Senate Internet tax bill could open door to state levies, hitting advisers

Big worries over extending sales tax to financial services or imposing financial transaction taxes

Apr 25, 2013 @ 4:12 pm

By Mark Schoeff Jr.

tax, advisers, internet, financial advisory services
+ Zoom

An Internet sales tax bill considered in the Senate this week could open the door for cash-strapped states to ponder tapping another avenue of potential revenue: a sales tax on financial services, or a financial transaction tax.

If approved by Congress — a Senate vote is slated for May 6 — the Internet sales bill could be a catalyst for more states to consider the benefit of also adopting taxes focused on financial transactions as they implement the federal legislation, according to Scott Talbott, senior vice president for public policy at the Financial Services Roundtable.

“States are strapped for revenue,” Mr. Talbott said. “They could utilize a financial transactions tax to help fill that void, which would be appealing in the short term but in the long term hurt the citizens they're trying to protect.”

The two most prominent state-level attempts to tie a sales tax to investment advisory services — in Ohio and Minnesota — appear to have been squelched, but there has been talk of similar taxes in North Carolina and Louisiana.

Chet Helck, chief executive of the global private-client group at Raymond James Financial Inc., told advisers attending the RJ national adviser conference in Dallas Tuesday that while industry opposition helped kill the Ohio and Minnesota measures, other states need to be watched vigilantly for similar action.

“Concerns about [legislation] will continue for quite some time, and what comes out will impact how you do business for the rest of your lives,” Mr. Helck said.

In Ohio, advisers aren't taking any chances.

During a lobbying day on May 21, Ohio chapters of the Financial Planning Association plan to descend on Columbus to try to drive nails in the coffin of a provision in Gov. John Kasich's budget that would subject investment counseling — along with accounting and legal advice — to a 5% state sales tax.

“Until they vote on the budget, it's not dead,” said Pamela Sandy, CEO of Confiance LLC.

Louisiana Gov. Bobby Jindal has moved away from the idea, and it's too early to tell what direction North Carolina will take, according to Nancy Lancia, managing director of government affairs at the Securities Industry and Financial Markets Association.

Nonetheless, SIFMA is prepared to push back.

“A tax on financial services is a tax on the end-user, which is the investor,” Ms. Lancia said. “This would make saving for retirement, college or a home more costly.”

This year, Minnesota Gov. Mark Dayton tried to institute a sales tax on investment counseling as part of a budget plan to broaden the sales tax base and reduce the rate to 5.55%, from 20%.

Michael Branham, a financial planner at Cornerstone Wealth Advisors Inc. in Minneapolis and national FPA president, said Minnesota FPA members were part of a coalition that helped stop the plan.

“It limits access to [investment] advice on the part of the consumer,” Mr. Branham said.

Although Mr. Dayton dropped the proposal, the efforts in Ohio and Minnesota show its bipartisan appeal, according to Daniel Penchina, principal at The Raben Group in Washington and an FPA consultant. Mr. Dayton is a Democrat and Mr. Kasich is a Republican.

“We're going to see more and more of this moving forward,” Mr. Penchina said.

The idea is not new. In recent years, financial transaction tax bills have been offered in Pennsylvania, Michigan and Illinois, although they did not become law. New York has a transaction tax on its books but has provided 100% rebates for many years.

One supporter of a financial transactions tax argued that states can be laboratories for proving that they are a better way to fund government budgets than cutting social programs.

“If [states] implement the taxes and generate revenue that way, it's going to draw attention,” said Dean Baker, co-director of the Center for Economic and Policy Research.

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