Posted on June 12, 2019
Creating and submitting tax returns is the job of local firms and CPA’s. These returns can range from income tax returns, property tax returns, sales tax returns, and many more. Most states do not impose a sales tax on the services of tax return preparers, but there has been increasing talk on taxing these professional services. What could this mean to you and the local firms in the area? Many possible outcomes could arise, and everyone who utilizes tax preparation services could be affected.
Early this year, Utah’s Legislature proposed a levy on sales tax on multiple services, including accounting services. Imagine: you are a tax professional completing a tax return, and the services you are providing are taxable services. It’s kind of ironic that as a business, you need to charge your clients sales tax. Multiple CPA firms in Utah were very upset with this policy. Lawmakers received more than 500 calls and emails, causing those lawmakers overturned the levy.
Utah was not the first state to act on this initiative and won’t be the last. California, Florida, Montana, Nebraska, and Texas are in the midst of debating their own tax bills.
In addition to those considering these types of policies, there are three states that are already taxing accounting related services: Hawaii, New Mexico, and South Dakota. Other states like Florida and Michigan have passed tax reforms in the past but they were overturned shortly after being implemented. If a state like Florida was able to maintain a similar policy, it would have a large effect with the vast majority of tax returns in this state coming from higher-income individuals who already pay substantial amounts of tax without considering an additional tax charged on the preparation.
Chicago’s mayor suggested implementing a tax on large invoices from legal and accounting firms to clients. This would add a tax on the larger well-known firms and exempt smaller firms. While this policy would protect small business firms, it could potentially hurt the larger CPA firms due to clients wanting to avoid the additional tax and being reluctant to sign on to larger projects or services from them.
The American Institute of Certified Public Accountants (AICPA) stood up and has showed success in pointing out that this rule would essentially add tax on the act of paying taxes. Utah could still potentially have this tax on taxes, and the legislative is meeting and discussing possible courses to go for this tax reform. If this levy has not been talked about in your state, it will be, so make sure you are on your toes.
Tips for the Taxpayer
It is important to understand what services will be included under this policy change. Professional service providers need to understand the taxability definition of the services their business provides. Research what your services are and see if they fall into the category of legal, accounting, tax, or other services. Businesses need to be aware of what tax services they may need in preparing their returns. This levy could be applicable on the purchase of those services and would result in additional sales tax on top of the tax cost already incurred to maintain compliance. Stay up to date on local articles and news publications for any changes to your state legislation.
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Contributor: Michael Mech
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