The new Tax Expenditure Commission, created by Outside Section 160 of the FY12 budget and chaired by Secretary of Administration and Finance Jay Gonzalez, will meet regularly over the next six months to study the Commonwealth’s $24 billion tax expenditure budget. The process includes reviewing all tax breaks, tax credits, sales tax exemptions and corporate deductions in an effort to measure the effectiveness of these carve-outs. The recommendations of the Tax Expenditure Commission are due by April 30, 2012.
In addition to reviewing the current tax expenditure budget, the Commission has been charged with issuing recommendations regarding any changes to the current tax expenditures and criteria for new tax expenditures. Since there has been no increase in broad-based taxes since the sales tax hike in fiscal year 2009, this could potentially mean a renewed interest in adopting a tax on legal and other professional services.
This would not be the first time Massachusetts has experimented with the misguided idea of instituting a tax on legal services. The idea of a services tax was first proposed in 1975 but ultimately not adopted by the legislature. Soon after, a coalition in favor of the tax sought to have a referendum put on the ballot. In conjunction with other professional groups, the BBA launched a campaign to educate the public about the economic effects of such a tax – that clients, rather than firms, would absorb the overwhelming majority of the burden. A legal services tax would fall disproportionately on those least able to afford legal representation, thereby limiting access to justice.
In the early 1990’s the issue came to a head when a sales tax on legal services actually passed in the state legislature and was signed into law. Amid revelations that this tax would apply not just to services provided by attorneys, accountants and other professionals — but also to such services as lawn mowing and snow plowing — support for repealing the tax increased. The BBA, joined by the MBA, mobilized its members and focused its efforts on informing the legislature and incoming Governor Weld of the economic and legal flaws in a services tax. Groups representing other segments of the professional community worked on this too and, two days after the tax took effect, Governor Weld signed legislation repealing the services tax.
Of primary concern for the BBA is the constitutionality of such a proposal. The right to obtain the services of an attorney is a natural right guaranteed by the United States Constitution and is immune from the imposition of an excise tax.
There are also other compelling arguments to be made against a legal services tax. A sales tax would compromise the attorney-client relationship by requiring an attorney to act as a tax collector and submit sensitive client information to the Department of Revenue. Rather than serving as an advocate in a confidential relationship, an attorney would be forced to share privileged information with third parties.
We’ll watch closely now as the Tax Expenditure Commission continues to meet.
Government Relations Director
Boston Bar Association