Interstate Commerce Versus Public Protection
Why Cross-Border Licensing Must Be Handled with Care

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When most people discuss substantial equivalency, they’re talking about the ability (or, rather, the lack of ability) of CPAs licensed in one state to practice across state lines, freely and without restrictions. As it stands now, CPAs practicing across state lines, even via the Internet, often find themselves facing myriad obstacles, all of which, at their core, stem from two competing principles in the United States Constitution.

The first is the Constitution’s Commerce Clause, which says that states should not be allowed to inhibit interstate commerce. The second is the constitutionally granted right of the states to protect their citizens. Both of these constitutional principles are sound, and both, individually, make sense. They are intended to be a check and balance of one another.

But checks and balances sometimes create conflict. For example, as the Internet economy has blossomed, so too has the potential for CPAs to serve clients doing business throughout the nation and the world. Many states, however, in their attempt to protect the public, have enacted laws saying that out-of-state CPAs and CPA firms must first register and pay a fee before doing business in their states, even if that business is conducted solely over the Internet.

To many CPAs, this restraint on mobility doesn’t seem fair. Shouldn’t a CPA in one state have the same rights and privileges as a CPA in another state? Shouldn’t the CPA license be considered substantially equivalent across state lines? Why should a CPA in New Jersey, for example, be forced to pay a fee or go through the (often lengthy) process of registering to practice in New York, when the educational qualifications and continuing professional education requirements for CPAs are similar?

Now let’s look at the situation from the perspective of New York State officials. If this New Jersey-licensed CPA does not have to register to practice in New York, how is New York to know if the CPA’s credentials are properly disclosed, or if the CPA has a professional ethics or disciplinary problem? The answer: The state cannot know without some form of reasonable notice submitted by the out-of-state CPA, and it is unlikely to enact a law that is perceived to leave citizens vulnerable. Requiring out-of-state CPAs to submit a uniform, electronically transmitted notice to another state could be a simple way to notify a state of a CPA’s intent to practice without mandating registration, but this solution could also require multistate, legislatively approved notification provisions or an interstate compact.

Achieving a Workable Solution

As these differing perspectives show, this is a complicated issue, and reasonable people can disagree. There are no easy answers. It is essential, however, that the substantial equivalency problem be resolved quickly and that the profession actively develop an appropriate solution.
But in its attempt to solve the problem, the profession should avoid the temptation to implement a solution that may, in the long run, turn out to be ineffective and impractical. For example, a proposal for “no notification, no fee” is currently on the table as part of a revision to the AICPA and the National Association of State Boards of Accountancy’s (NASBA) Uniform Accountancy Act (UAA), a model-bill approach to provide uniform regulation for the profession.

In a perfect world, “no notification, no fee” would allow out-of-state CPAs to practice across state lines without having to submit a notice or pay a fee. Sounds ideal, right? Well, maybe not.

The reason a “no notification, no fee” policy might not be an ideal way to achieve substantial equivalency is not because of any conceptual flaw, but because of its reach. While “no notification, no fee” might make some CPAs happy, it would not allow state legislators to feel comfortable with their duty to protect citizens from inappropriate professional practices. It is, therefore, an uncompromising solution that is unlikely to win approval from many states’ legislators. Indeed, one of the reasons the UAA’s substantial equivalency provisions have not been adopted uniformly by now is because many state legislators believe these provisions would hamper their ability to protect citizens from unqualified out-of-state practitioners.

At this year’s annual NASBA meeting, Ronald L. Blanc, President of the California Board of Accountancy (CBA), spoke about the importance of the notification requirement for out-of-state CPAs who intend to obtain a one-year California practice privilege. Blanc said the notification ensures that: 1) proper credentials are disclosed; 2) the CBA is alerted to the identity of out-of-state practitioners and any professional ethics or discipline problems to protect California consumers from harm; and 3) the administration of enforcement action is improved by granting the CBA the power to suspend a license or practice privilege granted by the Board. He also recommended that NASBA develop a uniform, single notification form for CPAs to use for cross-border practice.

The Role of the States

If the profession is to achieve substantial equivalency, it must not disregard the perspective of the states, whose duty to protect the public must be considered. State officials understandably want to know what’s going on inside their borders, which is, in fact, the very idea behind state licensure and regulation of the profession by state boards of accountancy.

Working to create a national license for CPAs or attempting to push every state to uniformly adopt the same statutory or regulatory language could be futile. The licensing of nearly every profession in the United States is handled by the individual states, not the federal government.

Achieving substantial equivalency is an important goal, but the profession should work to get there intelligently and practically. The Internet economy and increasingly blurry geographic distinctions have expanded the reach of practicing CPAs. But the profession should not forget that restrictions imposed on professional licensing remain firmly in the hands of state legislatures, and are likely to stay there.

Louis Grumet
Publisher, The CPA Journal
Executive Director, NYSSCPA
lgrumet@nysscpa.org