Feb. 18, 2009 – Should you pay an extra 5% sales tax for legal services you need to prepare a will or buy a home? Should Wisconsin entrepreneurs face a 5% sales tax on legal costs associated with incorporating a new business? Should a family struggling with financial problems be forced to pay a 5% sales tax for a bankruptcy filing? Should struggling couples pay sales tax on their divorce? What about paying sales tax for preparation of income tax forms?
Few would argue that any of these scenarios would be either fair or good for Wisconsin’s economy, yet some policy-makers in Madison have floated the option of imposing the tax on professional services, including legal, accounting and real estate brokerage services. This is not a question of “closing tax loopholes.” Like all but two states in the nation, Wisconsin’s sales tax is applied to sales of tangible personal property (with specified exemptions for such items as prescription medicine.) In all cases, the purchaser pays the tax. The sales tax has never applied to professional services (except for a short list of designated services, such as cable TV). Thus, a sales tax on legal or other professional services would be a radical departure from current tax policy in Wisconsin and a significant expansion of the sales tax.
The State Bar of Wisconsin objects to any proposal to expand the state sales tax to include legal and other professional services. Just as with all sales taxes, this is not a tax on the service providers, it is a tax on consumers of those services, including the elderly addressing their personal and financial needs, young families buying their first home and entrepreneurs incorporating a new business.
Sales taxation of legal services is a tax on justice itself. This is obviously the case for people charged with crimes. Those individuals have a constitutional right to representation.
The most common legal services delivered by Wisconsin attorneys in private practice include wills, directives to physicians, foreclosure/bankruptcy filings, deed preparation and business incorporations. People don’t choose to develop life-threatening illnesses, face bankruptcy, deal with personal injuries or respond to many of life’s other challenges. But when they do, they often rely on their lawyer to protect their interests and obtain justice.
Legal services provided by in-house counsel in major industries would not be subject to the tax (because no “sale” has occurred). Thus, residents or small business operators litigating an issue with a large corporation will face the added burden of a sales tax on legal services not borne by the other party.
Wisconsin is facing an unprecedented fiscal crisis, but we should not respond to it by imposing a new tax on justice.
You are urged to contact your state legislators today to express your concerns with implementing a tax on justice. To find out who your elected representatives are and see where you can make a difference and get involved, please click here.
Diane Diel is the President of the State Bar of Wisconsin.