Capitol Beat: Tax on Services?
CalCPA Influences Change and Introduces Legislation
By Bruce C. Allen and Jeannie Tindel
Although the Think Long group bowed to political pressure from Gov. Jerry Brown and agreed to postpone its effort to qualify a ballot initiative that included a tax on services, other proposals to impose additional services taxes have come forward.
Assembly Member Alyson Huber (D-El Dorado Hills) introduced Assembly Bill 1963, which would impose a sales tax on services. The bill will lower the overall sales tax rate from 6.25 percent to 4 percent, and extend the 4 percent tax rate to virtually all services. The only exceptions being “necessary medical services, services related to education, automotive repair services, tax preparation and filing services, licensed legal services, services relating to agriculture and livestock.”
Additionally, the bill makes changes to the personal income tax by increasing the standard income tax deduction for individuals and for those filing as a head of household or as a married couple filing a joint return. The personal income tax brackets are also adjusted. If signed into law, the bill will take effect Jan. 1, 2013.
Historically, CalCPA has maintained that sales taxes on professional services must be applied evenly and fairly to all professions and providers of similar services to prevent any competitive advantages. AB 1963 exempts from the new 4 percent tax rate “tax preparation and filing services,” which are just a small fraction of the compliance related services that CPAs provide. Audits, compilations and other financial services would also become taxable under this bill, driving up costs to California taxpayers and compliance costs for CPAs.
It’s unreasonable to enforce a tax on many of these services that are required by law. Businesses, nonprofits, state and local governments, school districts and other entities mandated to undergo audits and reviews should not be taxed for complying with the law. The compliance costs alone would have a profound impact on these clients that have tight budget constraints. For state and local governments, there will be additional costs at a time of extreme deficits.
Additional legislation has been introduced to extend the sales tax to services by Assembly Member Mike Gatto (D-Burbank). AB 2540 would apply the current level of sales tax to a select list of services designed to target high-income earners to offset a tax exemption for the first 20 percent of business income to a maximum of $10,000. Among the list of services is “high net-worth estate planning.”
In the Senate, Sen. Sam Blakeslee (R-San Luis Obispo) has introduced SB 1412, which makes no substantive changes and is a spot holder that could develop into another vehicle to impose a sales tax on services.
CalCPA will be following these bills and will work with the authors and the California Legislature to address concerns.
CalCPA Successfully Influences Change
Last year, the governor dissolving more than 400 redevelopment agencies across California. As part of the process of wading through the various redevelopment agency finances, the California State Controller began the process of establishing Redevelopment Agency Agreed-upon Procedures to determine and document the financial responsibilities of each agency.
The CalCPA Governmental Accounting and Auditing Committee reviewed the Controller’s proposals Feb. 9. The committee determined that CPAs would be in jeopardy if they agreed to perform those procedures, as the procedures were in some instances unclear and in others called upon CPAs to certify things beyond the scope of the CPA profession. The controller’s office, Department of Finance and county auditors from throughout California developed the proposed procedures.
Representatives from the controller’s office met with members of the CalCPA GA&A Committee and agreed to consider suggestions to improve the procedures as long as the committee’s input was received by Feb. 15. The committee worked through the weekend and provided the controller with suggested revisions.
The revisions were then incorporated into a new document that was the subject of a Feb. 24 meeting with representatives of the CPA profession, county auditors, the Department of Finance and the controller’s office. Additional clarifying amendments were provided at that meeting.
A revised suggested minimum procedures package is posted on the controller’s website. This is a big win for CalCPA’s advocacy efforts on behalf of the CPA profession.
CalCPA Introduces Legislation
SB 1405, authored by Sen. Kevin De León and sponsored by CalCPA, has been introduced to exempt CPAs serving in the military from the biannual license renewal fee while they are in full-time training or active service.
SB 1405 maintains the appropriate safeguards to the consumer by prohibiting those that hold a license in military inactive status from practicing public accounting and requiring that the license holders are current on all necessary licensure and continuing education requirements when they re-enter the civilian workforce.
Bruce C. Allen is CalCPA’s director of government relations. Jeannie Tindel is CalCPA’s director of legislation.