The American Institute of CPAs’ (AICPA) State Regulation and Legislation Team has begun tracking state legislation for 2016, and sales taxes on professional services, conformity with the Uniform Accountancy Act (UAA), and providing services to marijuana-related businesses are already appearing as key issues for the CPA profession in state legislatures and in state CPA society legislative agendas.
As in previous years, sales taxes on professional services, including CPA services, remain a key threat to the profession. Thirteen state CPA societies have already indicated that their state legislatures will likely consider the issue in 2016. In 2015, 19 jurisdictions considered the issue, either through a specific tax on services or a tax study commission – more than doubling the number of states that looked at the issue in 2014. The increased legislative activity is a direct result of policymakers re-examining state tax structures to find offsets to lower personal income taxes and new revenue to fill budget gaps.
As state legislatures file legislation and governors consider incorporating these taxes into their budget proposals, the AICPA is working with state CPA societies to educate lawmakers about the negative impacts of sales taxes on professional services. Such taxes are particularly harmful to small businesses. They impede economic development and put states at a competitive disadvantage, and they counter good tax policy. For example, taxing personal income tax services is unfair taxation of the very services necessary to comply with tax law.
In 2016, many legislatures across the country will also be looking to update their statutes to ensure greater conformity with the UAA, the profession’s model state act. Specifically, several states will consider adopting provisions related to the comprehensive definition of attest, firm mobility, CPE reciprocity, and the AICPA Code of Professional Conduct.
The comprehensive definition of attest found in the seventh edition of the UAA closes a public protection loophole that allowed unregulated, non-CPAs to perform certain attest engagements and to issue reports upon those engagements. In 2015, eight states – Connecticut, Kentucky, Maine, Maryland, Minnesota, Oklahoma, Oregon, and South Carolina – adopted the definition. Two more – Iowa and Georgia – already had the comprehensive definition of attest, but passed legislation this year to make needed conforming changes to their accountancy statutes. Nearly a dozen more states will look at adopting the definition over the next two legislative sessions.
Additionally, the AICPA is working with several state CPA societies to promote CPA firm mobility in 2016. CPA firm mobility allows CPA firms to perform attest services and issue reports in states in which they do not have a physical presence without having to register the firm or pay new fees, so long as firms meet the peer review requirements and non-CPA ownership requirements of the state. It follows the same “no notice, no fee, no escape” model that currently allows CPAs to offer non-attest services across state lines. Fourteen states already allow for CPA firm mobility for attest services, and at least a dozen states will look at the issue over the next two legislative sessions.
On the regulatory side, the AICPA, the National Association of State Boards of Accountancy (NASBA), and many state CPA societies will be promoting nationwide adoption of CPE reciprocity, which is found in the UAA Model Rules, and the AICPA Code of Professional Conduct. CPE reciprocity exempts CPAs who hold multiple state licenses from having to meet the individual CPE requirements of each state so long as the licensee meets the CPE requirements of his or her home state, while nationwide adoption of the AICPA Code ensures that all CPAs – not just those who are AICPA members – adhere uniformly to the same robust ethical standards.
Legalized Marijuana Issues
Another trend expected to continue in 2016 is the expansion of legalized marijuana for medical and recreational purposes at the state level. Currently, 23 states, Guam, and Washington, DC, allow for the use of marijuana as a medical treatment for certain conditions, while four states – Washington, Oregon, Alaska, and Colorado – allow marijuana to be sold solely for recreational purposes. For 2016, at least 16 states already have legalization proposal initiatives underway. While the AICPA does not have a position on these specific laws or initiatives, it acknowledges that marijuana businesses are increasingly seeking accounting and auditing services, and that CPA firms are considering these business opportunities. However, because marijuana remains a Schedule I illegal substance at the federal level, CPAs want more information related to providing services to businesses operating in this industry.
As such, the Institute and state CPA societies are monitoring state legislatures, ballot initiatives, and guidance from state boards of accountancy. Thus far, boards of accountancy in six states – Connecticut, Florida, Maryland, Nevada, Oregon, and Washington – have issued guidance to those CPAs who wish to provide these types of services. Generally speaking, state boards tend to take the position that they will not sanction a licensee for providing a service to a marijuana business that is operating legally under state law. However, the AICPA recommends that CPAs should seek specific guidance from their legal counsel and state board of accountancy before engaging in these types of services. Additionally, the AICPA’s State Regulation and Legislation Team, in conjunction with the Washington Society of CPAs and the Colorado Society of CPAs, prepared a white paper examining the history of this issue that broadly raises questions CPAs should consider before undertaking an engagement for this type of business.