Sales tax proposals threaten to ensnare CPA firms

When Utah’s Legislature floated a proposal earlier this year to levy sales tax on a number of services, including accounting services, the Utah Association of CPAs quickly voiced opposition.

Susan Speirs, CPA, CGMA, the association’s CEO, called on members to voice their concerns about the negative impact the proposal would have on their firms as well as on their clients. The Utah reform proposal would have increased the list of services subject to sales tax, including legal and accounting services.

Within a few days, lawmakers received more than 500 emails and calls from accountants and other affected professionals. Lawmakers backed off of their plans to pass the wide-ranging tax reform plan.

“We were able to shut that bill down,” Speirs said. “We were nimble enough, and we were able to swing into action a lot faster” than other professional groups.

Utah isn’t the only place considering taxing accountants’ invoices, a situation that Speirs said would inevitably hurt both clients and firms.

Connecticut and Wyoming had similar proposals this year, brought up as a way to close a budget gap by extending sales tax obligations to accounting and other services. CPAs in both states voiced concerns the proposals would mean their state governments were essentially taxing people for seeking assistance paying their taxes.

While the sales tax proposals were not adopted in Connecticut, Utah, or Wyoming, they raised concerns among the AICPA, state societies, and other professional groups that similar proposals could pop up in the future. Several more states — California, Florida, Montana, Nebraska, and Texas — are in the midst of debating revisions to their state tax codes, and professional services such as accounting work could face additional taxes, according to information compiled by the AICPA.

Accountants aren’t necessarily being singled out, but rather legislative and city leaders are trying to find ways to spread tax liabilities around a broader base or meet their budget needs, said Megan Kueck, the AICPA’s lead manager of state regulation and legislation.

“It’s a larger look at taxing in general,” Kueck said about the impetus behind the recent legislation.

Three states — Hawaii, New Mexico, and South Dakota — already have taxes on accounting services on the books, Kueck said. Several other states, including Florida and Michigan, passed tax reforms in the past that included taxing professional services but ended up overturning those laws shortly after implementation, she said.

It’s not just states where the possibility of additional taxation on accounting services has popped up.

In Chicago, Mayor-elect Lori Lightfoot suggested the city raise needed revenue by adding a tax to the bills that large legal and accounting firms send to clients, according to comments she made during a March interview with a Chicago-area radio station.

Smaller CPA firms would be exempt from the tax, Lightfoot said in her remarks, while large firms could be subject to a tax like the value-added taxes used in Europe.

“Putting a small fee on the invoices they send their clients will barely be noticed but yet could generate hundreds of millions of dollars in revenue,” Lightfoot said, according to a Chicago Tribune article about her comments.

While Lightfoot’s comments caught the attention of plenty of Chicago-area CPAs, the idea of taxing professional services like those provided by accounting firms hasn’t yet shown up in any formal proposal, Kueck said.

The AICPA and affected state accounting societies have had success pointing out that adding state taxes on accounting services essentially adds a tax onto an act — paying taxes — that governments already make compulsory for their residents and citizens.

“This is a tax on a government requirement,” Kueck said.

In Utah, Speirs isn’t quite ready to declare victory.

A state task force is meeting now with plans for a special legislative session on tax reform later this year. Taxes on professional services could very well be a part of Utah’s future tax landscape.

CPAs in other states should be paying attention to similar efforts in their own states, she said. Staying in contact with state professional associations or chambers of commerce could be helpful to get the message out quickly about how state-based proposals affect the profession.

“If it hasn’t been talked about in a state, it will be,” Speirs said, about tax reform efforts. “Be on your toes.”

— Sarah Ovaska-Few is a freelance writer based in North Carolina. To comment on this article or to suggest an idea for another article, contact Ken Tysiac, the JofA’s editorial director, at Kenneth.Tysiac@aicpa-cima.com.