FSI, FPA fight state-level taxes on financial advisers

Trade associations representing financial advisers are busy this spring trying to ease state-level taxes on their members.

In Tennessee, the Financial Services Institute is lobbying for a bill that would eliminate a $400 annual tax on investment advisers, broker-dealers, attorneys and physicians licensed in the state.

In neighboring Kentucky, FSI and the Financial Planning Association participated in an effort that succeeded in removing a provision to tax financial planning services from legislation that was recently approved.

The Tennessee levy was initially implemented in 1992 at $200 when the state was experiencing a budget crunch, a leader of the No Taxation on My Occupation coalition opposing the tax wrote in a recent op-ed.  In 2002, the tax was raised to $400 and imposed on 23 professions. In 2019, 16 of those jobs were relieved of the taxation.

Now FSI, which represents independent brokers and financial advisers, and other members of the coalition are trying to whittle down further the professions hit by the tax.

David Bellaire, FSI executive vice president and general counsel, said the tax is a burden on the group’s members who have clients who move to Tennessee. Sometimes advisers reconsider the relationship because of the higher cost.

[More: Advisers, brokers to continue paying Tennessee privilege tax]

“Investors ought to be able to work with the financial advisers of their choice, and the tax serves as a barrier for that to happen,” Bellaire said. “We don’t think any state should place obstacles in the way of anyone who wants to plan responsibly for their financial future.”

The bill has 90 co-sponsors in the Tennessee legislature. It is being considered as part of a budget package that is currently being negotiated.

The Kentucky bill would have imposed a new tax on financial advisers in the state. The measure reduced the state income tax and implemented a sales tax on services. Among the services that would have been taxed in the original bill were personal financial planning and investment services.

On April 13, the Kentucky legislature overrode a gubernatorial veto of the bill. The next day, the FPA declared victory on stopping the tax on investment advice.

“I am pleased to announce that FPA’s efforts resulted in removing those proposed taxes from the final bill in Kentucky,” FPA CEO Patrick Mahoney said in a statement. “While FPA was not the only group lobbying to have the bill amended, we know that our efforts directly influenced the outcome and, most importantly, protected our Kentucky members.”

As part of FPA’s lobbying effort against the bill, Eric Poole, an FPA member and financial planner at Kentucky Planning Partners in Louisville, wrote an op-ed that ran on April 1 in the Louisville Courier-Journal asserting that the tax would raise the cost of financial planning at a time when inflation was making everyday goods more expensive.

“We shouldn’t have to choose between paying for groceries or preparing for retirement,” Poole wrote.

Financial planning taxes are something that can come up any time a state is trying to raise more revenue. It’s hard to predict when the next bill might be introduced and where.

“It’s very challenging because things on the state level can move so quickly,” Bellaire said.