2024 policy preview
December 18, 2023
By P. Anthony Allen
As the New Year approaches, the CPA profession continues to serve a substantial leadership role in business, tax, and advisory services across the Commonwealth. The 2024 Legislative Session will focus on Kentucky’s next biennial budget with accompanied tax reform discussions. At a national level CPAs continue to discuss multiple pathways to the education, licensure, and experience needed to address the declining number of students entering the profession while balancing the ability of CPAs to practice across state lines. As federal issues like beneficial ownership information reporting and PCAOB oversight intensify, the profession will need to meet a variety of challenges.
Due to support through your membership, contributions to the KyCPA Political Action Committee, and involvement with our policy initiatives, the Society and our advocacy team will strategically represent the CPA profession in Frankfort and Washington. For the final issue of the 2023 KyCPA Journal, below is a preview of some of the key issues we will be closely monitoring and prioritizing in 2024.
Kentucky legislative session
Following a highly competitive Governor’s race and election of Kentucky’s Constitutional officers, policymakers are quickly transitioning to prepare for the 2024 Legislative Session. The 60-day “long” Session will begin on January 2, 2024, with Kentucky’s next biennial budget taking the forefront of the policy landscape.
As Governor Andy Beshear enters his second term, Republicans in the Kentucky House of Representatives and Senate remain in control of their supermajorities. Under the careful stewardship of the General Assembly, the Commonwealth’s budget outlook continues to project revenue stability. However, legislators continue to consider budget expenditures and requests with caution due to rising uncertainty of the global economy and broader market slowdown. Top budget issues for discussion this coming Session will include K-12 and higher education funding, teacher pay, childcare funding as federal COVID-19 appropriations dry up, infrastructure, reliable energy, and addressing continuing workforce challenges.
As policymakers debate budget details, revenue and tax remain key points of discussion including adjustments to the inheritance tax, limited liability entity tax, broadening the sales tax base, and considering the proposed Constitutional amendment related to local revenue modernization.
A forthcoming reduction of the individual income tax rate from 4.5-4 percent effective January 1, 2024, has many business and tax experts asking if the General Assembly will move to lower the rate further in 2025 to 3.5 percent. Key policymakers in both Chambers have publicly stated a vote to reduce the individual income tax rate to 3.5 percent next year is unlikely. Following the release of the Office of State Budget Director’s individual income tax reduction report for fiscal year 2023, the Commonwealth missed one of the rate reduction triggers necessary for a vote by the General Assembly to authorize a reduction. However, this does not preclude a rate reduction as the General Assembly possesses the sole power to amend the trigger statute.
Each year, KyCPA recommends legislators follow the guiding principles of sound tax policy. These include the issuance of clear administrative guidance, certainty, predictability, avoiding double taxation, and strongly opposing the expansion of the sales tax base to business-to-business services. As representatives of the accounting profession, KyCPA specifically advises against the expansion of the sales tax on accounting, tax filing, and financial advisory services.
Building upon the guiding principles of sound tax policy, KyCPA supports simplification of the Commonwealth’s tax code. This includes an update to Kentucky’s Internal Revenue Code conformity to January 1, 2024, referring to the degree to which a state tax code conforms to the federal tax code. The update simplifies a state’s implementation of its tax policies by using federal taxable income as a starting point for calculations. Simplification also includes the protection and enhancement of taxpayer rights. The implementation of a fair tax code plays a significant role in the Commonwealth’s economic development efforts. Not only do businesses want to locate, invest, and expand in states that have competitive tax rates, but perhaps equally important, they want reasonable assurances that our tax laws will be enforced transparently, efficiently, consistently, and equitably.
The limited liability entity tax (LLET) is a unique tax that KyCPA believes should be repealed. However, if the LLET is retained, KyCPA supports legislative proposals to simplify compliance by either aligning the cost of goods sold definition with the federal code or replacing the unique tax with a flat dollar minimum tax.
Local tax revenue modernization has played a significant role in tax reform discussions over the last few years. Currently, the Kentucky Constitution allows local governments the ability to raise revenue via property taxes, insurance premium taxes, and occupational licenses fees. A building coalition of businesses, local governments, and interest groups have advocated for an amendment to the Constitution that would allow for the diversification of local tax revenue. However, the amendment process faces multiple hurdles, with passage by the General Assembly, signature by the Governor, and a majority vote on the general election ballot required to initiate change.
With discussion of diversification of local tax revenues, the Society remains consistent with advocating for simplification of the filing process. The current system, where hundreds of counties, cities, and school districts each separately interpret and apply the law, continues to be a burden on taxpayers, and likely on tax administrators. Standardization, alignment, and uniformity of Kentucky’s local and state tax administration would alleviate various filing problems for individual, business, and multijurisdictional taxpayers. Local tax uniformity can be achieved while keeping 100% of local tax collections in local jurisdictions.
With the new Session approaching and the subsequent 2024 primary and general elections, many veteran lawmakers have announced retirements following this year’s proceedings. These retirements include members of House and Senate Leadership, Committee Chairs, and policymakers with deep institutional knowledge and experience. With the prospect of multiple incoming new legislators in 2025, the Society will continue to serve as an objective resource on tax, business, and advisory services in the Commonwealth.
CPA mobility and education pipeline
In addition to broader business concerns, KyCPA continues to collaborate with other state societies and the American Institute of CPAs (AICPA) to address the declining number of professionals entering the accounting profession. Adjusting policies to increase interest in obtaining a CPA license while also protecting the ability of CPAs to practice across state lines is an increasingly important discussion. As other states consider providing alternative pathways to CPA licensure outside of the 150-credit hour and one year of experience requirement, these changes could have profound implications on Kentucky practitioners. Kentucky Revised Statute 325.261(5) explicitly requires 150-credit hours in order to obtain a CPA license in the Commonwealth. This education requirement is upheld in 49 out of the 50 states and allows CPAs the ability to utilize practice mobility to conduct services across state lines.
CPA mobility refers to the ability of CPAs in good standing to seamlessly provide services to clients across state lines without the need to obtain an additional license outside of their home state. Under mobility, CPAs can temporarily practice either in-person or virtually if they are deemed to be substantially equivalent to CPAs already practicing in that state. In exchange for this practice privilege, CPAs are subject to both the oversight of the state boards of accountancy in their home state and any temporary practice state.
CPA mobility is an important factor in the greater context of the accounting education pipeline. This year, KyCPA in collaboration with the Kentucky State Board of Accountancy, advocated for regulatory amendments to extend the CPA exam timeline from 18 to 30 months and remove the cap on the number of internship hours that apply to a candidate’s 150 credit-hours. These provisions are currently moving through the regulatory process and will take several months to become effective.
In Washington, KyCPA, other state societies, and the AICPA continue to advocate for federal initiatives to improve accounting education. KyCPA has requested Kentucky Members of Congress support Accounting as STEM to establish the accounting profession as a STEM career pathway, recognizing the value of accounting professionals, including CPAs, as technological leaders. We are also advocating for the Freedom to Invest in Tomorrow’s Workforce Act, a bill that would expand eligible uses of 529 savings plans to include fees and expenses required to obtain or maintain recognized postsecondary credentials, including professional credentials and certifications, and provide accounting professionals with greater financial flexibility as they enter the workforce and seek to further their education.
As the shortage of CPAs becomes an increasing concern for the profession, governmental audits and federal oversight are beginning to shift more attention to the issue. The accounting education pipeline continues to be a top priority for the Society as the number of accounting students declines, retirements increase, and the shortage impacts rising client needs.
Tax Policy Champion
KyCPA recognized Rep. Fleming as a Tax Policy Champion for his work during the 2023 Legislative Session on depreciation expensing, exempting marketing services from the sales tax, and state and local tax parity relief via the new pass-through entity tax. Rep. Fleming advocates with his colleagues in the General Assembly on tax policies friendly to the CPA profession and business community.
In addition to the accounting education pipeline initiatives, KyCPA has focused on other federal issues of importance to Kentucky practitioners. As the U.S. Department of Treasury, Financial Crimes Enforcement Network (FinCEN) prepares for millions of beneficial ownership information (BOI) report submissions, AICPA and the state societies have vigorously requested the January 1, 2024, effective date be delayed. The AICPA, KyCPA, and the majority of other state societies have requested Members of Congress pass H.R.4035 and S.2623, the Protecting Small Business Information Act of 2023. In addition, our advocacy efforts have led to the passage of H.R.5119, the Protect Small Business and Prevent Illicit Financial Activity Act, which extends the initial filing deadline for existing businesses to two years. New companies and updated information will need to file reports and changes within 90 days following the effective date.
Transitioning back to budget and tax at the federal level, KyCPA endorses The Simplify Automatic Filing Extensions (SAFE) Act, which would assist the Internal Revenue Service with receiving extensions earlier in the year, providing taxpayers, CPAs, and the IRS with a streamlined process and reducing the need for many penalty abatement requests. The Fiscal State of the Nation resolutions, which would require the Comptroller General to make a presentation to a joint session of the House and Senate Budget Committees on the Government Accountability Office (GAO) auditor’s report of the U.S. government’s financial statements, are another top priority for the overall fiscal health of the country.
Questions or comments
If you have any questions, comments or feedback, please feel free to reach out to the Society’s Government Affairs Director, P. Anthony Allen, at email@example.com.