Monday, January 5, 2009

Sales Tax on Legal Services?

In its December 29, 2003 edition, the Wisconsin Law Journal included an article on a discussion that has come up more than once recently. The article addresses a potential movement by the Wisconsin legislature to do away with the sales tax exemption on legal services. Frankly, this is a terrible idea. I’m not saying this as a Wisconsin lawyer, but rather, based on an analysis of tax policy. The only way that a sales tax on legal services would likely bother me is if I needed to hire a lawyer myself.

In Wisconsin, the sale of tangible personal property is subject to the sales tax. Services are not subject to the sales tax unless the specific service is directly identified in the Wisconsin Statutes. So, to be clear, there is no special exemption from the sales tax for legal services. Rather, legal services are treated just like any other service in the state.

Interestingly, it is possible that the movement to tax legal services could gain momentum based on the often negative perception that people seem to have of lawyers. After all, lawyers make lots of money right? So why not tax legal services? This argument is what us lawyer types call a "non-sequitur." Meaning, the conclusion (to tax legal services) has nothing to do with the argument (that lawyers make lots of money). Here is why: a tax on legal services would be paid by the clients, not the lawyers. The only role for the lawyers here would be to collect the sales tax from the client and send it to the state.

If Wisconsin were to tax legal services, it would only hurt those in need of those legal services. Lawyers are not inexpensive and to add another 5+ percent on top of that cost could make legal representation unaffordable. To tax legal services would be nothing more than a tax increase on a segment of society that is already facing some sort of trouble. Regardless or whether the legal trouble is deserved, adding a sales tax to the mix flies in the face of making representation available.

With a sense of irony, the Milwaukee Business Journal reported on December 26th, that more and more law firms are accepting credit card payments from their clients because those clients are otherwise unable to pay for legal representation. If there is to be a sales tax on legal fees, the current economic turmoil dictates that now is not the time.

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