Sales Tax on Accounting Services 


    Background

    Three states already tax professional services and do not exempt accounting services.  The states are Hawaii - 4%, New Mexico - 5%, and South Dakota – 4%.  Some states also have taxes that affect (but do not specifically target) the accounting profession.  For example, Delaware imposes a gross receipts tax of .004% on monthly receipts over $100,000, and the state of Washington has a 1.8% business and occupation tax on service providers.

    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 the state CPA societies and businesses, none of these states enacted the proposed tax. 

    As states' economies shift from manufacturing to services (shrinking the revenue base in some cases), state legislators are likely to consider again this year sales taxes on professional services.  In the AICPA's annual survey of state CPA societies, 24 states anticipate that their 2013 legislature will consider a proposal to tax accounting services, and at least one proposal has surfaced already.  Minnesota Gov. Mark Dayton and Ohio Gov. John Kasich  recently proposed a sales tax on services that includes accounting services -- the MNCPA and OSCPA have already mobilized to oppose it. 

    As we start the legislative season, the profession will continue to advocate against these proposals, pointing out that sales and use taxes on professional services are detrimental because a tax on accounting services: 

    • Is very complicated to administer for states and taxpayers, as the multi-state nature of customers and service providers often makes it difficult to determine where, when, and how the services take place.  In fact, three states (Florida, Michigan, and Iowa) enacted and then swiftly repealed sales taxes on services, in part because of the complexity in administering the taxes.

    • Creates a competitive disadvantage for the state (compared to other states that do not tax services), discouraging relocation and expansion, which negatively impacts economic growth and development.

    • Discriminates against small businesses because small and emerging firms often have a need to use outside services that would be taxed, while larger companies with in-house expertise would not be taxed for such services.

    • Is regressive - as sales taxes affect everyone at the same tax rate, regardless of the individual’s income level.

    2013 Update

    27 bills have been proposed in 15 states.  (AZ, CT, IA, KS, ME, MN, MO, ND, NV, OH, OR, PA, SC, TX, WV)

    AZ (H2590, S1221)
    CT (H5031)
    IA (HF52, SF 108)
    KS (H2355)
    ME (LD1110)
    MN (S552, H677, H1394)
    MO (HJR25)
    NV (SCR1)
    ND (S2232)
    OH (H59)
    OR (H3074, H3188, S675)
    PA (H76, S76)
    SC (H3116, S185)
    TX (H3045, H3742, HJR130, S140, SJR12)
    WV (H3033)

    AICPA Resources

    State and State CPA Society Resources  

     
    Resources About Professional/Accounting Services Not Subject to Sales Tax in Specific States

    Other General Resources

    Resources Regarding Similar Issues and Concerns of Other Professions




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