Taxes are not popular.
And lawyers are not popular.
So why not throw the two together and create the most despicable combination imaginable: a tax on legal services?
That’s what they’re considering these days in Georgia. House Speaker Glenn Richardson, a Republican from Hiram County, is introducing a bill to collect sales taxes on lawyers. Well, not just lawyers. All professional service providers. That would include accountants, architects, and barbers, among other service providers.
But don’t weep for the lawyers. Weep for the consumers. Clearly, the service providers would pass along the tax to the consumer, just like retailers. And while the tax would vary depending on location, you can look for an increase of 8% in areas like Atlanta (wow, and I thought our 7% sales tax in Philadelphia was high).
If you’re scratching your head as to why this is happening, it’s because the rest of Richardson’s plan calls for the elimination of property taxes in Georgia. Since Fulton County is one of the fastest-growing counties in the United States, this seems a little crazy from a tax policy perspective (clearly the property taxes aren’t driving folks away) and it would be a huge hole in Georgia’s revenue stream. Attempting to fill the hole by taxing services could have the adverse effect of driving some services out of the state to neighboring jurisdictions.
Of course, this isn’t a novel idea. There are at least five other states, Delaware, Hawaii, New Mexico, South Dakota, and Washington, that currently tax legal services. You’ll note that none of those states (maybe excepting Delaware) are exactly centers of legal commerce. That’s a nice way of saying that most mega-firms are primarily located in places like California, Texas, New York, North Carolina, Pennsylvania, and Illinois (don’t send me your emails telling me how great law firms are in places like South Dakota, I’m sure that they are, I’m just looking at numbers and the AmLaw lists). In my own state of Pennsylvania, they have tossed around the idea before but never really made the effort – there was far too much opposition.
Richardson’s bill is likely to garner a great deal of opposition, too, so there must be something else going on. If you listen to the chatter, most folks believe that this bill is a political tool to increase support for school vouchers. Wha-huh? But what does that have to do with anything? Well, property taxes – which Richardson wants to eliminate and replace with sales taxes on services – fund local schools. Without property taxes, local schools would have to depend on funding from the state. The state would be more likely to put a voucher system for private schools into place (the argument doesn’t usually fly when the local school districts have input). Aha.
The bill isn’t going to pass, as written. You can mark that down. But the fight will be interesting to watch.
Actually, I could use your help. I have a great company looking for international tax managers and I can’t get anyone to listen. Any suggestions?
I have heard that one cannot charge a consumer taxes on services (for what it’s worth, I am in California), or at least some types of services. But for the life of me, I cannot locate any law (state or fed) that sets this forth. The services in question happen to be tailoring clothing. Any ideas appreciated.