Tax on Professional Services
Updated Jan. 10, 2013
The issue
The State of Minnesota continues to face budget deficits. Preliminary forecasts for 2013 do not show strong signs of economic improvement. The projections also show a significant structural deficit for 2013. The new legislature will look at all possible options to provide additional stability to the budget. The Governor and Legislature will each present tax reform plans and will include a services tax. Taxing professional services has been proposed several times over the past 25 years and the potential for new legislation continues.
What is the tax on professional services?
In previous years legislation has been introduced to tax accounting services. Some proposals have included business-to-business transactions and proposals have exempted business-to-business proposals. None of these proposals included a clear definition of which accounting services would be included.
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 has opposed a sales tax on accounting services and we continue to communicate our position to legislators. MNCPA members have testified before legislative committees and continue working 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
| Business to Business |
FY 2012 |
FY 2013 |
| Accounting Services |
$182,500,000 |
$189,700,000 |
| Legal Services |
$235,900,000 |
$245,300,000 |
| Consumer Pruchases |
FY 2012 |
FY 2013 |
| Accounting Services |
$27.800,000 |
$29.300.000 |
| Legal Services |
$97.900.000 |
$103.000.000 |
*Data taken from 2012 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 legislators must balance the state budget. 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 jurisdiction
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.