2008-05-02 23:26:06 -

- California Society of Certified Public Accountants Bill Spaniel, (818) 546-3552 bill.spaniel@calcpa.org www.calcpa.org A sales tax on services, including those provided by accountants, would be unnecessarily burdensome on small businesses, tax consumers for filing taxes, and prompt businesses to move to states that do not tax services, says the California Society of CPAs (CalCPA).

"CalCPA opposes any effort to

impose a tax on services," said Teresa Mason, chair of the 32,000-member association. "Consumers in California already pay among the nation's highest sales taxes on products. A sales tax on services is an extra burden on consumers as well as on businesses."

Mason's comments responded to reports that the administration of Gov. Arnold Schwarzenegger may recommend taxes on services in order to compensate for a shortfall in the state budget.

"Businesses who pay sales taxes on services they use will have to raise the prices of products they sell consumers to compensate," Mason noted. "And if accounting services are taxed, people and small businesses will be paying a tax for having CPAs and tax preparation services prepare their federal and state returns. That's essentially a tax on taxes."

In addition, Mason observed that California taxpayers would likely not be able to deduct taxes on services from their federal income taxes; thus, their overall tax burden would be higher than that of residents of states that do not tax services.

Mason said that a tax on services could result in businesses leaving the state for states that do not impose similar taxes. "If the goal is to find additional sources of revenue, how will that happen if businesses--as well as their employees--flee the state? Fewer businesses and fewer employees mean state income tax revenue will drop. Taxing services unlikely will replace such lost revenue, let alone increase tax revenues overall."

Mason also commented that a sales tax would complicate administrative record keeping on the part of small businesses unused to collecting taxes from clients. Such administrative costs would then be passed on to clients and consumers, further increasing the cost of services.

"Consumers are motivated to save money wherever they can," Mason pointed out. "If businesses in regulated professions and industries are required to collect taxes for services, consumers may turn to unregulated and unscrupulous suppliers. Should that happen, consumers could get harmed and California's economy won't be helped either because the taxes will be lost."

Added Mason, "Taxing services is a bad idea for the State of California. It will damage California's overall business climate. In the end, savvy businesses and consumers will move to other states with less egregious tax laws."

About CalCPA

The California Society of Certified Public Accountants (CalCPA) (www.calcpa.org) is the nation's largest state accounting organization. It serves 32,000 members in public practice, private industry, education and government.

California Society of CPAs Opposes New Tax Proposal