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 In fact, three states (Florida, Michigan, and Iowa) enacted and then swiftly repealed sales taxes on services, in part because of the complexity in administering the taxes.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.
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)
IA (HF52, SF 108)
MN (S552, H677, H1394)
OR (H3074, H3188, S675)
PA (H76, S76)
SC (H3116, S185)
TX (H3045, H3742, HJR130, S140, SJR12)
State and State CPA Society Resources
- CalCPA Talking Points on Sales Tax on Services, CalCPA Info. on 2012 Proposed Legis. (AB 2540 and AB 1963) and Article on Sales Tax on Services Avoided for Now (June 2012)
- Delaware FAQs on the Gross Receipts Tax
- FICPA Information on Sales Tax on Services, and Paper on the Florida Sales Tax on Services: What Really Went Wrong?
- GSCPA Presentation on Special Council on Tax Reform and Fairness for Georgians (Oct. 2010)
- Iowa Information and FAQs and Details and Sales and Use Information on services not including accounting.
- KYCPA Paper on Tax Policies that Make Sense (2009) and KYCPA Presentation on State Economic Woes: How Should Societies React? Proactive vs. Reactive, and Kentucky Information (June 2010) on Kentucky Discussing Application of Sales Tax to Services and Article (April 2010) on Taxing Services to Ease Budget Woes
- MACPA Paper on Oppose Sales Tax on Services (Jan. 2013), and prior paper (2011), and article on Maryland CPAs Fighting Proposed Tax on Professional Services, and blog on MACPA Prepares to Fight Sales Tax on Accounting Services (Sept. 2007) and MACPA Position Paper and Talking Points on Opposing Sales Tax on Professional Services (2007) and Maryland Economic and Fiscal Impact Analysis of Maryland Tax Policy Options (2007) and Maryland State Tax Committee Ten Criteria for Effective Tax Legislation (2007)
- Michigan Article on Governor Jennifer Granholm Endorses New Services Tax, Cutting Sales Tax to Support Businesses and Schools (Feb. 2010) and Michigan Article on Michigan Considers Extending Sales Tax to Service Industries (including accounting) (Jan 2007), and Michigan Information on the Use Tax, and Michigan Article on the Michigan Service Tax and 2007 HB 5198, and Michigan Article on Michigan Changes Course - Repeals Sales Tax on Services (Dec. 2007), and Michigan Article on Michigan Repealing the Law, and Article on Michigan Sales Tax on Services Repealed After 17 Hours and Article on Taxing Services in Michigan (Oct. 2005)
- MNCPA Talking Points/Paper on Tax on Professional Services (Jan. 2013), and MNCPA Legislative Outlook from 2012, mentioning a sales tax on services, and Minnesota Article on Dayton's Service Sales Tax Plan Lands with a Thud (Jan. 2013), and Minnesota Article on Businesses: Plan to Tax Services a Killer (Jan. 2013), and Minnesota Article (Jan. 2013) on Business Fights back on Dayton's Sales Tax Plan.
- NCACPA Paper on Opposing Sales Tax on Accounting Services (2006), and news article on Lawmakers Eye Sales Tax on Services (Jan. 2013)
- NJSCPA list of bills tracking (Feb. 2012) and NJSCPA article and FAQ and Presentation on beating back the sales tax on professional services. NJSCPA Article on the New Budget and Taxes, mentioning a sales tax on services that was enacted that did not extend to professional services due to the Society's advocacy efforts. (Jun 2006)
- OSCPA Paper on Sales Tax on Services, article on Governor proposal (Feb. 5, 2013)
- PSCPA Sample Letter to State Representative/Senator on Opposing Sales Tax on Accounting Services
- South Dakota Information on the Sales Tax on Services and South Dakota Fact Sheet on Sales Tax on Services Applicable to Accountants and Accounting Services (Oct. 2012), and South Dakota Fact Sheet on Use Taxes (March 2011), and South Dakota Article on South Dakota Proposed State Sales Tax Increases (Sept. 2011)
- TSCPA blog on First Call for Sales Tax on Professional Services (March 2011)
- Washington State Information and Tax Facts (June 2010) and Information on the Business and Occupation Tax
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