Taxes on professional services have been a major issue around the country and many state CPA societies are developing successful strategies for combatting these proposals. States are continuing to struggle with budget deficits, and many are turning to taxes on professional services as a way to increase revenue.
In the American Institute of CPAs’ annual survey of state CPA societies, 24 states indicated that they anticipate their legislatures will consider proposals in 2013 to tax professional services, including accounting services. Currently, three states already tax professional services and do not exempt accounting services. The states are Hawaii – four percent, New Mexico – five percent and South Dakota – four percent.
In January 2013, Minnesota Governor Mark Dayton (D) unveiled his budget that proposes changes to the state’s sales tax structure to include a tax on accounting services. The Minnesota Society of CPAs (MNCPA) mobilized and set up an issue page opposing the change. After much heated debate and significant feedback from businesses and professional organizations opposing the legislation, Governor Dayton retracted his plan to tax accounting and other professional services.
Geno Fragnito, director of Government Relations at the MNCPA said, "Governor Dayton’s retraction of his plan to tax these services was a direct result of the grassroots involvement of CPAs and a strong statewide coalition of people opposed to the plan. More than 200 people signed up to testify at a recent House Tax Committee meeting. CPAs in Minnesota have a strong reputation as trusted business advisors, and legislators value their input, especially the input of constituent CPAs."
Ohio Governor John Kasich's (R) biennial budget (H.B. 59) proposes to lower the state sales tax, but expands the sales tax base to potentially thousands of other services – including accounting and bookkeeping services.
Scott Wiley, the president and CEO of the Ohio Society of CPAs, said, “The Ohio Society of CPAs shares Gov. Kasich’s goal of creating a jobs-friendly environment in Ohio, but we believe expanding sales tax to most services would hurt, not help, Ohio’s economy.”
“Tax policies must evolve to keep a state competitive and to fund basic needs and we stand ready to work with our governor and legislative leaders to make our state even better,” Wiley said.
In 2012, seven states (Arizona, California, Kentucky, Maryland, Michigan, New Jersey and South Dakota) considered legislation to tax professional services, but thanks to great advocacy efforts by state CPA societies, none of these states enacted the proposed tax.
In Maryland, Governor Martin O’Malley’s (D) 2013 budget bill included a provision to tax professional services that extended to other electronic services, like e-filing of tax returns and webcasts for educational purposes. The Maryland Association of CPAs (MACPA) has developed strategies for dealing with the possibility that a sales tax on professional services could come up during the legislative session.
Tom Hood, CEO of MACPA, said, “We have been effective at holding this off for the past ten years and one of the key phrases that sticks is, ‘it is a tax on taxes,’ using the argument that the State is forcing a tax on top of a very complex taxation system that makes most small businesses turn to CPAs for help with their taxes and that is just grossly unfair.”
Taxes on professional services are not only detrimental to CPAs, but for all professionals who provide services. States with such taxes are at a competitive disadvantage compared with those that do not tax services. Not only do they discourage the use of services, but they also discourage companies seeking to relocate or expand.
If you would like more information about proposals creating a sales tax on services, please contact James Cox, Manager, State Legislation, American Institute of CPAs, at firstname.lastname@example.org.