Tax on Professional Services
Updated January 2019
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Sales tax on accounting services
Sales tax on accounting services was proposed 2017–18 and would have extended sales tax to all professional services, including a new tax on business and consumer accounting services. Legislative hearings were held, but no action was taken. Legislators have indicated they intend to debate this issue again 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 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
|Management Consulting Services
*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 advocates for the creation of tax law that taxpayers can comply with and understand. 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
- This tax has proven to be unworkable and difficult to administer in states that have passed it recently.
- Professional services taxes in 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.
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