PhotoQ: What type of tax for individuals is the largest fee for CPAs?

A: Estate tax returns.

If legislation calling for a sales tax on services (HB 1051) is passed , every Marylander who experiences the death of a loved one will have to pay 6 percent on the preparation of their estate tax returns. That means you are proposing a tax on taxes.

That was how I closed our panel's testimony last night in a packed hearing room and a long day of testimony before the Maryland House Ways and Means Committee.

Federal and state governments mandate the filing of various tax returns that are so complicated, most small businesses and individuals seek out the services of CPAs to help file their returns. It seems unfair to then tax the services they need to stay in compliance.

MACPA Chair Allen DeLeon and Secretary / Treasurer-elect Marianela del Pino Rivera took time out of their busiest time of year (tax season) to serve on our panel. Allen has a firm, DeLeon & Stang, in Gaithersburg and Marianela is a sole practitioner in Bowie.

Together they made the salient points of our opposition:

  1. Taxing professional services like tax preparation and management consulting hurts small businesses and individuals in the midst of a very fragile economy.
  2. It would be a compliance nightmare. Taxing professional services is very difficult to determine, calculate and enforce. Three states — Florida, Michigan and Iowa — have tried this and had to repeal because of this complexity.
  3. It would mean a competitive disadvantage for Maryland CPAs and service providers. The neighboring states do not impose taxes like this, making Maryland CPAs less competitive and allowing Maryland CPAs to shift taxable services to their out-of-state offices, should they have that option. This also will shift income related to those services to those other states.
  4. It's an unfair tax policy. If you have to tax services, than why not ALL services?

Several members of the Ways and Means Committee were asking questions about fairness (Why aren't lawyers listed on the list?) and about the “tax on taxes” component, and mentioned numerous letters from Maryland CPAs and firms.

David Hillery, vice chairman of our PAC and member of HeimLantz, was on another panel with the Anne Arundel Chamber of Commerce testifying against this legislation. CPAs were well represented yesterday.

And to quote from a recent BBJ article, “The people who aren’t noisy are going to get stuck,” said Tom Loveland, the CEO of Mind Over Machines in Owings Mills. “They need to make themselves known.”

Here is some coverage from last night's hearing:

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