Taxation of legal services, the topic of this column, is a policy the Bar has long opposed, so I must ask myself, “Why am I procrastinating.” Unpleasant as it is to go back over old ground, this is an issue that we must again discuss and clarify, among ourselves as professionals and with both our legislators and Governor Dayton and his office. It is clear that we need to again explain to all involved why this is simply not good public policy, not to mention specifically the questionable constitutionality of the concept.
Retreading Old Ground
I know and understand that Minnesota is facing a financial crisis, that the state again has more debt than revenue, and that the state still owes monies to fund education that were deferred as part of the “school shift” implemented to address last years’ budget issues. I also am aware that all three legs of the judicial system “stool”—courts, public defenders, and legal aid—asked for slight increases to their budgets and that the governor rightly included these in his budget proposal, which I openly applaud. But none of that changes the fact that taxing legal services is simply bad policy.
Four years ago, then-President Mike Ford, with help from our legislative committee and lobbyists, showed the governor and the legislature how taxing legal services made for bad public policy. Just two years ago, then-President Terry Votel with similar help from the bar again had to show the powers-that-be that taxing legal services is bad policy. Now look out, now it becomes my turn.
Many outside our profession, including our governor and most of our legislators, may ask how or why is this proposed tax bad? Our response includes many different points from many different areas. Just to start with, let’s call it for what it is—a “misery tax.” (I did not coin the phrase, but it does apply). With few exceptions to the rule, a private citizen seeking the services of an attorney needs help with a serious matter. They need help to right a wrong; they need help to protect themselves, their property, their families. Individuals seeking the assistance of an attorney are often at their most vulnerable. Their situation may involve bankruptcy, child custody, criminal accusations, debt collection, divorce, disability claims, domestic abuse, evictions, foreclosure, personal injury, denial of public benefits, unemployment claims and even wrongful death claims. All of these are areas of the law where it’s vitally important to have legal representation. Imposing a tax on someone at a time when they already have pressing issues to deal with simply compounds the problem. To put it plainly and simply, taxing legal services will impose more misery on individuals who need help.
Taxing legal services is also bad policy because it inhibits access to justice. We as a profession already are struck by how many people are choosing to represent themselves in court and the problems this poses. Our judges can testify to the increasing number of pro se litigants. Adding a tax to attorney’s fees just creates a bigger bill for the client to pay. Court filing fees, already extremely high, are themselves a barrier to access to the courts. Taxing legal services could push citizens to either forgo their legal rights to seek justice or lead them to attempt to represent themselves, often to their disadvantage. That even raises a point, close to home for me, which no one to my knowledge has yet addressed: What about legal aid services? Those of us legal aid attorneys who are funded by the Legal Services Corporations are specifically prohibited from charging our clients a fee. Would our clients nevertheless be subject to tax on the services we provide them and, if so, would we be responsible for collecting this tax from them? Furthermore, because I am writing this column for other attorneys, how is a tax any different than a fee?
A legal services tax would create unfair and unequal treatment. It would unfairly punish small businesses that could not afford the increase in attorney’s fees because of the tax, where large corporations could avoid that issue by hiring inhouse counsel. The additional tax burden would suppress business expansion and job creation. Businesses needing legal expertise to expand or locate in Minnesota may choose to do so elsewhere. Why elsewhere? Because only three states, Hawaii, Nevada and South Dakota, currently tax legal services. None of those states have the size, population, or the industry of the State of Minnesota. Two states with greater population, more attorneys, and more industry than Minnesota, namely Florida and Massachusetts, at one time introduced taxation of legal services but quickly repealed it.
I will be the first to salute the governor and his plans to increase the revenues that this state urgently needs. No one, especially me, thinks that there is a simple or easy solution to the enormous budget issues this state faces. Taxing legal services may sound like a quick and easy solution, but it rings hollow for those of us who understand the complexity of practicing law, the complexity of the justice system, and the threat such taxation would pose to rights guaranteed by both the Minnesota and the United States constitutions.