serve is not capable of utilizing the service because they either do not know how to use the internet, do not have access to it, cannot afford it, or do not have the necessary equipment. These potential users will either not be interested in going online or will not feel that they are capable of using the website or its applications. In some cases (as in the case of non English speakers), people will just not be able to identify with or understand the content. These are serious problems and significant barriers to adoption. Second, even among internet users, many of them do not know about Free File, what it does, or how it would benefit them. Although the government has made it a goal

70 60 to increase adoption of Free File, and all online government services, the general population has not necessarily followed because not everyone is able to. Some people just do not use the internet for these purposes or are unaware that they can. The solution would appear to be that the government needs to invest more resources and conduct more outreach in order to explain to the public what the benefits are of e-government programs like Free File. More resources must also be invested into helping people get wired, connected, and trained on how to utilize these resources online. Outreach in multiple languages will be important to increase adoption rates among those who do not speak English. But outreach is not enough. Published content at every level (websites, applications, instruction manuals, etc.) must be translated if we are going to get serious about helping non English speakers get online. The current study demonstrates that once people reach the point where they feel competent enough with their ability to use the internet, persuading them to use these programs is simply a matter of communicating the benefits. However, until the digital divide closes and there are no longer technology haves and have not s, programs like Free File will clearly not benefit much of the population it intends to serve. In the meantime, this study provides further evidence to support the argument that our government must make closing the digital divide, on all fronts, a top domestic policy priority. Closing the digital divide must be a priority if our state and nation are truly motivated to provide government services to everyone who could stand to benefit from these services.

71 APPENDICES 61

72 62 APPENDIX A Free File Questionnaire Participant Instructions (Part 1): For questions 1 8 please circle the number that pertains to you or answer with the information requested. 1. Do you use the internet? 1 Yes 2 No 2. Before today, were you aware of Free File? 1 Yes 2 No 3. What is your sex? 1 Male 2 Female 4. What is the highest level of education you have completed? 1 Less than high school 2 High school 3 Some college 4 College or higher 5. What is your age? 6. What is your primary first language? Participant Instructions (Part 2): For questions 9-35, please circle the number that best represents how you feel about each statement. 7. Free File would make it easier for me to prepare my own tax return (Relative Advantage 1) 1 = Strongly Disagree 2 = Disagree 3 = Neither Agree nor Disagree 4 = Agree 5 = Strongly Agree 8. Free File would give me greater control over preparation of my tax return (Relative Advantage 2) 1 = Strongly Disagree 2 = Disagree 3 = Neither Agree nor Disagree 4 = Agree 5 = Strongly Agree

73 63 9. Free File would allow me to prepare my tax return more efficiently (Relative Advantage 3) 1 = Strongly Disagree 2 = Disagree 3 = Neither Agree nor Disagree 4 = Agree 5 = Strongly Agree 10. Free File would be a more convenient way to prepare my tax return (Relative Advantage 4) 1 = Strongly Disagree 2 = Disagree 3 = Neither Agree nor Disagree 4 = Agree 5 = Strongly Agree 11. Free File would allow me to prepare my tax return more effectively (Relative Advantage 5) 1 = Strongly Disagree 2 = Disagree 3 = Neither Agree nor Disagree 4 = Agree 5 = Strongly Agree 12. Free File would be a more useful way to prepare my tax return (Relative Advantage 6) 1 = Strongly Disagree 2 = Disagree 3 = Neither Agree nor Disagree 4 = Agree 5 = Strongly Agree 13. Using Free File to prepare my tax return would save me time (Relative Advantage 7) 1 = Strongly Disagree 2 = Disagree 3 = Neither Agree nor Disagree 4 = Agree 5 = Strongly Agree 14. Using Free File would require a lot of mental effort (Complexity 1) 1 = Strongly Disagree 2 = Disagree 3 = Neither Agree nor Disagree 4 = Agree 5 = Strongly Agree 15. Using Free File would be difficult for me to operate (Complexity 2) 1 = Strongly Disagree 2 = Disagree 3 = Neither Agree nor Disagree 4 = Agree 5 = Strongly Agree 16. Free File would be easy for me to operate (Complexity 3 - Reverse) 1 = Strongly Disagree 2 = Disagree 3 = Neither Agree nor Disagree 4 = Agree 5 = Strongly Agree 17. Free File would not be simple for me to use (Complexity 4) 1 = Strongly Disagree 2 = Disagree 3 = Neither Agree nor Disagree 4 = Agree 5 = Strongly Agree 18. Using Free File would be complex for me (Complexity 5) 1 = Strongly Disagree 2 = Disagree 3 = Neither Agree nor Disagree

74 64 4 = Agree 5 = Strongly Agree 19. I am confident over the security aspects of Free File (Perceived risk 1 - Reverse) 1 = Strongly Disagree 2 = Disagree 3 = Neither Agree nor Disagree 4 = Agree 5 = Strongly Agree 20. I fear that the information I submit through Free File will be known to others (Perceived risk 2) 1 = Strongly Disagree 2 = Disagree 3 = Neither Agree nor Disagree 4 = Agree 5 = Strongly Agree 21. I fear that the information I submit through Free File will be tampered with by others (Perceived risk 3) 1 = Strongly Disagree 2 = Disagree 3 = Neither Agree nor Disagree 4 = Agree 5 = Strongly Agree 22. How long have you been using the internet? (Internet experience 1 Span of usage) 1 = Less than a month 2 = 1 to 6 months 3 = 6 months 1 year 4 = 1 year to 2 years 5 = More than 2 yrs 23. On average, how frequently do you use the internet? (Internet experience 2 - Frequency) 1 = Never/Almost Never 2 = About once a month 3 = A few times a month 4 = A few times a week 5 = At least once a day 24. I use the internet to perform complex tasks such as online banking or online shopping (Internet exp. 3 Intensity of usage) 1 = Strongly Disagree 2 = Disagree 3 = Neither Agree nor Disagree 4 = Agree 5 = Strongly Agree 25. Please indicate the extent to which you use the Internet to perform the following tasks: (Internet experience 4 Diversity) Gathering information 1 = Not at all 2 = Rarely 3 = Sometimes 4 = Often 5 = To a great extent Communication (e.g. , cyberchat) 1 = Not at all 2 = Rarely 3 = Sometimes 4 = Often 5 = To a great extent Downloading software 1 = Not at all 2 = Rarely 3 = Sometimes 4 = Often 5 = To a great extent

75 65 Shopping 1 = Not at all 2 = Rarely 3 = Sometimes 4 = Often 5 = To a great extent Searching for job 1 = Not at all 2 = Rarely 3 = Sometimes 4 = Often 5 = To a great extent Swapping or selling stuff 1 = Not at all 2 = Rarely 3 = Sometimes 4 = Often 5 = To a great extent 26. I am very skilled at using the Internet (Internet experience 5) 1 = Strongly Disagree 2 = Disagree 3 = Neither Agree nor Disagree 4 = Agree 5 = Strongly Agree 27. I consider myself knowledgeable about good search techniques on the Internet (Internet Experience 6) 1 = Strongly Disagree 2 = Disagree 3 = Neither Agree nor Disagree 4 = Agree 5 = Strongly Agree 28. I know less about using the Internet than most users (Internet Experience 7 Reverse) 1 = Strongly Disagree 2 = Disagree 3 = Neither Agree nor Disagree 4 = Agree 5 = Strongly Agree 29. I know how to find what I want on the internet using a search engine (Internet Experience 8) 1 = Strongly Disagree 2 = Disagree 3 = Neither Agree nor Disagree 4 = Agree 5 = Strongly Agree 30. I will likely use Free File to file my taxes next year? (Intention to adopt 1) 1 = Strongly Disagree 2 = Disagree 3 = Neither Agree nor Disagree 4 = Agree 5 = Strongly Agree 31. I plan on using Free File to file my taxes next year (Intention to adopt 2) 1 = Strongly Disagree 2 = Disagree 3 = Neither Agree nor Disagree 4 = Agree 5 = Strongly Agree 32. I suspect that I will use Free File to file my taxes next year (Intention to adopt 3) 1 = Strongly Disagree 2 = Disagree 3 = Neither Agree nor Disagree 4 = Agree 5 = Strongly Agree 33. It will probably use Free File to file my taxes next year (Intention to adopt 4)

76 66 1 = Strongly Disagree 2 = Disagree 3 = Neither Agree nor Disagree 4 = Agree 5 = Strongly Agree 34. I will not use Free File to file my taxes next year (Intention to adopt 5 Reverse) 1 = Strongly Disagree 2 = Disagree 3 = Neither Agree nor Disagree 4 = Agree 5 = Strongly Agree 35. If you do not intend to use Free File next year, please provide your reasons for why you will not use it.

77 67 APPENDIX B Sample Brochure

78 68 APPENDIX C Script for Surveyors Instructions You will be asking people for their permission to participate in a study measuring taxpayer attitudes of Free File services. Filling out the survey is optional. When soliciting participants for the study, please use the following script: YOU SAY: Hi, my name is. I m here today conducting a study of taxpayers attitudes of free electronic tax filing preparation services. Do you use the internet? (WAIT FOR RESPONSE) If response is NO Do not administer questionnaire. Move on to next person. If response is YES, YOU SAY Ok. If you complete a questionnaire today, you will be entered into a raffle contest with a chance to win a cash prize of $100. Would you like to fill out the questionnaire? If response is NO Thank them for their time and move on to next person. If response is YES Great. Before we get started on the questionnaire, I would like to provide you with a few details about the study. The study is being conducted by Alex Barrios, a graduate research student at California State University, Sacramento. It is an academic study of taxpayers attitudes of electronic tax filing services. To participate in the study, you will fill out this questionnaire (Hand them the questionnaire). It will take approximately three to five minutes of your time today. Before you fill out the questionnaire, please look through the following brochure (Hand them IRS Publication 4821). Also, I will need you to read and sign this consent form (Hand them the consent form and have them fill it out and return it before filling out the questionnaire). ** WHEN THE PARTICIPANT IS DONE FILLING OUT THE QUESTIONNAIRE, PLEASE REVIEW IT TO MAKE SURE THEY FILLED OUT EACH QUESTION. IF THEY MISSED A QUESTION, PLEASE ASK THEM TO FILL IT OUT. IF THE PARTICIPANT HAS ANY QUESTIONS FOR THE RESEARCHER, PLEASE CONTACT ALEX IMMEDIATELY. THANKS!

79 69 APPENDIX D IRS Publication 4821

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