Tax on Professional Services
Sales tax on accounting services update
The State of Minnesota faces continued budget instability. The initial forecast for 2012 shows a slight surplus but does not show strong signs of improvement. The projections still show a significant structural deficit for 2013 & 2012. The legislature will look at all possible options to provide additional stability to the budget. Taxing professional services has been proposed several times over the past 25 years and could be considered again this year. The potential for new legislation continues and we expect the debate to be part of the 2012 legislative discussions.
What is the tax on professional services?
In previous years legislation has been introduced to tax accounting services. None of these proposals included a clear definition of which accounting services.
Depending on where you are located in Minnesota, a sales tax on accounting services could add almost 8 percent to the cost of any work done in the state.
The MNCPA's position is to oppose a sales tax on accounting services. We continue to communicate the position to legislators. MNCPA members have testified before legislative committees and worked to educate legislators on the impact a sales tax on accounting services will have on clients, business and the profession.
Estimated Revenue Generated from a Professional Services Sales Tax
| |
FY 2011 |
FY 2012 |
FY 2013 |
| Accounting Services |
$161,800,000 |
$168,400,000 |
$175,500,000 |
| Legal Services |
$289,000,000 |
$301,200,000 |
$314,400,000 |
*Data taken from 2010 Minnesota Department of Revenue Tax Expenditure Budget
Why you should care
The MNCPA continues to be a strong proponent of good tax policy. We advocate the creation of tax law that taxpayers understand and can comply with correctly and cost efficiently.
The MNCPA recognizes that legislators must work to balance the state budget. We look for revenue sources to accomplish that goal. However, there are many unresolved issues and potential problems for CPAs. Some of those issues include:
- Multiple points of delivery and use
- Definition of an accounting service
- Multiple points of creation of the service
- Will any accounting services be exempt
- Multiple taxing jurisdictions
What you can do
Inform other interested parties, your clients and business associates about this proposed legislation. Encourage them to express their concerns and opinions.
It is important that you let your legislators know what a tax on accounting services will mean for you, your business and your clients. Also, encourage others to contact their legislators on the impact of this issue. Hearing from constituents is one of the most effective ways we can influence legislators. Your input is very important.
Subscribe to the Legislative Digest for updates on the professional services tax. Contact MNCPA government relations for more information or to get involved.
Talking points
- This tax has proven unworkable and difficult to administer in states that have passed it recently. Florida, Iowa and Michigan have repealed it. Florida repealed it six months after passage, Iowa repealed it one month after passage, and Michigan repealed their law before it even became effective.
- Potential compliance issues will arise when trying to determine where the service was actually provided. Will it be where the CPA is located or where the client is located?
- With the passing of Mobility in 2008, a tax on accounting services creates a competitive disadvantage for CPAs doing work for clients in states without a tax on accounting services.
- Should the State of Minnesota tax people for seeking professional advice to ensure they are following tax law when filing their taxes?
- Potential tax pyramiding on services and final goods may arise. The potential for goods and services to be taxed several times exists and will result in higher consumer costs.