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February 20, 2019

Industry pans Lamont's bid to tax professional services

HBJ Photo | Matt Pilon Melissa McCaw, secretary of the Office of Policy and Management.

The accounting industry was one of the first industry groups on Wednesday to slam Gov. Ned Lamont’s budget proposal that dramatically broadens Connecticut’s sales tax on professional services.

Lamont’s proposed two-year, $43 billion state budget would require consumers to pay significantly more sales taxes by cancelling numerous exemptions for accounting, legal, interior design and real estate services.

The proposal is part of a larger sales tax reform measure that would remove exemptions from other consumer purchases like digital downloads, with the goal of raising $292 million and $505 million in new tax revenues in each of the next two fiscal years, respectively.

The good news, however, is that the expanded 6.35 percent sales tax on professional services would exempt business-to-business transactions, according to budget documents.

That still didn’t quell criticism.

According to the Connecticut Society of Certified Public Accountants (CTCPA), which has lobbied against past attempts to remove the exemption, Connecticut would join New Mexico, South Dakota and Hawaii as the only states with the expanded levy on professional services.

In a statement soon after Lamont’s budget unveiling, CTCPA called the levy on tax preparation services “fundamentally it poses what taxpayers will view as a penalty for filing one’s tax return in a complete, compliant and accurate manner by engaging professional assistance.”

“Connecticut taxpayers will most certainly view it as having to pay a tax on paying their taxes,” said CTCPA Executive Director Bonnie Stewart.

Implementing new taxes on accounting services, CTCPA argues, would “put Connecticut at a competitive disadvantage” compared to its neighbors in New york, Massachusetts and Rhode Island, and nearly every other state that does not impose taxes on tax preparation services.

The new levy would also add headaches for individual taxpayers who already lost their ability to deduct fees they pay for having their returns prepared by an accounting professional under President Donald Trump's 2017 federal tax reform law.

Stewart urged the General Assembly to reject Lamont’s proposal to expand the state’s sales tax.

“Most people realize taxes are the price of a civilized society, but they view paying their taxes and the very process of tax return preparation as onerous and expensive.  Proposing to tax people for their voluntary compliance with a complex and convoluted tax code, again, adds proverbial ‘insult to injury,’” Stewart said.

Colleen Flanagan Johnson, a senior advisor to Gov. Lamont, responded to the industry group’s concerns in a statement late Wednesday.

It’s rich that CPAs, of all groups, are raising concerns about modernizing our tax code and including their services in the state’s tax base,” she said. “But they especially can appreciate the fiscal situation our state is in, and what needs to be done to get our state on the path toward growth again.”

This story has been updated to include comments from Colleen Flanagan Johnson

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Lamont presents $43 billion, two-year plan to legislators

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