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Potential State Tax Law Changes on the Horizon

In and out of focusAs we get ready to put away our snow shovels, gloves and winter coats, and take out the sandals and sunscreen (yes – we probably should be using it all year), Congress and many state legislatures are considering some important tax changes. The AICPA and state societies are closely monitoring these issues and ensuring that the profession’s voice is heard:

  • State Sales Tax on Professional (Accounting) Services

With states searching to either expand their revenue base or reduce reliance on income taxes, several states are considering proposals to expand their sales tax to cover professional services, such as those provided by CPA firms. So far this year, 11 states (California, Connecticut, Hawaii, Indiana, Maine, Maryland, Mississippi, Missouri, Ohio, South Carolina, and Virginia) are considering the issue. Recently, Pennsylvania Gov. Tom Wolf (D) proposed a sales tax expansion that would include accounting services, but professional services provided to a business would be exempt.  The AICPA continues to work with state CPA societies and our profession partners to try to stop these proposals from becoming law.

  • State Tax Tribunals

Good news – the New Mexico legislature passed legislation (S.B. 356) to establish an independent appeals process in the state, separate from the Taxation and Revenue Department. A few other states (Iowa, Missouri, Montana, and Washington) are considering proposed tribunal legislation. The AICPA supports state CPA societies in advocating for independent state tax tribunals that would allow for CPA representation of taxpayers and has developed a state tax tribunal matrix chart on the current status in the states. 

  • Mobile Workforce  

This past busy season, many of you probably had to deal with multiple state income tax return filings for you and your clients. It becomes problematic when employees travel out of their resident state for business, and each state has its own threshold of days worked (from one to 60 days) or the amount of earnings before needing to withhold, report and pay tax in the nonresident state.   

For example, a nonresident is subject to tax after working 59 days in Arizona, 15 days in New Mexico and 14 days in Connecticut, and employers  are generally required to withhold taxes after an employee earns in a nonresident state $1,500 in Wisconsin, $1,000 in Idaho or $800 in South Carolina. Some of these states’ thresholds are set at the state’s personal exemption, standard deduction, or filing threshold, which sometimes changes each year. 

That is why the AICPA, part of a 250-organization coalition, supports the Mobile Workforce State Income Tax Simplification Act, S. 386, introduced in February by Senate Finance Committee members John Thune (R-S.D.) and Sherrod Brown (D-Ohio). The bipartisan bill, (identical to the version on which the AICPA testified in the prior Congress), has a uniform 30-day threshold before state taxes are required to be withheld, reported and paid to a nonresident state.

  • Marketplace Fairness Act

The debate over whether out-of-state businesses should be allowed to collect sales and use tax on Internet transactions continues. Currently, states can only require sales and use tax collection from businesses physically located in the state. Last month, Sen. Mike Enzi (R-WY) introduced S. 698, the Marketplace Fairness Act of 2015 (MFA), which now has 21 cosponsors and is similar to the MFA bill that passed the Senate in the last Congress. The bill would allow certain states to require out-of-state retailers to collect and remit sales and use taxes on state resident purchases. The AICPA noted some concerns and suggested improvements if Congress decides to proceed with such a bill. 

Meanwhile, House Judiciary Committee Chairman Bob Goodlatte (R-VA), is working on an alternative to the Senate version, and Speaker John Boehner (R-OH) expressed significant concerns with the Senate bill. In January, Goodlatte (R-VA) released a draft proposal basing the source of sales taxation on where the retailer, not the customer, is located. The National Governors Association and retail groups, who support the Senate version, have criticized Goodlatte’s origin-based proposal. Rep. Jason Chaffetz (R-UT) is working on a separate proposal as well.

The AICPA will keep you updated as developments occur on these issues and invites you to bookmark our state tax advocacy website to access more information.  Enjoy the spring.

Eileen Sherr, CPA, M.T., Senior Manager- Taxation, American Institute of CPAs.

In and out of focus image via Shutterstock

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