CPAs and the 80th Texas Legislature

July 2007

The 80th regular session of the Texas Legislature is history and CPAs were affected by a number of bills that passed and protected from a number that failed. Here is a brief summary of legislation pertinent to CPAs.

Interstate Mobility
Texas became the seventh state to adopt model accountancy act language designed to facilitate interstate practice by CPAs. House Bill 2144, sponsored by Rep. Kino Flores (D-Palmview) and CPA Sen. Tommy Williams (R-The Woodlands) and signed into law by Gov. Rick Perry, allows out-of-state CPAs with qualifications substantially equivalent to Texas CPAs to practice in Texas without notice or fees by granting a practice privilege based on the CPAs credentials.

CPAs and CPA firms taking advantage of the practice privilege are explicitly subject to Texas laws and the jurisdiction of the Texas State Board of Public Accountancy. The law requires an out-of-state CPA firm that performs an audit for a Texas entity to be licensed in Texas. Out-of-state firms that perform compilations or reviews for Texas entities must also comply with the Texas ownership requirements and be enrolled in a peer review program. The law is effective Sept. 1, 2007. Read more

Privacy Policy Exemption
Texas law requires any entity that asks for Social Security numbers from clients to maintain a privacy policy and communicate that policy to clients. At TSCPA’s request House Bill 863, sponsored by Rep. Byron Cook (R-Corsicana) and Sen. Rodney Ellis (D-Houston), was passed exempting CPAs from this requirement.

The Accountancy Act already prohibits CPAs from sharing any client information with third parties without express client consent, although no specific written policy is required.

Franchise Tax Corrections
The 79th Texas Legislature in special session passed the revised franchise tax changing the franchise tax basis from earned surplus and capital to a newly defined taxable margin. Almost immediately after the new law passed CPAs from across the state started pointing out flaws in the language of the bill as well as inconsistencies in treatment between taxpayers.

The 80th Legislature passed technical corrections to the new margin tax via House Bill 3928 authored by Rep. Jim Keffer (R-Eastland). TSCPA recommended 27 improvements to the tax law and HB 3928 included 12 of those suggestions.

During the session the Legislature refused to consider any changes to the tax that would reduce the estimated revenue to be collected. This decision left a number of inconsistencies in the law unchanged. You can review the major changes in the technical corrections act. (.PDF)

Texas Governments Can Ignore GAAP

The Legislature decided to venture into the world of accounting principles, usurping established accounting authorities by excusing Texas governments from complying with Government Accounting Standards Board Statement No. 45 Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions.

Despite opposition from GASB, AICPA, TSCPA and GFOA, the Legislature, encouraged by State Comptroller Susan Combs, passed House Bill 2365 sponsored by Rep. Vicki Truitt (R-Keller) and Sen. Robert Duncan (R-Lubbock). The bill authors did agree to make the exception allowed rather than mandatory, so individual governments can still choose to comply with GAAP.

Although governments may now ignore GAAP under state law, CPAs who audit governments are still required to report whether or not the entity’s financial statements are fairly presented in accordance with GAAP. Adverse opinions are likely for those governments choosing to depart from GASB Statement No. 45 requirements. Get more information on HB 2365.

Government CPAs Get Fee Waiver
Frequently government employed CPAs are prohibited from practicing public accounting due to the nature of their jobs. Under House Bill 1316 authored by Rep. Tony Goolsby (R-Dallas) city and county employees, as well as employees of other state governments are exempt from the $200 annual professional head tax if their employer does not allow them to practice public accounting. If you can moonlight as a CPA, you still have to pay the $200 even if you work for a state or local government.

Bills That Didn’t Pass
In most legislative sessions bills that are defeated are as important to CPAs as those that pass. Here are some CPAs will be glad to know didn’t make it:

• Unauthorized practice of law – an attempt was made in the Senate to insert a sweeping provision that would have limited property tax consulting to lawyers into House Bill 2352 by Rep. Sinfronia Thompson (D-Houston). The attempt failed when TSCPA and others objected to the overreaching provision.
  
  
• Tax planning becomes tax evasion – a state Comptroller sponsored bill, House Bill 3314 by Rep. Keffer, as originally written would have considered tax planning as evidence of fraud and subjected individuals to personal liability for entity taxes on a questionable bases. After working closely with the Comptroller’s staff, a substitute bill was finally passed that removed the offensive and overreaching language.
  
  
• Mandatory license for convicted felons – Senate Bill 1750 required state licensing agencies, including the Texas State Board of Public Accountancy, to issue licenses to convicted felons provided the offense was more than five years old. After successfully getting the bill amended to eliminate CPAs from its provisions, the bill died awaiting action on the House floor at the end of the session.