Tax on Professional Services
Updated January 2023
Tax of professional services legislation was not debated during the 2022 legislative session. This issue continues to be a concern and will be one the MNCPA continues to monitor.
Tax on Services Economic Impact Study
The MNCPA partnered with several other professional associations to conduct an economic impact study researching the effects a service tax would have on Minnesota’s economy.
View the study (PDF)
Sales tax on accounting services
Sales tax on services would extend sales tax to all professional services, including a new tax on business and consumer accounting services. Legislation has been introduced several times over the past 30 years. Most recently in 2019.
What is the tax on professional services?
Previous proposals to tax professional services have included business-to-business transactions and some have exempted business-to-business transactions. Definitions of accounting services are currently an unknown and would depend on legislative directives.
A sales tax on accounting services could add nearly 8 percent to the cost of any work done in the state, result in a loss of jobs and a reduction in Minnesota’s GDP.
The MNCPA has opposes a tax on accounting services and will continue communicating our position to legislators. MNCPA members should continue conversations with legislators and let them know the impact a sales tax on accounting services will have on clients, businesses and the profession.
Estimated Revenue Generated from a Professional Services Sales Tax
|Business to Business
|Management Consulting Services
*Data taken from 2022 Minnesota Department of Revenue Tax Expenditure Budget
Why you should care
The MNCPA continues to be a strong proponent of good tax policy and advocate for the creation of tax law taxpayers understand and comply with.
The MNCPA recognizes legislators must balance the state budget. However, there are many potential problems with a tax on services. Including:
- 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.
- Encouraging consumers to shop for services out of state.
What you can do
Inform 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.
Contact your legislators
Subscribe to the Legislative Digest for updates on the professional services tax. Contact MNCPA government relations for more information or to get involved.
- This tax has proven unworkable and difficult to administer in states that have passed it recently. Florida (1987), Michigan (2007), Massachusetts (2013), with a computer service tax, and Minnesota (2014, warehouse and storage service tax) have all been repealed. Florida repealed its tax six months after passage, Michigan repealed their law within 24 hours and before it became effective, Massachusetts law was repealed after two months, and the 2014 Minnesota law was repealed prior to the effective date.
- Potential compliance issues will arise when trying to determine where a service was provided. Will it be where the CPA is located or where the client is located?
- With the passing of CPA mobility, 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.
Influencing positive change
With the help of your donations to the MNCPA PAC, we have had great success at the Capitol throughout the past decade.
Reasons to contribute:
- Carry a unified message on CPA issues to legislators.
- Raise CPAs' visibility at the Capitol.
- Continue the proven track record of success.
Contribute to the PAC