Thursday, March 25, 2010

Advocacy Update

Yvonne Castillo
TSA General Counsel

Today TSA attended a hearing by the House Committee on Ways and Means to monitor discussions by state officials who are considering how to make up for the $11-15 billion shortfall next biennium. On the agenda was the current sales tax exclusion for architectural services, as well as other professional services. TSA submitted written testimony and met with the Chairman’s office beforehand to discuss concerns.

In our written testimony, we pointed out the unique business model for architectural firms. In other words, we explained the difficulty that our industry would have in administering this kind of tax because we’re usually at the top of the pyramid in the team of professionals as the “prime design professional,” which would put us in the position of having to spend an awful lot of time keeping track of, and collecting, sales taxes for all those professionals down stream. We also pointed out the competitive disadvantage issue. In this day and age with the ease of transferability of services across state lines (and other countries for that matter), clients would have an 8.25% incentive to go elsewhere. Then there’s the issue of timing. When would this tax be due? At the completion of the contract or each time an architect is paid? There were numerous other questions and issues raised. To read the full written testimony submitted by TSA, please click here.

What we took from the hearing was a general feeling that state officials are looking for money but aren’t necessarily going to pull the trigger with a sales tax on professional services, at least not easily. They seem to be more focused on services related to auto repairs, personal services like tattooing, tanning and body piercing, and auto services like car washing, rust proofing, undercoating, etc. So…the lobby representing auto folks, tattoo businesses, and tanning salons might want to be on high alert. One thing we can say for sure is that the services that are most vulnerable for taxation were those where a lobby was not present today. That was evident from a comment by the Chairman when one industry was discussed and no one testified or submitted written testimony. As far as architects are concerned, we remain watchful, but feel fairly confident that a new tax on services would only move forward after some vigorous debate, which we, of course, would participate in at every stage. So stay tuned.

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