Tax on Professional Services

Updated July 2019

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 was introduced in 2019 but no legislative hearings were held. Legislators have indicated they intend to discuss this issue again in 2020. 

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 also are 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.

The MNCPA has opposed previous sales tax on accounting services proposals. We continue to oppose the latest version and will communicate our position to legislators. MNCPA members will need to continue educating legislators on 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 FY 2020 FY 2021
Accounting Services $250,900,000 $262,300,000
Legal Services $323,900,000 $338,700,000
Management Consulting Services $246,100,000 $257,500,000
Consumer Purchases FY 2020 FY 2021
Accounting Services $18,900,000 $19,600,000
Legal Services $99,900,000 $103,600,000

*Data taken from 2018 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.

Talking points

  • 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.

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.

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