Tax on services? CalCPA influences change and introduces legislation.

• Author: Allen, Bruce C.
• Position: CapitolBeat

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.

[ILLUSTRATION OMITTED]

Assembly Member Alyson Huber (D-E1 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 S 10,000. Among the list of services is "high net-worth...