State Bar of Wisconsin

Taxing Legal Services: The Wrong Way to Go

By Sen. Jim Sullivan

April 6, 2009

As Wisconsin tackles the economic crisis, one phrase we have heard is that nothing is off the table when it comes to resolving our $5.4 billion state budget deficit. To a certain extent, that is true: anything that is reasonable, fair and serves a valid purpose is up for discussion. Taxing legal services, however, does not meet that criteria. While no such proposal has been formally introduced, taxing legal services is the wrong way to go.

Taxing legal services is not a revenue solution; it is an impediment to the exercise of constitutional rights. Working people would foot the bill for such a proposal. It is not reasonable or fair to tax a surcharge on criminal defendants when liberty itself is at stake.   Increasing representation costs by instituting an additional tax will make it even more difficult for people to attain legal help, which flies in the face of our constitutional right to representation, codified in the Sixth and Fourteenth Amendments of the United States Constitution.

Taxing legal services would not be reasonable or fair for people who are seeking civil legal redress, namely those clients who are going through major life events such as divorce, bankruptcy, or estate planning. These legal services are not discretionary expenditures. Most often they are part of what is a traumatic transaction for a consumer, completed in a time of emotional and financial distress. The right to seek justice in the civil system is not consumption; it is a constitutional right of all citizens, and as such, should not be taxed.

As a member of the State Bar of Wisconsin, as an elected official serving as vice-chair of the Senate Judiciary Committee, and as a compassionate person, I do not think we should charge a victim of domestic violence five more percent. I do not think we should charge a dislocated worker who is facing bankruptcy five more percent. I do not think we should charge a terminally ill patient who is trying to draft a will five more percent.

Taxation of legal services is not just a mistake from a constitutional and moral perspective; it is a direct attack on Main Street. Every business in Wisconsin, from large corporations to small shops that dot our communities could be negatively affected by taxing legal services. Wisconsin businesses use legal services in just about every aspect of their work. Lawyers assist with incorporation, oversee the execution of contracts, and help ensure that a company complies with state and federal laws. Small businesses would be hard hit, as they usually do not have a lawyer on staff as many larger corporations do. In the face of having to pay an extra five percent to outsource all of their legal work, they might be tempted to cut legal corners or worse yet, they may decide not to go into business at all. In times of financial trouble, adding such a detrimental tax should not be part of the equation.

A sales tax on legal services would be the beginning of a costly, burdensome administrative nightmare. Which services would be taxed? That is a question that could take the Legislature hours upon hours to debate. The potential bureaucratic mess would be nothing compared to tracking each and every service that is rendered and performed. When the state is already owed an estimated $1 billion dollars in unpaid interest, fees, and taxes, adding to the Department of Revenue’s workload would be ill-timed and irresponsible.

Only three states tax legal services: South Dakota, New Mexico, and Hawaii. Florida and Massachusetts used to be on that list, but removed themselves quickly after enacting the tax on legal services, which turned out to be unpopular and unwieldy from an administrative perspective. When 47 states agree, it is imperative to take heed of that consensus: Taxing legal services is a major burden on the poor, the business sector, and the state. This is a proposal that must be taken off the table.

Sen. Jim Sullivan represents the 5^th Senate District, which includes Wauwatosa, West Allis, West Milwaukee, Elm Grove and parts of Milwaukee and Brookfield. Sullivan is vice-chair of the Senate Committee on Judiciary, Corrections, Insurance, Campaign Finance Reform, and Housing. He graduated from the University of Wisconsin – Madison and received a law degree from Marquette University in 2001. 

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