Definition of Attest and Taxation of Professional Services Dominate CPA Profession’s State Legislative Watch

October 22, 2015

US mapThe American Institute of CPAs' (AICPA) State Regulation and Legislation Team tracked over 300 bills and regulations affecting the CPA profession at the state level in 2015.  Issues related to the comprehensive definition of attest, taxation of professional services, the licensing of tax preparers and the regulation of marijuana were prevalent in state legislatures and boards of accountancy across the country.

The comprehensive definition of attest remained a popular legislative topic in 2015.  In May 2014, the AICPA and the National Association of State Boards of Accountancy approved changes to the Uniform Accountancy Act to include a more comprehensive definition of attest.  Designed to protect the public, this change closed a loophole that allowed unregulated, non-CPAs to perform certain attest engagements, such as reports on greenhouse gas emissions, using the Statements on Standards for Attestation Engagements (SSAEs).

Currently, 30 U.S. jurisdictions have adopted the comprehensive definition of attest, with eight states – Connecticut, Kentucky, Maine, Maryland, Minnesota, Oklahoma, Oregon and South Carolina – enacting the new definition this year.  Additionally, governors in Georgia and Iowa signed legislation adopting critical conforming changes related to the definition of attest to their states’ accountancy statutes.  Legislation to adopt the comprehensive definition of attest was also recently introduced in Pennsylvania.

Taxation of Professional Services

The state-level debate over the taxation of professional services continued to be one of the greatest threats to the CPA profession in 2015.  Currently, only Hawaii, New Mexico and South Dakota broadly levy a sales tax on professional services.  This year, however, 18 more states looked at the issue, either through a specific tax on services or through a tax study commission. This is more than double the number of states that looked at the issue in 2014.

Six governors mentioned broadening their state’s tax base to include professional services, including accounting and auditing, with the governors of Maine and Pennsylvania actually including it in their budget proposals.  Only Pennsylvania’s proposal remains active, and it is unlikely to pass due to a lack of support in the state’s legislature.  Additionally, eight states – Connecticut, Florida, Indiana, Maine, Mississippi, Missouri, Ohio and Vermont – considered legislation to enact a tax on services.  None of these proposals were successful, thanks in part to efforts by the CPA profession and state CPA societies.

California remains the only state with an active tax on service bill.  The bill would broaden the tax base by imposing a sales tax on services, including those CPAs provide, and phase in a lowering of the corporate and personal income tax.  The legislation may be turned into a ballot initiative in 2016.  The California Society of CPAs is opposing the bill and would oppose any related ballot effort.

State Licensing of Tax Return Preparers

The regulation of tax preparers at the state level was another issue of concern for the CPA profession in 2015’s legislative sessions.  These state-based programs add an unnecessary layer of cost and regulatory burden for tax preparers – particularly CPAs operating under interstate mobility laws, as these CPAs could be required to register in multiple states should such programs be approved.  Additionally, the unethical preparers for whom these programs are designed to thwart are the ones that are most unlikely to participate in state-based programs.  Nevertheless, these programs continue to receive consideration in state legislatures.  California, Maryland, New York and Oregon currently regulate tax preparers, and the Illinois House of Representatives is considering a bill to license tax preparers in the state.  Though the bill exempts CPAs from its requirements, the Illinois Society of CPAs urged the bill sponsor to hold the legislation pending a recommendation from the Illinois Tax Return Preparer Task Force.

Marijuana Regulation

The legalization of marijuana for both recreational and medicinal use continues to pose challenges for the CPA profession.  While marijuana is illegal at the federal level, state governments and voters are showing a willingness to decriminalize the drug, and “state-legal” marijuana businesses are seeking the services of CPAs.  Because of the disparity between federal and state laws related to marijuana businesses, many state boards of accountancy are now discussing the topic, with four states – Connecticut, Florida, Oregon and Washington – issuing formal guidance to those CPAs who wish to provide services to marijuana-related businesses.

For example, in its guidance, the Oregon Board of Accountancy has stated that Oregon licensees will not face any action related to a violation of the state’s Code of Professional Conduct solely for providing services to the marijuana industry, but it cautioned those licensees to address all risks surrounding federal enforcement.  The AICPA, in conjunction with the Colorado Society of CPAs and the Washington Society of CPAs, has also developed a white paper on the issue that describes state-level marijuana laws and how they affect CPAs who are considering providing services for marijuana-related businesses.

More information on these and other 2015 policy trends is available in the AICPA’s 2015 Legislative Year-in-Review and on the AICPA State Regulation and Legislation Team webpage.