Taxes on Accounting Services an Emerging Issue in States

Faced with the prospect of new taxes on professional services in five states, the American Institute of CPAs’ (AICPA) State Regulation and Legislation Team is working in collaboration with state CPA societies, CPAs and CPA firms to oppose sales taxes on the profession’s services there and elsewhere.  Legislatures in Arizona, California, Georgia, Oklahoma and West Virginia have introduced bills this year that would create new taxes on professional services.  

Three states (Hawaii, New Mexico and South Dakota) currently impose a tax on accounting services, and accounting firms in some states also face taxation on services such as data processing.

As many states seek new and additional revenue sources, it is important to oppose any taxation on services offered by the accounting profession.  The rise in compliance costs disproportionately affects the small businesses that CPAs represent and would present a substantial burden that would limit small business growth.  CPA firms that operate across state lines would also face greater compliance burdens due to the variety of state tax structures.  Firms often provide services that are received in different locations, creating administrative and technical problems for administering a sales tax.  Thus, for firms both small and large, taxes on professional services lead to higher costs for consumers, ultimately discouraging the use of accounting services.

Additionally, states that choose to tax professional services will be at a competitive disadvantage, as fewer firms will provide services in high tax areas.

While none of the bills introduced this year have yet succeeded, CPAs can expect this issue will return in 2017, as the number of tax bills filed is generally higher in non-election years.  The AICPA continues to work with its state-level partners to prevent new taxes on the accounting profession.  For more information, visit the State Regulation and Legislation Team website and follow the team on Twitter @AICPAState.