Login | April 21, 2018

OBSA reiterates stance against tax on legal services

Legal News Reporter

Published: March 27, 2013

The Ohio State Bar Association has come out strongly against a clause in the latest Ohio state budget proposal, House Bill 59, that legal services be subject to a sales tax.

It is one issue, said OSBA President-elect Jonathan Hollingsworth, in which lawyers of every political persuasion across the state agree.

“Our issues with this legislation are solely concerned with the impact that it will have on consumers of legal services,” he said.

It is an issue that has united Ohio lawyers across party and practice field lines, he said.

“It would drive up the cost of legal services,” said Hollingsworth, adding that people who already have a difficult time paying for attorneys would be hit especially hard under this proposal.

“The bill is supposed to help consumers, but applying this tax to lawyers would be catastrophic for them,” said Hollingsworth. People, he said, for the most part do not go to attorneys unless they are needed at a crisis time in their lives. Adding taxes to the legal bill for people who use an attorney for a divorce, probate, juvenile law problem, personal injury case, adoption, and so on just adds another layer of stress to people who are already under enough pressure.

There seems to be so much wrong with this bill, according to the OSBA, that the spokespeople for the organization had a difficult time listing them all.

The proposal in the budget of Governor John Kasich calls for the lowering of the base sales tax rate from 5.5 to 5 percent, but then would expand the definition of what services can be taxed. The tax would be then extended to attorney services.

But there is nothing in the budget proposal that actually defines what these attorney services might be, said William K. Weisenberg, the OSBA’s assistant executive director for public affairs, government relations, and diversity initiatives. Weisenberg acts as a lobbyist for the organization in Columbus.

“What actually constitutes a taxable event?” asked Weisenberg. “We don’t know.” He then gave a list of services that often come along with representing clients that may or may not be taxable events, but which are not mentioned in the proposal: private investigators, in-kind services, accounting services, deposition costs, discovery costs, pro bono or fee-free advice, and so on.

There are also problems on the commercial and criminal sides of this issue—one of the very few times that these two areas of the law may be spoken of in the same sentence.

“It is anti-competitive,” said Weisenberg, “and it turns us into tax collectors. Lawyers will pass on the cost of this tax to consumers.” Because of that, he said, companies may be less likely to move to or stay in Ohio.

“And what about in-house counsel? How is that taxed?” The proposal is silent on that aspect of legal services, he said. “It is unclear and open to interpretation. It is a significant uncertainty.”

The entire proposal, he said, is too vague to completely figure out. He also said that only three other states tax legal services.

Criminal law brings a different set of issues and difficulties, said Hollingsworth. For example: how does one value legal services for indigent offenders? There are also obvious Sixth Amendment access to counsel problems, if an incarcerated, indigent defendant has to pay taxes on legal services but cannot afford to do so.

And there is a problem, said Weisenberg, with the discussion of these issues even being a part of the scope of a budget this large (4200 pages). “The budget is complex enough as it is,” he said, pointing out that it deals with education, health care, and other major issues.

“The devil is always in the details,” said Hollingsworth. “As soon as people start looking at this legislation, lots of questions arise.”

He also pointed out that the entire budget, under the Ohio Constitution, must be approved by July 1.

What Weisenberg has heard recently at the statehouse may shift the game a little bit, however. He said that this tax may be moved into a separate bill of its own. It would then have its own committee hearings and information gathering, its own schedule, and not be subject to the July 1 deadline.

Whatever approach the legislature and the governor’s office choose, Weisenberg said that, “this is no one’s fault. They are all good people trying to do their jobs. We just think that people want a fair and just tax policy from the state.”