There is no question we will all be paying higher taxes in Maryland next year. Maryland is facing a $1.5 billion budget shortfall, primarily from the unfunded Thornton education mandate passed in the Glendenning administration six years ago.

One of the major strategies to fix this problem is to increase the sales tax rate and expansion of the sales tax base. The CPA profession was targeted when “management consulting services” and “tax preparation services” were featured in a Sun article featuring Gov. O’Malley’s views on how to solve Maryland’s looming deficit crisis. It should be noted that the other professions of law and medicine were not mentioned.

Management consulting services are expected to raise $59.5 million and tax preparation services $9.8 million, according to the article.

While we understand the need for raising taxes to balance the budget, implementing taxes on CPA services is bad tax policy for the following reasons:

1. They are difficult to administer for both the state and the taxpayers, due to the multi-state nature of most CPA services (tax preparation and management consulting) and the fact that these services are often rendered from anywhere. Unlike point-of-sale services, in which you can determine exactly where the service takes place. Florida repealed their sales tax on accounting services after only six months due to these issues.
2. They will have a negative impact on small businesses, both those that provide these services and those that purchase these services. Not only will these have to pay the taxes, but the real costs lie in the compliance — setting up to bill, collecting and paying these taxes.
3. Surrounding states do not tax these services, putting Maryland CPAs at a competitive disadvantage. Many of our members have said they believe clients will jump across the borders to get cheaper consulting and tax services if this bill is enacted.
4. It is a tax on taxes! Most of the management consulting and tax services are required by federal and state laws for businesses and individuals. This will tax these very services that people are forced to use due to the complexity of the tax system.

We are in the process of writing a letter outlining our rationale for opposing sales tax on our services which will be sent to the Maryland leadership (governor, speaker of the House, president of the Senate) and some key legislators. We are asking you to prepare your letters and be ready to send them when we contact you. In the event they convene a “special session,” we will need to act fast.

You can help right now by doing the following:

• Scheduling to attend CPA Day in Annapolis on Jan. 23, 2008 at the Governor Calvert House Hotel in Annapolis.
• Contributing to our Political Action Committee.
• Supporting us with your membership. Every CPA member is mapped to his / her legislative district, which gives us the ability to contact them when we need an all out grassroots effort.

Resources:

• Sales tax on services positi.n papers.
• Legislative Resource Center
• Find your legislator.
• Contact your legislator.