The American Institute of CPAs' (AICPA) State Regulation and Legislation Team tracked 391 bills and 66 regulations affecting the CPA profession at the state level in 2014. Issues related to tax tribunals and their effects on CPA mobility, sales taxes on professional services, tax preparer regulation and the updated definition of attest dominated state legislatures across the country.
This year, Alabama approved a bill to create a state tax tribunal, and five states (Kansas, Missouri, Oklahoma, Tennessee and Washington) considered legislation to create one. State tax tribunals are generally beneficial for taxpayers, CPAs, and the broader goal of good tax administration. They ensure a fair and effective tax system by providing a means for taxpayers to resolve state tax appeal controversies in a forum that is outside the control of the state taxing authority. More than half of all states and jurisdictions already have independent state tax tribunals, and the language creating many of these tribunals mirrors the 2006 American Bar Association (ABA) Model State Administrative Tax Tribunal Act.
Unfortunately, part of this model language could negatively impact individual mobility by prohibiting CPAs licensed in states other than where the tribunal is located from representing taxpayers at that tribunal. State tax tribunal proposals must allow all CPAs authorized to practice in the state – not just those licensed in the state – to represent taxpayers before the tribunals. The AICPA developed model language to address this issue in its position paper on state tax tribunals.
Sales Taxes on Professional Services
Another big issue in 2014 was sales taxes on professional services. Five state legislatures considered broadening the sales tax base to include professional services, including accounting and auditing services. These measures failed in North Carolina, Ohio, Pennsylvania and Virginia. In 2013, the Massachusetts legislature passed a bill imposing a “sales and use” tax on certain computer-related services, but the tax was retroactively repealed within just two months. Despite their unpopularity, states continue to push taxes on professional services as a means of bridging budgetary gaps and as part of broader tax reform measures. Twelve state CPA societies have already indicated they anticipate their legislatures will look at adopting taxes on professional services in 2015.
State Regulation of Tax Return Preparers
This year, state legislatures also looked at launching programs to regulate tax preparers at the state level. Colorado, Illinois and New Jersey all considered legislation that would implement registration, education, and/or testing requirements for state-level tax preparers. Colorado’s bill died in the Senate. The Illinois Legislature approved the creation of a task force to study the issue, and New Jersey is still considering similar legislation as 2014 comes to a close. Moreover, the National Consumer Law Center released model state-level language this past year, and the AICPA expects several more states to consider passing regulatory measures regarding tax preparers in 2015.
Unfortunately, additional state-level regulations can have negative consequences on the CPA profession while doing little to protect taxpayers. State-level continuing education and testing requirements create extreme compliance challenges for tax preparers when states adopt conflicting, duplicative, and/or variable requirements. Furthermore, CPAs operating under states’ interstate mobility laws could be required to register in multiple states – another threat to individual CPA mobility laws. As such, the AICPA does not support an expansion of regulation at the state-level.
Definition of Attest
The AICPA State Regulation and Legislation Team also worked with state CPA societies across the country to incorporate the updated, more comprehensive definition of attest found in the 7th edition of the Uniform Accountancy Act into state law. The definition change closes a public protection loophole allowing unregulated, non-CPAs to perform certain attest engagements and to issue reports upon those engagements. Twenty-one U.S. jurisdictions have already adopted the more comprehensive definition, including six jurisdictions that did so in 2014: Alabama, Arizona, Georgia, Indiana, the U.S. Virgin Islands and Wisconsin. The AICPA anticipates a dozen more states to work toward updating their definition of attest in 2015.
Other big issues state legislatures considered in 2014 related to firm ownership, peer review, CPA services for marijuana-related businesses and patent assertion entities, commonly referred to as patent trolls. More information on these and other policy trends is in the 2014 Legislative Year-in-Review.