Several state governments, in an effort to broaden their tax base, boost coffers, and reduce sales and income taxes, are considering implementing a tax on professional services. The tax, which would include a levy on architectural and engineering services, is becoming a popular way for politicians to enhance revenue and stem budget shortfalls.

States considering such tax measures include Florida, Oklahoma, and North Carolina. In Florida, for example, Senate President John McKay is pushing a constitutional amendment that would overhaul the state's sales tax and end many sales tax exemptions. The state's top business leaders and many of McKay's colleagues are criticizing the plan. Gov. Jeb Bush (R) has not yet taken a position on the measure, but called for a full review of any major new tax proposal.

Oklahoma Governor Frank Keating (R) is reported to be considering a state sales tax on professional services as part of his new tax reform plan. The governor is aiming to eliminate the state's personal-income tax and cut other sales and business taxes. In North Carolina and other states hit hard by recession conditions there is talk of new taxes but no formal proposals are on the table.

The proposals, which come at a time when tax revenues are declining and state deficits increasing, have attracted grassroots opposition from a variety of arenas, including businesses, industries, and professional organizations. The AIA State and Local Government Affairs staff is working with AIA members to monitor budget proposals and legislative work. The AIA national component offers a primer and background information for members who wish to speak with their representatives about the detrimental effects a professional-services tax would have on architects.

Arguments against professional-service tax legislation
The AIA's state and local government affairs staff say the tax may favor out-of-state and multistate firms. This would be particularly detrimental to small firms, which tend to rely primarily on in-state business and already compete for in-state projects with larger out-of-state firms. Even if the tax is applicable to out-of-state firms, the state would find it difficult to collect, and revenues would be offset by the cost of additional administration, enforcement, and litigation. The measure would be an additional burden for small businesses, which account for nearly 75 percent of all architecture firms. The tax may adversely affect the quality of the built environment and the health, safety, and welfare of the public because clients will be more likely to hire nonregistered designers to avoid the tax. It may also deter nonregistered individuals from becoming registered professionals.

For more information and to get help with specific legislation in your state, contact Christy Agner, 202-626-7381.

Copyright 2001 The American Institute of Architects. All rights reserved.