State Tax Advocacy Issues
This page provides information and documents on state-level advocacy issues affecting tax professionals.
Regulation of Tax Preparers
Regulation of tax preparers continues to be a growing issue of concern by policymakers at both the federal and state level. This issue is likely to continue to receive attention in the 2020 state legislative sessions. The National Consumer Law Center released model state-level language in 2014.
State Tax Tribunals
States continue looking at the adoption of tax tribunals as a means of resolving state tax appeal controversies prior to litigation and in a forum outside the dominion and control of the state tax authority.
Thirty-five states currently have tax tribunals located in either the executive or judicial branches of government. In 2109, three bills (AR – (S.B. 560), HI - (H.B. 1043), NM – (S.B. 129)) were introduced relating to state tax tribunals.
Details regarding the bills are included in the AICPA Chart of States with and without State Tax Tribunals. Several legislatures are expected to consider tax tribunal legislation in 2020, as well.
The 2006 American Bar Association (ABA) Model State Administrative Tax Tribunal Act (Model Act) provides legislative language that often serves as a base for legislation on this issue. As more states consider establishing independent tax appeal forums or revising existing tax appeal systems, it is important to review the proposals to ensure CPAs authorized to practice in the state are able to represent taxpayers before the tribunal.
In addition to the rights of CPAs to represent clients before proposed tax tribunals, it is also important to
consider whether tax laws promote fairness and efficiency in regard to tax administration and policy. Issues of concern relate to:
- independence from the State Revenue Commissioner/Department of Revenue;
- Avoiding “pay-to-play” (the ability to challenge an assessment without first paying the tax, interest, and penalties);
- Limited jurisdiction/specialized tax expertise;
- Experienced tax judges; and
- Published precedential decisions.
The specific details of the forums vary among the states, therefore, as states consider this issue, it is important for CPAs to advocate for fairness and mobility in representation rights before the tribunals. This issue is expected to continue to be debated around the country over the next several years.
Importance to CPAs
There are several reasons why state tax tribunals are a good idea for taxpayers and CPAs, as well as for the broader goal of good tax administration. Tax tribunals ensure a fair and effective tax administration system for taxpayers. All taxpayers would have a state tax appeal forum for state tax disputes that functions independently from the state tax authority. Additionally, tax tribunals – when structured in line with the ABA Model Act and state CPA mobility laws – provide CPAs with greater taxpayer representation rights and service opportunities.
While the AICPA does not lobby directly at the state level, it supports efforts by state CPA societies who may advocate for the creation of state tax tribunals structured in line with the provisions of the ABA Model Act. The AICPA believes that if a state is considering possible legislation on this issue, “Section 16. Representation” of the ABA Model Act should be slightly revised to take into account state CPA mobility laws.
Sales Tax on Professional Services
Several state legislatures continue to consider expanding sales tax to services, including professional services such as accounting. The AICPA assists state CPA societies with advocating against a state sales tax on accounting services. Background AICPA Position State Action States’ attempts in this area are likely to continue for the rest of 2019 and in 2020 as a means to bridge state budgetary gaps and as a part of broader tax restructuring measures.
States typically impose sales and use taxes on the sale of tangible personal property and selected services, with a few states broadly taxing all types of services, including accounting services. In the past quarter-century, due in part to stagnant sales and use tax revenue as compared to rising expenditures, numerous states have attempted but failed to broaden the sales tax base to include professional services.
Importance to CPAs
Because of the difficulty surrounding the taxation of professional services, there are several reasons why the imposition of sales and use taxes on accounting services should not be considered by state legislatures:
Because of the reasons listed above, the AICPA works with state CPA societies on a state-by-state basis to oppose the imposition of a sales tax on accounting services. The AICPA recognizes that raising revenue to support government programs is an ongoing process that constantly requires the reassessment of current taxing structures. However, as states continue to consider the taxation of additional services, legislatures must understand that some services are more easily subject to a sales tax than others. For example, for services that are performed and received at the same location (e.g., salon services, cleaning services, etc.), the taxing jurisdiction is clearly evident, reducing the complexities around the taxation of such services. It is also easier to administer a sales tax for services that already collect a tax on the sale of tangible personal property (e.g., car repair). However, professional services can be performed in multiple locations and received in completely different locations, creating a difficult dichotomy for tax compliance. Because of the administrative and technical difficulties associated with the enactment of a service tax on accounting services, the AICPA believes states should seek other alternatives.
Currently, three states impose some form of tax on accounting services: Hawaii (four percent), New Mexico (five percent) and South Dakota (four percent). In addition to the traditional accounting services, accounting firms may also provide services that could be construed to be “data processing services,” “information services,” and “management services,” which are taxable in several states. Furthermore, in some cases, state legislatures and courts have acted to redefine traditionally non-taxable services as products subject to the sales tax.
Proposals to adopt sales taxes on professional services continue to be introduced across the country, with eight legislatures considering related legislation in 2019. However, proposals were defeated in Connecticut, Utah and Wyoming, with CPAs taking a leadership role in these states. Legislatures in California, Montana, Nebraska, Texas and Florida have active tax on services legislation, and the Maryland legislature is considering a study bill on the issue. The idea to tax services is not a new one. Minnesota, Massachusetts, Michigan and Florida all tried to impose sales taxes on services in the past, but their efforts were quickly repealed.
Several state legislatures continue to consider expanding sales tax to services, including professional services such as accounting. The AICPA assists state CPA societies with advocating against a state sales tax on accounting services.
States’ attempts in this area are likely to continue for the rest of 2019 and in 2020 as a means to bridge state budgetary gaps and as a part of broader tax restructuring measures.
Other State Tax Issues and Resources
- AICPA Recommendations for Administrative and Filing and Payment Relief for State and Local Taxes during the Coronavirus Pandemic
- 2021 AICPA state tax guidance chart on COVID-19 issues and 2020 AICPA state tax COVID guidance chart
- AICPA Chart on COVID-19 Impact on 2019 State Income Tax Return Signature Requirements
- Model language for guidance on electronic signatures for state returns
- Model LEGISLATIVE language on electronic signatures, e-file authorizations, and electronic submissions and attachments for state returns
- List of AICPA resources on state tax related e-signatures and electronic submissions
- Information on e-signatures and related issues practitioners’ needs , AICPA recommendations to state societies and map of states’ guidance
- AICPA 2021 Policy Outlook (including on state tax policy)
- AICPA Wayfair and remote sales tax webpage
- AICPA position paper on state conformity to federal state partnership audit rules
- AICPA state conformity to federal partnership audit rules one pager
- Bullet points on States Adopting MTC Model Act on Partnership Audits
- Map of States Adopting MTC Model on Federal Partnership Audit Adjustment Reporting
- AICPA Update on States and Partnership Audits (as of 12/3/20)
- AICPA supports Minnesota Society of CPAs on proposed legislation regarding partnership audits
- AICPA position paper on reporting to state tax authorities of federal tax examination adjustments and their effect on state tax liability (Revenue Agent Reports – RAR)
- AICPA position paper on state pass-through entity-level tax implementation issues
- Map of states with pass-through entity level taxes enacted after TCJA
- AICPA state pass-through entity-level tax implementation issues one pager
- AICPA information on state additional month after federal filing deadline
- Model legislative language for state additional month after federal filing deadline
- Bullet points on legislative solution for state additional month after federal filing deadline
- One pager on one additional month state filing after federal
- AICPA sample bulletin for automatic additional month penalty relief
- AICPA position paper on contingent fee audit arrangements
- AICPA position paper on single point of filing