Which of the following criteria are often used to evaluate a good tax system?

Two years ago, the AICPA issued a comprehensive report designed to provide policy makers with a clear understanding of the issues and alternatives involved in tax reform, and to foster informed discussion by providing unbiased information and analysis. The report titled:Understanding Tax Reform: A Guide to 21st Century Alternatives Download AICPA_Understanding_Tax_Reform.pdf

As part of that report, the AICPA recommended employing the following, widely recognized indicators of good tax policy to analyze proposed changes.  These 10 guiding principles are all equally important and should be considered both separately and together when evaluating the current legislation and tax reform proposals.

The MACPA State Tax Committee feels it is important to circulate these principles to MACPA members to guide their own assessment of state tax proposals that will surface during the 2008 session of the Maryland General Assembly. These will also be sent to the 188 members of our General Assembly to help them make informed decisions using the objective advice of Maryland’s CPAs.

Here are the ten principles:

1.  SIMPLICITY:  The tax law should be simple so that taxpayers understand the rules and can comply with them correctly and in a cost-efficient manner.

2.  FAIRNESS:  Similarly situated taxpayers should be taxed similarly.

3.ECONOMIC GROWTH AND EFFICIENCY:  The tax system should not impede or reduce the productive capacity of the economy.

4.NEUTRALITY:  The effect of the tax law on a taxpayer’s decisions as to how to carry out a particular transaction or whether to engage in a transaction should be kept to a minimum.

5.  TRANSPARENCY:  Taxpayers should know that a tax exists and how and when it is imposed on them and others.

6.MINIMIZING NONCOMPLIANCE:  A tax should be structured to minimize noncompliance.

7.COST-EFFECTIVE COLLECTION:  The costs to collect a tax should be kept to a minimum for both the government and taxpayers.

8. IMPACT ON GOVERNMENT REVENUES:  The tax system should enable the government to determine how much tax revenue will likely be collected and when.

9.CERTAINTY:  The tax rules should clearly specify when the tax is to be paid, how it is to be paid, and how the amount to be paid is to be determined.

10. PAYMENT CONVENIENCE:  A tax should be due at a time or in a manner that is most likely to be convenient for the taxpayer.

The Committee members presented the proposals we expect to see in 2008 as follows:

• Sales Tax on Services – expansion of the sales tax base (accounting, consulting & tax services)
• Increase in Sales Tax rate – proposals from 5% to 6% or higher
• Increase in Individual & Corporate income tax rates
• Changes in Combined Reporting for corporations
• Increases in Vehicle Excise Tax, Cigarette Tax, Gas Tax, Alcohol Tax
• Increases in the filing fees

In addition these principples will be hlpful in weighing in on our unfinished business from the last few years:

• “Re-coupling” of Section 179 Depreciation for Maryland Taxes
• “Re-coupling” of Estate Taxes to federal laws for exemption
• “Double taxation” of out-of-state income for flow through entities (taxes paid to other states)

You should know that many of these proposals were in the 2007 General Assembly and the MACPA was instrumental in stopping them – this year will be even harder as the deficit is such a big issue that needs to be solved. That is why we will need the help of more and more of our members in the upcoming session.

Resources:

State Tax Committee Presentation Download md_tax_update_2007_and_2008.ppt

Save the Date: CPA Day in Annapolis is scheduled for January 23rd, 2008 at the governor Calvert House

MACPA’s Legislative Resource Center (members only)

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