Mobility stability: California's practice privilege struggles leading to reforms.

You are a California CPA who never leaves the state. You may prepare some tax returns for clients who have interests in other states and provide them with tax advice on those interests. You may do some consulting with CPAs in your firm or association, dealing with their client issues or an audit of a company that has holdings in some other states. So, why should you care about mobility?

Simply put, you may be breaking the accounting laws in another state without even knowing it. While you may not consider yourself holding out in another state, or practicing public accounting in that state, the state regulators may think differently.

How Can This Be?

Each state has a slightly different way of interpreting the Uniform Accountancy Act. Further, each state has interpreted Sec. 23 of the Uniform Accountancy Act, which was designed to facilitate mobility, in a way that is hampering mobility.

Sec. 23 was conceived as a method whereby CPAs from other states could provide public accounting services across state lines without obtaining a license from each state where those services are provided. Business doesn't respect geographic boundaries, and financial information and services flow across state and international lines.

Simple Concept?

The UAA concept was simple: States would eliminate the existing "temporary and incidental" provisions that allowed the CPA profession to serve clients for 100 years virtually unhampered throughout the country and replace it with a standardized practice privilege that would be similar to a driver's license.

Similar to driving a car across state lines, accountants agree to obey the laws of the state in which they are temporarily providing services, and if something happens in that state, regulatory force can be brought to bear.

With a driver's license, there is no requirement to stop at the border and notify the state that you are entering if you are a nonresident of that state. The UAA requires that CPAs obtain a license wherever their principal place of business is located.

Impact of California Law 

California's adoption of one of the most far-reaching practice privilege statutes in the nation, coupled with an intention to enforce the law, created a national stir even though at least 31 states already had adopted some version of practice privilege. In addition to increasing the difficulty of practicing within the state, the inadvertent impacts of California's law provided no additional consumer protection and had major impacts on business.

People are fond of comparing professional regulations. Dentists, engineers, doctors, etc. all do it this way. However, there is a big difference when trying to impose an antiquated state regulatory system based on geographic location on the CPA profession.

Doctors and dentists know where their patients are located when they are receiving treatment. Engineers know the physical location of their project. California's law, if applied to the medical profession, would require a Mayo clinic physician in Arizona, who is seeing a California patient, to register with the California Board of Medical Quality Assurance prior to treating or consulting with that California patient.

Additionally, out-of-state CPAs providing tax services or consulting to California taxpayers are at a significant competitive disadvantage since unlicensed consultants and accountants from other states can--and do--provide those services without notifying the California Board of Accountancy or filing for a practice privilege.

CalCPA Takes Action

Because of the unintended consequences of the new law, as well as fears of the ripple effect and retaliation across the country, CalCPA pursued legislation to clarify and streamline California's law.

As a result, AB 1868, which was enacted into law, provides partial relief for out-of-state CPAs and foreign accountants who are attempting to service clients with some business in California.

The law allows out-of-state CPAs to obtain a practice privilege without licensing a partner in California or registering their CPA firm with the CBA. It also allows for incidental and temporary practice for CPAs and foreign accountants without registering with the CBA.

Under the previous law, foreign accountants trying to serve foreign companies located in California were ineligible for a practice privilege and unable to legally come here to provide temporary and incidental services.

The CBA still must define what "temporary" and "incidental" are, and may define what tax services may be provided in California without a practice privilege.

AICPA Mobility Task Force

California's struggle highlighted the need for practice privilege reform, so the AICPA appointed a Mobility Task Force, which is coming forward with recommendations. Former CalCPA Chair Michael Ueltzen is a task force member.

An initial recommendation would allow CPAs from substantially similar states to practice across state lines without notifying the state board of accountancy. These individuals will be subject to enforcement by state regulatory authorities.

The National Association of State Boards of Accountancy also has endorsed the concept.

The proposed revisions to UAA Sec. 23 will be released as an exposure draft soon. The comment period will end May 15, 2007. Once adopted, each state board of accountancy will pursue amendments consistent with a revised Sec. 23, which will serve consumers and taxpayers across the country.

In the interim, CPAs need to make sure they are practicing legally by checking with state boards of accountancy prior to filing tax returns in other states; providing consulting services including expert witness testimony; or teaching.

Bruce C. Allen is CalCPA's director of government relations.