West Virginia: Tax Preparation Services Not Exempt Professional Services
An Administrative Law Judge (ALJ) for the West Virginia Office of Tax Appeals recently concluded that a company operating a franchised tax preparation service was required to collect sales tax on its services. The taxpayer did not employ CPAs to prepare and process returns. Under West Virginia law, sales tax is generally imposed on services, but there is an exception for furnishing professional or personal services. The dispute at issue centered on whether the taxpayer was providing an exempt professional service. The West Virginia Code of Regulations lists numerous service providers that perform activities recognized as “professional,” as well as guidance to determine whether an unlisted activity falls within the “professional” classification. Notably, services rendered by certified professional accountants are included in the list of exempt professional services, but tax preparation services are not. The Tax Commissioner has discretionary authority when determining whether an unlisted activity is “professional” and will consider the level of education required for the activity, the nature and extent of nationally recognized standards for performance, licensing requirements on the state and national level, and the extent of continuing education requirements.
The opinion limited its analysis to the enumerated four-part test as “tax preparation” services are not among the exempt professional services listed in the regulation. With respect to the level of education, the taxpayer argued that real life work experiences should stand in for the education requirements in the four-part test. However, the ALJ noted that the taxpayer testified that there was no certain level of education required to work as a tax preparer, and many of the company’s preparers had a GED or high school education, but even that was not required. The ALJ was also not convinced that the tax return preparers were subject to licensing and continuing education requirements. Although the company as a franchise was required to obtain 25 hours of continuing education each year, the taxpayer testified that there were no licensing requirements to file federal and West Virginia state tax returns and no specific continuing education requirements. Finally, the taxpayer argued that tax preparation services were akin to those provided by certified professional accountants and differentiating between the two was unfair. The presiding judge acknowledged the argument’s merit in part, but highlighted the differences in education, licensing requirements, and the complexity of work performed by CPAs. As an administrative tribunal, the Office of Tax Appeals declined to address any constitutional arguments challenging the alleged disparate treatment of tax preparers. In conclusion, the ALJ determined that the Petitioner was not providing exempt professional services and thus was required to collect sales tax for its services. Please contact Mark Balistrieri with questions on this determination.