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AZ CPA September 2018

2018 Legislative Report The Hidden Costs of Using Drones in Industry Tax Policy Considerations Post-TCJA The Arizona Society of Certified Public Accountants y


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AZ CPA The Arizona Society of Certified Public Accountants President & CEO Editor Advertising

Construction Industry Conference Oct. 10, 2018 Desert Willow Conference Center 8 a.m. to 4:15 p.m. Also Offered as a Webcast Construction is a very fluid business impacted by a variety of economic and regulatory influences. This conference offers financial professionals the latest information and insight into the field and keeps you on the industry’s cutting edge. • Economic Update: Not Just Growing, but Growing Well • Health and Welfare Cost Containment: Top Trends to Maximize Your Healthcare Budget • A Practical Look at the New Revenue Recognition Standard • Taxes: 2018 Changed it All • Subcontractor Pre-Qualification: The Impact to General and Subcontractors – Panel Discussion • Leases on Your Balance Sheet – Are You Prepared? • Drones: A New Perspective in Project Management

Learn more at Don Farmer is Coming to The Camby on October 26 This year, Don Farmer will present on all major new tax legislation, as well as other significant tax developments that affect 2018 tax return preparation and 2018 tax planning for individuals, corporations and non-corporate businesses. Go to to register for in-person or webcast.



Cindie Hubiak Patricia Gannon Heidi Frei

Board of Directors Chair Mike Allen Chair-Elect Jared Van Arsdale Secretary/Treasurer Ginny DeSanto Directors Rachael Bertrandt Tom Duensing Paul Evans Kristen French Alan Gold Aaron Grant Tim Hansen Vanessa Makridis Karen McCloskey Alice Pope Sami Raynes-Houseknecht Nikki Vogt Immediate Past Chair Molly Montgomery AICPA Council Members

Chapter Presidents Southern Chapter

Rob Dubberly Greg Nelson Cathy Kinzer

Northern Chapter James Shankland Southwest Chapter Helen Greenwell North-Central Chapter Ellen Carpenter

AZ CPA is published by the Arizona Society of Certified Public Accountants (ASCPA) to provide information, news and trends to the accounting profession. It is distributed 10 times a year as a regular service to ASCPA members. The ASCPA, its members, board of directors and administrative staff assume no responsibility for advertisements herein. The ASCPA and the above people also assume no liability for business decisions made by readers in reference to statements and/or claims in articles or advertisements within this publication. Opinions expressed by contributors are not necessarily those of the ASCPA. Arizona Society of CPAs 4801 E. Washington St., Suite 180 Phoenix, AZ 85034-2040 Telephone (602) 252-4144 AZ Toll-Free (888) 237-0700

Volume 34 Number 7


September 2018


2018 Legislative Report

The 2018 legislative session was truly one for the history books ‌ it was The Perfect Storm.


by Ryan DeMenna


The ASCPA PAC contributes money to a wide variety of candidates, current lawmakers and both major political parties, making sure those who impact the profession know we represent CPAs who care about their credential.


Understanding the Hidden Costs of Integrating Drones

Columns & Departments

2017-18 PAC Report

Chair’s Message by Michael T. Allen, CPA


Member News


Board Minute Highlights


A Dash of SALT by James G. Busby, Jr., CPA


Quick Quiz


Classifieds 22

As drones become mainstream, be sure to understand how they can affect your business process and your bottom line. by Brandon Sisco


Tax Policy Considerations Post-TCJA The long-awaited Tax Cuts and Jobs Act made more than 100 changes to the federal income tax. by Annette Nellen, CPA (in CA), Esq.

Arizona Society of Certified Public Accountants 4801 E. Washington St., Suite 180 Phoenix, Arizona 85034-2040



ASCPA Chair’s Message

Legislating and Advocating “Hi Mike, I understand you are a CPA here in the Valley and we really need some help. Would you consider serving as our organization’s treasurer?” How many times has each of us heard this request throughout our careers as CPAs? Being a CPA has provided me the opportunity to serve on the boards of many not-for-profit organizations over the years — each with a unique constituency — and advocating on behalf of these constituents has always been a part of the job.

by Michael T. Allen, CPA

Many of our members are unaware of the significant advocacy role of the ASCPA, but the Society has our backs when it comes to matters affecting Arizona CPAs.



The term advocacy is often linked to politics, and certainly understanding and participating in the political process is important for achieving an advocate’s objective. But advocacy is more than politics. The ASCPA is uniquely positioned to serve as the lead advocate for Arizona’s CPAs, and it has been very effective in this role by building a strong relationship with its membership and the broader community. It has also positioned itself as an objective voice that is valued as a source of independent and credible information on important issues affecting Arizona CPAs. We are often times asked to provide our input on significant matters because we are considered the best source of unbiased information critical to the process. Providing this type of information is the foundation of our profession. The ASCPA has built the same strong reputation with our political leadership. The state legislature and Governor’s office have a tremendous respect for the work the ASCPA performs in the role of advocate. Through the efforts of our dedicated staff, led by Cindie Hubiak, the Society stays informed about issues facing our profession in Arizona. Cindie and her team are supported in these efforts by the board of directors and our lobbying firm. Often these are national issues, such as the services tax initiative that many states are currently addressing. Just as important are local matters, such as the “CPA Bill” that was passed during the last legislative session with the support and leadership of Senator Yee, who sponsored the bill. Many of our members are unaware of the significant advocacy role of the ASCPA, but the Society has our backs when it comes to matters affecting Arizona CPAs. As members, we should all play a role in supporting our advocacy objectives. Many of you do so by actively participating in our advocacy initiatives. Members can also have a tremendous impact by contributing to the ASCPA PAC. It is critical that we continue the recent growth we have experienced in support of the PAC. Making your contribution is a simple and impactful way to significantly participate in the advocacy of our profession in Arizona. The ASCPA takes its commitment to stay current on topics affecting Arizona CPAs very seriously. Please stay informed and share your input on all these topics by visiting our Connect site. Here’s to the dry heat and monsoons and enjoying the last of the unique and special summer in Arizona! n

Member News Paul J. Tomasik, CPA, has been promoted to a partner in the firm of Semple, Marchal & Cooper, LLP. Schmidt Westergard recently promoted Kelly M. White, JD, LLM, to partner. BeachFleischman PC promoted Christine Ulibarri, CPA, CCIFP, Fernando Barraza, CPA, MAcc, and Evan Feldhausen, CPA, to tax shareholder. HeinfeldMeech recently received the 2018 Vendor of the Year Award from the Arizona Association of School Business Officials.

ASCPA members went Behind the Scenes at the Arizona Lottery.

Roman Kepczyk, CPA/CITP, CGMA, was featured in the July issue of the Journal of Accountancy.

ASCPA member Jeff Weintraub, chair of the Arizona Lottery Commission, welcomes Cindie Hubiak and Jessica Wherty.

D a r i n G u t h r i e , C PA , P L L C promoted Tiffany Shucart, CPA, to audit manager.

Highlights of July Board of Directors Meeting Among other actions at its July 25, 2018 meeting, the ASCPA Board of Directors reviewed the following:

Auditor Report The 2017-2018 financial report was given by the independent firm of Mayer Hoffman McCann P.C. An unqualified audit report was issued.

Conflict of Interest Policy Board members reviewed and signed the conflict of interest policy as part of the annual process.

Nominating Committee Report

Anita Baker, the Society’s AICPA liaison, shared her insights on the AICPA’s approach to the future of the profession.

The board approved the following names as members of the nominating committee: Jared Van Arsdale (committee chair), Joyce Barden, Steve Harris, Vanessa Makridis and Greg Nelson. Jared led a conversation on the areas of expertise the committee should explore when adding the new directors.

Consent Agenda

Strategic Plan Update

The consent agenda, which included the board minutes, financial statements and audit committee charter, was approved.

Cindie provided an update on the Society, including advocacy activities, PAC contributions and a project where staff are exploring ways to support members. The board provided comments

AICPA Board Liaison Dialogue

on a one-page document describing the Society’s opposition to auditor rotation/ restriction of services.

A Day in the Life Molly Montgomery, Alice Pope and Jared Van Arsdale each shared a view of the challenges and joys they experience in their life and job.

Other Business No other business was conducted. If you have questions or would like additional information, please contact Cindie Hubiak at (602) 324-2888; AZ toll free at (888) 237-0700, ext. 203; or chubiak@



Attending the conference the past couple years really helped me grow into a management role. We learned about different leadership styles and how certain ones apply to certain situations. It made me a better employee and increased my confidence in front of clients. Kate Franklin, CPA

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Jan. 26, 2019 “In It for the Outcome, Not the Income” Community Service Event With Free Arts (Recommended CPE: 1 hour) Giving back is a hallmark of a great leader. Share your time in support of an organization that serves local abused and homeless children. There will also be an opportunity to learn more about the inner workings of Free Arts. Apr. 24 – Networking in Collaboration With GET Phoenix Young Professionals 5:30 - 7:30 p.m. (location TBD)

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A Dash of SALT

Arizona Left Providers of Digital Goods and Services in a Pickle In this month’s state and local tax (SALT) column, Busby explains how and why the Arizona legislature left providers of digital goods and services in a difficult situation, the quandary they face, and the action they may have to take to achieve certainty. The author helped draft House Bill 2479 and shares the history and his opinions. For the first half of this year’s legislative session, the Arizona legislature seemed poised to clarify which digital goods and services are taxable in the state.

by James G. Busby, Jr., CPA

The Proposed Legislation Essentially, House Bill 2479 would have: • defined prewritten computer software and permitted the Department of Revenue and the cities to impose retail sales taxes on proceeds from prewritten computer software regardless of delivery method; • defined specified digital goods to include digital audio-visual works, digital audio works, and digital books and permitted the DOR and the cities to impose retail sales taxes on proceeds from such items when they are transferred in whole to a customer, but prohibited the DOR and the cities from taxing them when they are merely streamed and not transferred to the customer; • defined and prohibited the DOR and the cities from imposing taxes on proceeds from specified digital services, including software as a service, platform as a service, infrastructure as a service, application service providers, hosting services, data storage management, data processing and information services, steaming services, digital authentication services, and any other cloud-based or other remotely accessed computing services.

James G. Busby, Jr., CPA, is a state and local tax attorney at The Cavanagh Law Firm. Busby previously worked in the SALT departments at Arthur Andersen and Deloitte & Touche. Before entering private practice, Busby was in charge of all transaction privilege (sales) tax audits at the Arizona Department of Revenue. If you have any questions, please contact the author. He can be reached at (602) 322-4146 or

However, our legislators did not finish what they started. After studying these issues all summer and grandstanding regarding the gravity of the problem caused by the lack of legislation to address the taxation of the digital economy, they shirked their responsibility. Thus, in 2018 Arizona’s sales and use tax statutes still do not even specify whether software is taxable, much less define digital good and services and specify whether any or all of them are taxable. Therefore, unless taxpayers and tax professionals familiarize themselves with the DOR’s mysterious audit positions and private taxpayer rulings, even those who carefully peruse Arizona’s statutes would have no way of knowing that the DOR believes a wide variety of digital goods and services are taxable.

Why the Legislation Failed House Bill 2479 quickly passed through the House by a comfortable margin early in the legislative session. The following day, less than an hour before the Senate



was scheduled to vote on its version of the bill, the Joint Legislative Budget Committee (JLBC) released a fiscal note. In it the JLBC predicted that the bill would have a negative fiscal impact, but indicated that it was unable to quantify the loss. Then, without questioning its assumptions and figures, or giving proponents a chance to respond, the JLBC indicated that an advocacy organization that was opposed to the bill estimated that it would cost the state $78 million per year. The fiscal note scared enough legislators that Senate leadership postponed the vote on the bill. Proponents later discredited the opponent’s assumptions and figures and the JLBC eventually published a memorandum acknowledging that the opponent overstated the likely revenue loss. But then, for the last six days of the legislative session, Arizona teachers went on strike in pursuit of a 20 percent pay raise. By the time 50,000 teachers marched on the state capitol for six days (in this election year) and the legislature capitulated to their demands, several legislators who previously planned on voting for HB 2479 concluded that they no longer could vote for a

bill that allegedly would cost the state money, even though proponents of the bill believe that any money the state collected on digital goods and services was not lawfully collected in the first place.

The Quandary By not specifying whether digital goods and services are subject to tax in Arizona, the legislature left providers in a damned-if-you-do, damned-if-youdon’t position. That is, to the extent they choose to collect tax on their proceeds from providing digital goods and services to Arizona customers without specific statutory authority to do so, they expose themselves to potential class action lawsuits for allegedly collecting more tax than is lawfully due. Yet, if they do not collect tax from their Arizona customers and the DOR determines that they should have paid tax, they may have to pay tax that they did not collect from their customers, along with penalties and interest, if audited.

The Path to Certainty Because the legislature failed to specify which digital goods and services,

Lunch & Learn: IRS September 24 12:30 – 2:30 p.m. — ASCPA Learning Center/Webcast

Join 30-year IRS veteran Lisa Novack for an IRS update. Novack is a senior stakeholder/liaison with the Southwest Area - Field Operations, a function of the Small Business and Self-Employed Division of the Internal Revenue Service. She will share the latest key updates on a variety of hot topics. Make plans to attend this informative presentation in person or via webcast. 10


if any, are subject to tax, providers’ potential exposure (whether for class action lawsuits or audit assessments) will only increase until they get the courts to decide whether the DOR can lawfully collect tax on proceeds from digital goods and services as if they were sales or rentals of tangible personal property under Arizona’s outdated tax statutes. Rather than give in on tax assessments for proceeds from providing digital goods or services, taxpayers should aggressively push such assessments – especially because Arizona recently increased the amount of attorney fees taxpayers can recover when they prevail in such suits, and because this year the legislature authorized taxpayers to skip the administrative appeals process in order to resolve their cases more expeditiously by going straight to court instead, if they like. Similarly, providers of digital goods and services who began collecting tax from their Arizona customers, even though the state’s statutes do not specify that their services are subject to tax, may want to clarify whether the tax is lawfully due by filing protective refund claims, although they may choose to hedge their bets by continuing to collect tax from their customers while their claims are pending. Some of us feel so strongly that digital goods and services are not subject to Arizona’s taxes on proceeds from selling or renting tangible personal property that we are willing to pursue many of those cases on a contingent fee basis. If somebody is going to get sued because Arizona’s Legislature failed to specify what is taxable, it should be the DOR and not taxpayers who have more important things to do than grapple with the DOR’s fanciful interpretations of Arizona’s outdated tax code! n

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Legislative Report Navigating the Perfect Storm by Ryan DeMenna The 2018 legislative session was truly one for the history books ‌ it was The Perfect Storm. For those unfamiliar with the film, The Perfect Storm is a disaster drama that tells the story of the Andrea Gail, a commercial fishing boat that was lost at sea with all hands after being caught in the Perfect Storm of 1991. The storm was the result of a confluence of two powerful weather fronts and a hurricane, which the Andrea Gail’s captain dramatically underestimates.



The 2018 legislative session brought Arizona the political version of the Perfect Storm: a regular and special session occurring at the same time, the expulsion of a senior legislator and a statewide teacher strike.

The Special Session The session began with Governor Doug Ducey’s call for a concurrent special session to combat the opioid epidemic in Arizona. A concurrent special session occurs while the Arizona legislature is in regular session, meaning there are effectively two sessions happening at once. The special session lasted only four days, and the Arizona Opioid Epidemic Act received unanimous support in the legislature.

The Expulsion In the midst of the session, the Arizona House of Representatives voted to expel the Chairman of the House Appropriations Committee, Representative Don Shooter, from the legislature after an investigation found he sexually harassed women for a number of years while in office. Shooter’s removal was a historic moment. The Arizona Legislature had only expelled three legislators from office prior to Shooter’s removal.

A Teacher Strike As the session was drawing to a close, tens of thousands of teachers paid a visit to Arizona legislators to demand more funding for public education. There were reports of up to 75,000 teachers at the Arizona State Capitol on the first day of the five-day walkout, and teachers remained at the Capitol until the Governor signed a budget bill that included a 20 percent pay raise for teachers by the year 2020.

Did Arizona CPAs Successfully Weather the Storm? With all of these converging legislative weather fronts, the question then becomes, “Did Arizona CPAs successfully navigate the storm?” For the Arizona Society of CPAs (ASCPA), the short answer is a resounding, “YES!”



Despite the storm, the ASCPA had a very successful year.

Senate Bill 1443 This year’s Senate Bill 1443, sponsored by Senate Majority Leader Kimberly Yee, was a major victory for Arizona CPAs. The bill was the result of a successful partnership between the ASCPA and the Arizona State Board of Accountancy (the Board), and was the profession’s response to Governor Ducey’s call for reduced regulation. With the Executive’s priorities in mind, Senate Bill 1443 was crafted to enhance the profession through reduced regulation while preserving existing public protections. The legislation reduces board notification requirements, streamlines business procedures and improves customer service. Existing law requires firm registration with the Board for everything from bookkeeping to attest and compilation services, and Senate Bill 1443 will limit registration requirements to firms that perform attest and compilation services. An analysis conducted by the Board found that nearly 20 percent of firms would no longer be required to register under the bill. After receiving unanimous support in the Arizona State Senate and House of Representatives, the bill was signed by Governor Ducey on April 27 and became operational on August 3.

Income Tax Conformity An annual exercise for the ASCPA is to ensure that the legislature conforms to changes made to the Internal Revenue Code in the prior tax year. Conformity is essential because Arizona, like many states, requires taxpayers to use federally adjusted gross income as the starting point for state income tax assessment. But the federal tax overhaul passed in December, 2017 further complicated an already complicated legislative exercise. Conflicting reports of the overhaul’s impact on taxpayers left state policymakers concerned that fully conforming to the federal overhaul would negatively impact Arizona taxpayers. These con-

cerns were bolstered by estimates produced by the Joint Legislative Budget Committee and the Arizona Department of Revenue that pegged the net increase to the state’s General Fund anywhere from $100 million to $250 million. With these concerns in mind, but conscious of the importance of conforming to the changes made at the federal level in 2017, House Bill 2647 conformed Arizona tax statutes to the Internal Revenue Code as of January 1, 2018. Despite the added layer of confusion produced by the federal tax overhaul, the ASCPA and its government relations team worked closely with key policymakers to ensure that 2017 conformity was adopted. And these same policymakers know the ASCPA will support advancing full conformity in the 2019 legislative session.

Temporary Licensure The ASCPA is always prepared for problematic proposals that materialize in the course of any legislative session. This year, Senator John Kavanagh introduced a bill that would have established an interstate compact for the temporary licensure of professionals – effectively leapfrogging CPA mobility. The ASCPA worked to defeat this shortsighted legislation, and the bill ultimately died in the Senate Government Committee.

Financial Literacy The ASCPA is always on the lookout for legislation that increases financial education and personal financial management for individuals. Under Senator Yee’s leadership, the legislature passed a bill allowing school districts to require students to pass a personal finance class in order to graduate from high school. The ASCPA threw its support behind this legislation and will be working closely with the Arizona Department of Education to develop the financial literacy curriculum.

The Arizona Department of Revenue Supporting the Arizona Department of Revenue (ADOR) and working to ensure that ADOR has the resources

necessary to serve Arizona taxpayers is always a priority for the ASCPA. This session, the ASCPA assisted the ADOR in securing support for a number of statutory changes that will streamline and improve ADOR functions and services. The ASCPA will continue to foster this working relationship and support ADOR and its leadership in their ongoing mission to improve the agency.

Citizens for Fair Tax Policy In December, 2016, the ASCPA organized a coalition of organizations and interests similarly concerned about the prospect of a professional and personal services tax. This group delivered a letter to Governor Ducey and legislative leaders expressing their collective opposition to any efforts to expand the state sales tax base to include the taxation of professional services. Since then, the Arizona Association of Realtors created an organization called Citizens for Fair Tax Policy, which launched an initiative that - if approved by voters in November - will amend the Arizona Constitution to prohibit a sales tax from being imposed on services. A recent analysis prepared by the Joint Legislative Budget Committee estimates that the pool of forgone tax revenue if voters approve the ban is roughly $5.2 billion. The ASCPA and its government relations team will be closely monitoring this effort over the next few months and will conduct polling to gauge voter attitudes on the proposed service tax ban.

Each year, the ASCPA tracks and engages on more than 100 pieces of legislation on topics ranging from professional regulation to obscure aspects of Arizona tax law. The ASCPA monitors every bill with a possible impact on the profession or Arizona taxes.

Looking Ahead Each year, the ASCPA tracks and engages on more than 100 pieces of legislation on topics ranging from professional regulation to obscure aspects of Arizona tax law. The ASCPA monitors every bill with a possible impact on the profession or Arizona taxes. Every piece of legislation that is introduced is read and analyzed to determine its impact. The ASCPA’s accomplishments occur for many reasons, such as the experi-

enced leadership of Cindie Hubiak and her dedicated team. But the real energy for these advocacy efforts comes from the ASCPA volunteers who take the time to visit the Capitol as both tax experts and “real people.” The ASCPA’s involvement and reputation in Arizona policymaking is unparalleled, and the organization has become a model for legislative engagement. So when dark clouds appear on the horizon, Arizona CPAs can rest easy knowing that they

have the right team in place to navigate everything from a light drizzle to the perfect storm. n Ryan DeMenna is with DeMenna Public Affairs, the ASCPA’s lobbying firm. For more information, contact www.demenna. com.



2017/18 PAC Report The ASCPA PAC is the voice of the CPA profession in Arizona. Lawmakers listen when we speak and initiate conversations with us to improve their decisions. The ASCPA PAC and ASCPA leaders contribute money to a wide variety of candidates, current lawmakers and both major political parties. We make sure those who impact the CPA profession know we represent CPAs who care about their credential and Arizona. Thank you to the ASCPA members who contributed more than $64,000 last fiscal year to open doors, share ideas and make sure the CPA voice was heard. Please make sure this continues by contributing to the PAC today at

Total PAC Contributions for FY 2017-18:

$64,370 Total Contributed to Candidates/Causes:

$64,020 2017-2018 PAC Contributors ($250 or more) Sandra A. Abalos Karen K. Abraham Sandra L. Akmon Michael T. Allen Cord D. Armstrong Susan A. Armstrong Corey Arvizu Connie L. Baker Anita F. Baker Aaron M. Banda Steven E. Bandler Donald R. Bays Bruce D. Beach Peter F. Beahan Lawrence C. Bello R. G. Blake Brenda A. Blunt Francis J. Brady Randy G. Brammer Richard A. Bratt


James F. Brewer Christine Brueser Jay L. Buck James J. Buhr Donald Butler, II Ronald Butler, Jr. Debra A. Callicutt Kevin F. Camberg Brian J. Campbell George M. Cohen David M. Coley Andreas D. Coumides, Jr. Regina R. Curry David A. Damron Virginia E. DeSanto Bradley S. Dimond Scott A. Donaldson Kevin J. Donovan Mark R. Dreher Michael C. Drexler


Robert E. Dubberly Thomas F. Duensing Mary K. Duffy Matthew O. Everroad Marcus Feder, IV Evan C. Feldhausen Ira S. Feldman Lawrence Field Michael T. Finnegan Marc D. Fleischman Gary W. Fleming Michael I. Fleming Randy G. Fletchall Michelle Flynn Kristen French Barry R. Friefield Thomas L. Friend Anthony R. Gerlach Rufus Glasper Alan Gold

Richard H. Goldenson Charles H. Goodmiller Christopher J. Gracey Aaron J. Grant Jacob P. Gregory Darlene D. Hagan Anthony M. Hakes Stephen T. Harris Victoria C. Harris William C. Heimerdinger George E. Henderson R. Dale Hensley Jon D. Hermanson William J. Jr. Hodges Herbert J. Hoffman Cindie Hubiak Daniel B. Hughes Terri M. Hulse David M. Iaconis Charles J. Inderieden Michael B. Jacobson Steven L. Jenkins Colette Kamps Melissa A. Kisor Evelyn A. Kleinhans Julie S. Klewer Allan C. Klose Joel B. Kramer Richard C. Kudzmas Jeffrey E. Kuhlin Chad D. Kunze Mark L. Landy Donna H. Laubscher Robert J. Leslie Christopher A. Lutes Thomas V. Marin Alexander Marr Jason A. Mattina Marilyn M. Mays Karen K. McCloskey Phillip R. Jr. McCollum James S. McGettigan Kevin W. McHolland Charles A. McLane George H. McNamara Julia A. Miessner David G. Miller, Jr. Reed S. Mittelstaedt Bryan W. Mogensen Molly E. Montgomery John M. Murdough Dan Nahom Allen L. Nahrwold Ralph G. Nefdt Melinda K. Nelson W. Gregory Nelson Bruce J. Nordstrom Zandra L. O’Keefe Randall L. Ottaway

Lata Pall Brent Papek Jay Z. Parke Shane E. Peck David P. Phillips Alice H. Pope Jonathan M. Poppel Bradley J. Preber John W. Prenzno Jeffrey D. Quick Mackenzie J. Rentschler Christina C. Roderick Stephen J. Rodis Jay R. Rold Armando G. Roman Eric S. Rudner LeAnn M. Rudolph John P. Russo Stephen J. Schiltz Cynthia A. Schroeder Richard R. Schultz Carolyn S. Sechler Jay J. Senkerik Stella M. Shanovich Lisa A. Shepard Jennifer L. Shields Layne R. Simmons Jeffrey Z. Singleton Jeremy A. Smith Andrew M. Spillum Leslie B. Stackpole Ronald L. Stearns Tracy L. Stone Michael E. Straneva James M. Susa Steven L. Tait Eric S. Taylor Philip W. Taylor Chad Thurston Candace B. Tooke Christopher W. Tyhurst Peggy H. Ullmann Jared W. Van Arsdale Nicole K. Vogt Carlos E. Wagner Scott T. Wallace Brooke M. Westemeier Pamela D. Wheeler Cale L. Whittington Corrine Wilson Susan Wolak Charity A. Woodall G. J. Wright Robert Wyndelts Melinda A. Xanthos Bryan A. Zall Edward K. Zollars

Understanding the Hidden Costs of Integrating Drones by Brandon Sisco In 2015, the Federal Aviation Administration began to allow businesses to operate drones in U.S. airspace. There are many industries who are experiencing revolutions as drones become more mainstream and knowledge of their capabilities increase. Products and information that were too costly to obtain previously are now available on demand. Anywhere you look in the media, on the internet, in industry journals, you will find examples of companies integrating drones and increasing profits. Unfortunately, when adding drones into a business process, there are many details to be easily overlooked. Understanding these details can affect how time and money are budgeted to the drone program.

Drone Benefits At their core, drones take pictures. Those pictures can be in the visible spectrum (what the human eye sees), it can be in electromagnetic bands such as Infrared (heat), or even creating a 3D model using lasers (yes, that’s not technically a picture but we’ll count it). What makes drones special is the speed and ease of getting those pictures. Previously, getting aerial images required a piloted aircraft and expensive equipment. This made the integration of aerial imagery into workflows too costly for all but the largest of projects. The pictures obtained by drones can be used for tasks such as visually inspecting structures or areas that are difficult or dangerous for personnel to access. Cell towers, the undersides of bridges, and rooftops are only a small subset of areas that can be inspected more quickly and safely by drones than personnel. When properly combined through a process called photogrammetry, it is possible to create a 3D model of buildings or jobsites. These models can then be used by managers to plan where to use equip-

ment, to monitor stockpile volumes, to detect errors during construction, or to show clients progress. All of these capabilities are decision making tools. The speed with which the information is collected and turned into a product provides managers with key information to make decisions. That is the true value of drones. Traditional surveys are not going to be replaced by a drone. There are numerous tasks that require personnel on the ground. However, adding drones to a process reduces the burden on survey crews. By allowing drones to complete tasks such as stockpile volume measurement, crews can be assigned to tasks that require personnel. This means projects have less wait time for crews, increasing efficiency and productivity.

Considerations The value that drones are capable of adding to a process is considerable. As with most opportunities, understanding the negative impacts is just as critical as understanding the positive. To understand the full economic impact of adding drones to a process, there are a number of aspects to consider besides the drone hardware. Drones come in two primary types: fixed wing and multi-rotor. Both have pros and cons, and the decision on which depends on the type of work. Fixed wing drones are great for large areas. They cover significantly more ground and are faster than multi-rotor drones. However, they are not very good at inspections. Multi-rotor drones are much more useful for any work that is not looking straight down, such as inspections, but they aren’t able to cover as much ground as a fixed wing. Processes that require long flight times also require the purchase of additional batteries. Depending on how critical the information is to a process, serious consideration should be given to purchasing a pair of drones. In aviation “Two is one, and one is none.” After purchasing a drone, there is maintenance and upkeep to budget for. Drones take amazing pictures. However, to effectively use the pictures,



software is needed to combine them into models and information useable by the team. Some drone providers offer software for this, but there are also powerful standalone programs. The license for the use of this software can be expensive and be a reoccurring charge. Do your managers need a simple model, or are you incorporating the data into BIM? Each program provides different capabilities, and buying more capabilities than you require can be expensive. The FAA requires that drone operators have a Remote Pilot license to fly for business purposes. Operators are required to read and understand Part 107 of the Code of Federal Regulations, portions of the Aeronautical Information Manual, as well as completing an FAA exam. After passing the exam, they need to be able to actually operate the drone. If no one in the company is capable of completing the license requirements, hiring a pilot is another cost associated with adding drones to a process. Finally, safety and risk should be con-

sidered before implementing a drone program. Flying any aircraft is dangerous. Crashing a drone may not have the same consequences as a piloted aircraft mishap, but there could still be significant financial and health ramifications. There are very specific FAA regulations about where to fly, when to fly, flying over people and many more. Failing to adhere to these can result in significant fines. Also, the company operating the drone may be liable for damage caused by their drone. Additionally, when flying, a pilot is required to maintain visual contact with the drone. This means that their attention is fully on the drone and not the work area around them. This may affect the work being conducted in the area of the operator. Insurance is also an important consideration if you are going to be operating a drone. Determining if current insurance will cover drone incidents, as well as the type of flying and location of sites are important considerations in determining insurance needs.

Drones are tools that have potential for improving decision making processes, improving project quality and increasing profit margins. Considering all the aspects of a drone program will allow businesses to more effectively plan and budget for the program. A more accurate budget can help to determine if adding a drone program to your business is cost effective. n   Brandon Sisco graduated from the U.S. Naval Academy with a Bachelor of Science in systems engineering, specializing in autonomous robotics. After graduation he became a Naval Flight Officer and qualified as Mission Commander in the E-2C Hawkeye. He started his own aerial photogrammetry company, 3 Wire Engineering, LLC.

Sisco will present on this topic at the Construction Industry Conference on Oct. 10, 2018 —

So You Want to Buy or Sell an Accounting Practice? Here are the Keys! If your 2018-19 goals include selling your practice to begin to enjoy your well-deserved retirement plans or you’re confident that now is the time for you to grow and prosper by acquisition. Now is the time to talk!

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Tax Policy Considerations Post-TCJA by Annette Nellen, CPA (in CA), Esq. The long-awaited Tax Cuts and Jobs Act (TCJA) (P.L. 115-97; 12/22/17) made more than 100 changes to the federal income tax. While a key focus in dealing with these changes is their effect on compliance and planning, the effect on tax policy should not be ignored.

Principles of Good Tax Policy Tax systems must be designed for effective tax collection and support of the taxing jurisdiction’s economic, societal and environmental goals. The AICPA has a set of 12 principles of good tax policy to help lawmakers and others create and shape effective tax systems. The principles: 1. Equity and Fairness 2. Certainty 3. Convenience of Payment 4. Effective Tax Administration 5. Information Security 6. Simplicity 7. Neutrality 8. Economic Growth and Efficiency 9. Transparency and Visibility 10. Minimum Tax Gap 11. Accountability to Taxpayers 12. Appropriate Government Revenues

Application of Principles of Good Tax Policy to the TCJA Were principles of good tax policy achieved? Yes and no. A few examples follow. While a larger standard deduction and simplified accounting methods for small businesses make the tax system simpler, some new rules bring new complexities. For example, the new interest expense limitation of IRC §163(j), the qualified

business income deduction of IRC §199A with its numerous definitions and special limitations, and the new international tax regime, increase complexity. Was equity improved? The increased standard deduction and the cap on the state and local tax deduction help improve vertical equity. Yet, some provisions reduce vertical equity. For example, the $2,000 child tax credit for children under age 17 (IRC §24; $1,000 prior to the TCJA) is now available to most individuals in that the start of the phase-out range was increased to $200,000 of modified adjusted gross income ($400,000 if married filing jointly). The IRC §199A qualified business income deduction is worth more to higher bracket individuals because it is structured as a deduction in a progressive rate system. The Joint Committee on Taxation (JCT) estimates that for 2018, 53 percent of the benefit of this deduction will be claimed by individuals with over $500,000 of income (JCX32r-18). This group represents less than one percent of individual filers. The §199A deduction violates horizontal equity in that certain businesses, referred to as specified service trade or businesses, do not generate a deduction for income from such business once the individual’s taxable income crosses a specified threshold. For example, Ben and John are sole proprietors, single and have taxable income of $220,000. If Ben is a lawyer and John is a retailer, John can claim the deduction, but Ben may not. Repeal of the personal casualty loss deduction other than for a federally declared disaster also violates horizontal equity. For example, assume two families have the same income level and each lose a home to fire. If one home is lost in a federally declared disaster but the other is not, only one family can claim a casualty loss deduction to reduce their tax liability. The TCJA aims to meet the economic growth and efficiency principle by shifting the corporate tax system from a worldwide to a modified territorial



system more in line with what most other industrialized countries do. The deemed repatriation was also designed to generate revenue and encourage offshore earnings to flow to the U.S. Despite an annual federal tax gap of about $450 billion, the TCJA made no changes to help reduce this figure. One possible change would reduce the filing threshold for Form 1099-K by third party settlement organizations. Currently, these parties, such as Uber and Airbnb, only need to provide a 1099-K if more than $20,000 of payments are processed and more than 200 transactions. Thus, an opportunity to help minimize the tax gap was missed.

The Quintessence of an Income Tax The JCT describes the “normal structure” of the individual income tax as

including “the following major components: one personal exemption for each taxpayer and one for each dependent, the standard deduction, the existing tax rate schedule and deductions for investment and employee business expenses” (JCX-34-18). The TCJA moves the individual income tax further from the normal structure due to removal of exemptions, as well as deductions for investment and unreimbursed employee business expenses.

Addressing U.S. Goals Strategic tax reform should identify the reasons for change and articulate the goals to be achieved. Principles of good tax policy should be used to design the changes. Tax reform should result in a stronger tax system that supports (or at least does not hinder) the jurisdiction’s economic, societal and environmental goals.

Arizona Federal Tax Institute Conference Nov. 1-2 Day 1 • • • • • •

Black Canyon Conference Center 8 a.m. to 4:30 p.m. Now Also Offered as a Webcast

10 Things You Need to Know About International Tax Now Recent Developments in IRS Collection Practices Deciphering Choice of Entity Another Year: More Ethics Lessons Learned Estate Planning After the Tax Cuts and Jobs Act Partnership Audit

Day 2 • • • • •

Sales Tax Reform – Nexus is Everywhere The CPAs Role in a Client’s Bankruptcy Politics, Policy & Practicality The State of Our Tax Law and Relevance to Practice 2018 Tax Update: The First Year of TCJA

Learn more at 20


The focus of the TCJA was mostly on economic goals of making the tax system more competitive on a global basis for corporations. Yet, at least two areas could hinder economic growth in our digital era. One hundred percent bonus depreciation is allowed for tangible assets rather than intangible assets. Also, expensing R&D costs is set to end after 2021, replaced with capitalization and amortization. The TCJA only made changes to the income tax and not to employment taxes or excise taxes. Issues with the Social Security and Highway Trust Funds will need to be addressed in the near future. When reform only addresses one tax, it becomes more difficult to ensure that the overall system meets principles of good tax policy.

Looking Forward The TCJA represents significant reforms intended to improve economic growth and make the corporate tax system more internationally competitive. With several temporary provisions, mostly affecting individuals, it will need to be reviewed before 2026. Thus, the next few years are important in assessing the changes against principles of good tax policy, whether they help or hinder achieving national goals, and considering how additional needed reforms to the income and other federal taxes can effectively be implemented. n Annette Nellen, CPA (in CA), Esq., is a tax professor and director of the MST Program at San José State University. She is an active member of the tax sections of the AICPA, ABA, and California State Bar and chairs the AICPA Tax Executive Committee. She maintains the 21st century taxation website and blog.

Learn more on this topic by Annette Nellen at the Arizona Federal Tax Institute held on Nov. 1-2, 2018.

AZ CPA Quick Quiz You’ve Read It, Now Get Credit Take this quiz on AZ CPA content online or submit this hard copy. Receive a score of 70 percent or more and earn one hour of CPE credit in specialized knowledge. It’s that easy! Fees: Members: $25 Nonmembers: $40 Online Access Go to to access links to all active quizzes. Once a quiz is purchased, a link and password will be emailed to you. Your results will be sent immediately after completion, and certificates are emailed within two business days. Hard Copy Please select one answer for each question. Fill out registration/payment information below and mail or fax to the Society office. Quiz results and certificates will be emailed to the address provided on the registration form. *This quiz will be available until Sept. 2019. Please note that users have three attempts to pass the quiz with at least a 70 percent score.

September 2018 Issue of AZ CPA* 1. ASCPA Chair Mike Allen mentions what bill sponsored by Sen. Yee? m The CPA Bill m The Tax Conformity Bill m The ASCPA Bill

5. Governor Ducey called for a concurrent special session to: m Address the Teacher Srike m Delay the Budget m Combat the Opioid Epidemic

2. During the ASCPA Board meeting, the board discussed the Society’s opposition to: m Services Fees m Auditor Rotation/Restriction of Services m Tax Changes

6. What organization is working on amending the Arizona Constitution to prohibit a sales tax from being imposed on services? m Citizens for Fair Tax Policy m End Services Taxation Now

3. Which bill would have clarified which digital goods and services are taxable within the state? m HB 2479 m Bill 6677 m HB 8821

Quick Quiz Registration

4. The analogy used to describe this year’s legislative session in the 2018 Legislative Report is: m Risky Business m Throwing the Baby Out With the Bathwater m The Perfect Storm

m Committee to Abolish Services Tax 7. It is possible to create a 3D model of buildings, or jobsites, through a process called: m Photogrammetry m 3D Isolation m Photoplacity 8. Drones come in two primary types: m Fast and Slow m Fixed Wing and Multi-rotor m Robotic and Manual 9. The IRC §199A qualified business income deduction is worth more to higher bracket individuals because it is structured as a deduction in a progressive rate system. m True m False 10. The focus of the TCJA was mostly on economic goals of making the tax system: m Easier to Understand m More Lucrative for the Government m More Competitive on a Global Basis for Corporations

Name: ____________________________________________________ Email:_____________________________________________________ Telephone: _________________________________________________


m Member: $25 m Nonmember: $40 Checks: Please make payable to: The Arizona Society of CPAs Credit Card:

m Visa m MasterCard m American Express

Credit Card #: _______________________________________________ Expiration Date: _____________________________________________ Name on Card. _____________________________________________ Mail to: ASCPA, 4801 E. Washington St. Suite 180, Phoenix, AZ 85034-2040; fax to (602) 252-1511 scan and send to



Classifieds Employment CPA/EA NEEDED — Seeking a seasoned professional with 5-7 years of experience to prepare and be responsible for all tax returns for an accounting office. Knowledge of individual and business returns is required. The ability to interact with clients and existing personnel is also a requirement. A good client base exists with potential for growth and earnings. This could be a performance base (productivity and collections) position. This established accounting office has been in Mohave county for over 20 years. Please send resume to DEPUTY DIRECTOR—FINANCE — City of Peoria — The purpose of this position is to provide leadership and oversight to the Financial Services and Materials Management divisions of the Finance and Budget Department. This position requires advance knowledge of, and experience with, governmental accounting and reporting treasury and debt management, internal controls and other financial management practices. The Deputy Director manages division goals and objectives, leads projects, performs complex reviews and analyses; implements policies and best practices, coordinates assigned responsibilities with staff and other city departments, outside agencies, and consultants; serves on and/or supports various city committees; and acts as Director of the department in the absence of the Director. Apply at: deputy-director-finance-repost?pagetype= jobOpportunitiesJobs. SR. MANAGER / PARTNER — Sigrist, Cheek, Potter & Huyser, PLLC. Career/ Partner Opportunity for ambitious, experienced CPA that can make an immediate contribution toward our growth and succession plans. We are a mediumsized firm in Scottsdale with a diverse small-business clientele. The right candidate will have excellent technical skills, strong tax and accounting background,



and the ability to develop and maintain relationships with our clients. We offer immediate opportunity to excel and become a valuable member of our team. Competitive compensation package, benefits and partner opportunity. Send resume/inquiries to TAX ACCOUNTANT—Mark M. Harnden, CPA PC — CPA Firm seeking experienced Tax Accountant to prepare high end business and personal returns. Requires degree emphasizing Tax/Accounting. Preference for CPA. 5+ years work experience. Salary range $70,000 to 95000 DOE. Please send resume to YUMA CPA WITH SUCCESSION POTENTIAL — CPA Financial Advantage, PC. Yuma firm serves over 2,600 clients: individuals, partnerships, trusts, corporations, and not-for-profits. We provide bookkeeping, payroll, QuickBooks consulting, business consulting, financial statements, auditing, income tax, gift and estate tax services. Seeking succession potentials who have been in public practice at least 5 years with experience supervising and reviewing staff. Knowledge of Lacerte and QuickBooks a must. Firm uses Thomson Reuters suite of products (Practice CS, File Cabinet). Paperless office experience desired. The ideal candidates must have the ambition and drive to advance to ownership within 5-10 years. Must live in Yuma or be willing to relocate. Serious inquiries only.

Office Space CPA FIRM OFFICE SPACE IN CENTRAL PHOENIX (16TH STREET CORRIDOR) — Possibility of shared resources/services with 8 other CPAs in the building. Recently renovated office space approx. 2,300 SF with separate entrance available in a premier professional location with great visibility. Call Jason at (602) 850-5100, or e-mail

OFFICE BUILDING FOR SALE — DOWNTOWN PHOENIX — 550 W. Portland St — Historic Roosevelt District. Historic bungalow beautifully restored and converted to 5 offices, spacious conference room, reception with fireplace, kitchen and bath. Covered parking for 6. Wood floors, exposed brick, built in oak bookshelves and window seat. Approx. 1700 sq.ft. Presently owner occupied law office. Not a typical redo! Shown by appointment only. Sherry Rampy (602) 571-5032. HIGHLY DESIRABLE OLD TOWN SCOTTSDALE OFFICE SPACE — Two offices available with covered parking, shared conference room, reception area, and kitchen area. Ideal for a practitioner with one employee. Call Michelle at (480) 516-3806 or email:

Services ESTATE /GIFT TAX AND FAMILY SUCCESSION PLANNING ISSUES POSE A CHALLENGE FOR YOU? — I can work with you or your client. Estate planning/compliance is not a science; it’s an art. Let’s make a better plan for you or your client. Ira Feldman, CPA/CEP (602) 850-5101 or ira@

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Profile for ASCPA

AZ CPA Sept. 2018  

The official publication of the Arizona Society of CPAs.

AZ CPA Sept. 2018  

The official publication of the Arizona Society of CPAs.

Profile for ascpa