CPAs concerned with sales tax on services, appeal bond cap, comparative fault, tax deadlines
Maryland CPAs will meet with their state legislators on Jan. 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 CPAs' annual CPA Day in Annapolis. MACPA members are encouraged to register now for the program at MACPA.org/CPADay. New members are welcome, and a post-event gathering is planned for the New / Young Professionals Network. Educational / prep materials are provided by the MACPA to enhance this advocacy effort, and participants in the free program earn two hours of CPE.
We invited MACPA leaders to explain the significance of these issues.
- How a sales tax on services provided by CPAs 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.
- How a change from "contributory" fault to "comparative" fault could be devastating to business.
- 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 explained why the MACPA would object to a sales tax on services, a concept some have considered if it were introduced into legislation.
"Imposing a sales tax on services would seem to be a fairly simple proposition," Beard said. "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," he continued. "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 chair of the MACPA, describes the issues surrounding the appeal bond cap issue and why the 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. The MACPA worked with the Maryland Tort Reform Coalition on this legislation," DeLeon said. "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."
"The appeal bond cap was critical to allow our larger firms and companies to get access to Maryland’s appeal system," added MACPA Executive Director Tom Hood, CPA, CITP, CGMA. "The small business cap was amended out of the bill last year and is critical to Maryland’s business climate and our small businesses. CPAs from small to mid-size firms view the appeal bond cap as currently constructed as a significant burden that could potentially destroy their business."
A potential change in liability from "contributory" fault to "comparative" fault, an idea considered by some, could have a devastating impact on CPAs. The MACPA would object to any 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 chair of the MACPA.
"The legislative advocacy efforts of the MACPA sometimes take on a defensive posture in order to keep bad bills from being introduced or passed," Manspeaker said. "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," Hood added. "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," Beard said. "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," he added. "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 the MACPA’s mission to help CPAs 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.
The event will take place from 7:30 a.m. to 1:30 p.m. on Jan. 21. (The registration desk opens at 7 a.m.; pre-registration is required at MACPA.org/CPADay.) There is no charge to members to attend, and two hours of CPE are offered. The 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 events taking place immediately following the program, including a session from 1:45 to 3:45 p.m. with past MACPA chairs and leaders (an additional two hours of CPE are available), followed by a NYPN Happy Hour. Young professionals should register here for the CPA Day / NYPN events.