CPAs Concerned with Sales Tax on Services, Appeal Bond Cap, Comparative Fault, Tax Deadlines
Maryland CPAs will meet with their state legislators on January 21 to take up issues of concern, including sales tax on professional services, the appeal bond cap, comparative fault, and conforming state and federal tax deadlines. The meetings will take place as part of the Maryland Association of CPA’s annual CPA Day at the state capitol in Annapolis, MD. MACPA members are encouraged to register now for the program at www.macpa.org/cpaday; new members are welcome, and a post-event gathering is planned for the New Young Professionals Network (NYPN). Educational/prep materials are provided by MACPA to enhance this advocacy effort, and participants in the free program earn 2.0 CPE.
We invited MACPA leaders to explain the significance of these issues:
- how a sales tax on services provided by CPA’s could be costly, difficult to implement, and raise the threat of litigation,
- why a technicality in state law needs to be corrected to lower the cap on appeal bonds for smaller firms,
- how a change from ‘contributory’ fault to ‘comparative’ fault can be devastating to business, and
- why the state should conform tax deadlines to newly changed federal deadlines.
Sales tax on services
Jerry E. Beard, CPA, MST, Supervisor at Ellin & Tucker, chairs the MACPA’s State Tax Committee. He explains why MACPA would oppose the idea of a sales tax on services that would be applicable to CPA's services, a concept that some have considered for potential legislation:
Imposing a sales tax on services would seem to be a fairly simple proposition. For some services, such as haircuts and repairs, the site of the service is very definite and certain. The barber chair is very fixed. The repair shop wouldn’t move either. The site of the professional services isn’t always so clear cut. What happens if I am in the airport in Chicago talking to my Virginia client about his California nexus issue? Where is that conversation taxable? What happens if I have that same conversation in the client office in Virginia or Delaware? Where is the service taxable? What happens when we have personnel in multiple offices participating on a conference call and have to split the bill into portions that are taxable in Maryland and non-taxable elsewhere? How auditable is that transaction?
There are many complexities that would have to be worked out. The cost of compliance and potential for litigation on audit would seem to outweigh the benefit.
Appeal bond cap
Allen DeLeon, CPA, PFS, a founding partner at DeLeon and Stang, and former Chairman of the MACPA, describes the issues surrounding the appeal bond cap issue and why MACPA is advocating to correct the legislation to protect small businesses and CPA firms.
In 2015, the Maryland legislature passed a bill which imposed a cap on appeal bonds, called the Supersedes bond bill. MACPA worked with the Maryland Tort Reform Coalition on this legislation.
This bill was important to CPAs and small businesses as it fixes a technicality in Maryland tort law that requires a defendant to post an appeal bond equal to the judgment in order to get access to an appeal. This effectively denied access to justice for CPA firms and small businesses that lack the asset base and / or credit facilities to get appeal bonds. The law imposed an appeal bond cap of $100 million.
In 2016, we will try to get a lower cap of $5 million for small businesses, which was our original proposal.
Tom Hood, CPA, CITP, CGMA, Executive Director and CEO of the MACPA, adds,
The appeal bond cap was critical to allow our larger firms and companies to get access to Maryland’s appeal system. The small business cap was amended out of the bill last year, and is critical to Maryland’s business climate and our small businesses.
CPA’s from small to mid-size firms view the appeal bond cap as currently constructed, as a significant burden, which could potentially destroy their business.
A change in liability from ‘contributory’ fault to ‘comparative’ fault, which some have indicated could be considered for potential legislation, could have a devastating impact on CPA’s. The MACPA would oppose such legislation if introduced.
Mike Manspeaker, CPA, CGMA, Partner and Director of Auditing and Quality Control at Smith Elliott Kearns & Company, LLC, is the current Chairman of the MACPA. He explains:
The legislative advocacy efforts of the MACPA sometimes take on a defensive posture in order to keep bad bills from being introduced or passed. One of those issues is the concept of “Comparative Fault”, which would cause defendants in a lawsuit to pay claims when someone else was at fault or negligent. The MACPA will remain diligent to fight against Comparative Fault and other legislation like it that results in unfair practices and makes Maryland less business friendly.
State and local governments are often opposed to comparative fault for some of the same reasons we are, including to reduce the number of frivolous lawsuits.
When we spoke with liability insurance carriers, they said general liability premiums and the frequency of lawsuits historically rise when a state changes to comparative fault from contributory.
Conforming state tax deadlines to federal
Beard also commented on the need to conform state tax deadlines to newly changed federal tax deadlines.
There has been a change to the federal due dates for corporations and pass through entities. This change was made to better align the receipt of tax information for individuals. The due date for partnerships, trusts and individuals was the same day. If individuals were waiting for tax information from a partnership or trust, there always was a probability the information would not arrive before the individual had to file a return or file an extension, many times including a tax payment. It was always an art to estimate what payment was due when the tax information was uncertain or, in some cases, unknown.
For most of the state returns, the starting point for the state calculations is the federal net income or federal adjusted gross income. If the dates are not changed, there is a potential for the Maryland return to be due up to one month before the federal return is due. We are advocating a change to Maryland due dates to in order to avoid estimating a Maryland return and payment without knowing what the true federal starting point would be. Having the federal and state filing due dates conform also is less confusing to the taxpayers and to the practitioner community.
Connect, Protect, Achieve: Join CPA Day
Advocating at the state capitol on the issues described above is part of MACPA’s mission to help CPA’s connect, protect, and achieve: connect with your peers and other leading experts, protect the value of being a CPA, and achieve more in your career.
Seasoned professionals and young professionals alike will benefit personally and professionally from participating in CPA Day 2016. The event will take place on January 21, 2016, and runs from 7:30 am – 1:30 pm (the registration desk opens at 7:00 am; please note pre-registration is required at www.macpa.org/cpaday.) There is no charge to attend CPA Day, and 2.0 CPE are offered. This event is open to MACPA members only, and is one of the highlights of the program year; we invite you to become a member of the MACPA so you can participate in this important event.
Young professionals are invited to attend the New Young Professionals Network (NYPN) events taking place immediately following the program, including a session from 1:45 – 3:45 with past MACPA chairs and leaders (additional 2.0 CPE) followed by a NYPN Happy Hour. Young professionals should register here for the CPA Day/NYPN events.