Professional services tax proposals discuss in multiple states

Taxation of CPA services was a hot topic in several state legislatures this year as states sought to fix expect revenue shortfalls.

States have debat for years whether to broaden their sales tax base to include professional services, typically those offer by CPAs, attorneys, real estate agents, and architects. In recent years, legislatures have become more creative in their consideration of these taxes, according to Kueck, as increas state budget deficits have put more pressure on legislators to find ways to fund nes, ucation, and other social services.

As many states’ economic woes worsen because of the combin effects of the pandemic and economic shutdowns, “we expect interest [in this ] to increase considerably,” said Joe Crosby, CEO of MultiState Associates of Alexandria, Va., which tracks legislative activity in statehouses around the nation. Besides tracking , his company runs advocacy campaigns and ifies before state legislative committees on behalf of its clients, which are corporations and professional organizations, including the AICPA.

A “high probability” exists that bills to tax professional services will be introduc this year in California, Connecticut, Illinois, Kansas, Maryland, Pennsylvania, Rhode Island, Virginia, and Washington, according to MultiState’s analysis.

Colorado, Minnesota, Nebraska, Oklahoma, Texas, Vermont, and Wyoming may have a “willingness” to consider such , according to MultiState.

In West Virginia, Gov. Jim Justice propos professional services taxation in exchange for cutting the state’s income tax in his State of the State address in February.

The measure fail but had propos a tax on professional services somewhere in the ballpark of 6%, the same as the state’s sales tax, according to Kueck. She said propos professional services taxes are generally the same rate as a state’s sales tax.

She crit state CPA societies’ effo at the local level for stopping many such bills in the past. “Their tena has been invaluable for the profession. We work with them, but they have the ground game cover.”

Legislative interest in taxing professional services has a history. The issue drew national attention in 1987 when Florida pass a broad sales tax on services that was soon repeal thanks to opposition by in-state businesses. In 2007, Michigan enact and then repeal a broad sales tax on services

In 2019, Utah lawmakers fast-track that would have tax professional services.

“There was a ton of outcry there,” Kueck said. “Hundrs and hundrs of letters were sent to state legislators.”

Similar bills also fail that year in Connecticut and Wyoming. In 2020, Maryland introduc a bill to expand taxes on professional services, but its state CPA society successfully work to shelve that .

“The accounting profession and other affect professions are going to work diligently to make sure that legislators will understand the deleterious impacts of adopting this sort of ,” Crosby said.

Interest in taxing professional services, he said, comes from both sides of the aisle and for different .

“Conservative state lawmakers believe the best thing they can do for citizens is allow businesses to provide a higher standard of living, and the best way they can do that is to ruce taxes on ion,” he said. “More progressive elets believe the best way to enhance citizens’ well-being is provide more and better governt services, and you have to raise taxes to do that.”

These proposals fail because they are poorly craft from a tax or economic policy perspective, according to Crosby, who point to data from the Commerce Departt’s Bureau of Economic Analysis (BEA). Eighty-one percent of accounting services (including bookkeeping and tax preparation) are provid to businesses, according to the BEA. Governt and not-for-profit purchases constitute 10% of accounting services. The remaining 9% are purchas by individuals, and nearly all of those services are for tax preparation.

“Even if you want to impose a tax on that minor remainder — tax preparation services for individuals — that’s perverse,” Crosby said. “You are telling people you will impose a tax on them only because they are forc to comply with tax laws.”

George Spencer is a freelance writer bas in North Carolina. To comt on this article or to suggest an idea for another article, contact Chris Baysden, a JofA associate director, at Chris.Baysden@aicpa-cima.com.


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