January 2017 Bar Bulletin
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Bar Opposes Sales Taxes
on Users of Legal Services

 

 

This past fall, after considering a recent study that found continued high numbers of low-income Washingtonians attempting to solve their legal problems without benefit of counsel, a small group of advocates for our state’s civil legal aid system devised a plan to increase our state government’s financial support. They asked: Why not just impose a very small sales tax added to the invoice of every consumer of legal services?

Last month, KCBA’s Board of Trustees voted to oppose such a tax. A copy of its resolution is online at www.kcba.org/publicpolicy.

While on first glance, a non-attorney might say that the bar is somehow showing a knee-jerk reaction against something that might impact lawyers’ pocketbooks, a more careful review would affirm that the bar’s opposition comes from a principled position based much more on consumer protection and the obligations of government.

The bar’s position in support of our state’s civil legal aid system, in particular pro bono services, remains whole hearted and enthusiastic. So, how can we say we support civil legal aid yet oppose a sales tax to fund it? Here are a few reasons.

1. It’s a “misery” tax. Traditionally a “sales tax” can be seen as a “consumer tax,” since if someone doesn’t want to be taxed, they have the option of not buying the product. Choice = Voluntary.

But using legal services is frequently involuntary. Individuals, families, schools, churches, charities and businesses often require legal advice, and not by choice, but often in response to a lawsuit or charge initiated by the government. Unlike a consumer tax, this could be seen as the opposite, where securing legal services is not optional, but required to face an unpleasant situation. In other words, sales taxes on legal services are a “misery” tax.

2. Sales taxes are regressive. While actual very low-dollar amounts of sales taxes, at pennies on a dollar, can appear quite small, in reality they are one of the most regressive and consequently unfair forms of taxation.

To an individual who earns $500 a week, a $5 tax payment represents 1% of his income, while to an individual who earns $2,000 a week, that same $5 tax payment represents only 0.25% of her income. The poorer you are, the bigger your relative burden. Other forms of taxation, while burdensome, are at least fair to everyone regardless of financial situation.

3. It’s a slippery slope. Often, the first justification for a sales tax is a worthy cause. For example, a lack of funding for civil legal aid creates a crisis, so if everyone paid $5 on a $1,000 bill, the crisis could be averted and an important public service protected.

Sounds great! But what worthy cause is next to be funded by a legal services sales tax? Courthouse security? That’s important, too. Translators? We need litigants to understand the proceedings, so yes. Bailiff salaries? Education for judges? What else? All of these items are an obligation of our general government and should be funded from general revenues collected from all of society, not just one segment.

4. Access to justice at risk. At multiple levels within the justice system, both civil and criminal, the addition of a sales tax on legal services would be nothing short of a constitutional crisis.

Need to respond to a government action of eminent domain taking your property? Pay a tax to defend yourself against the government’s action. Want legal help petitioning the government to enforce an environmental law? Pay a tax to the government to be heard by them. Seek an appeal of a lower-level bureaucratic decision denying you worker’s compensation? Pay a tax to have your day in court.

I’m sure you could think of other concerns, too, ranging from client confidentiality (is that a Department of Revenue agent auditing your client files to ensure compliance?) to loss of jobs in the legal profession. For a federal issue, why would someone in Vancouver opt to pay a tax when they could get help in Portland?

The commitment to civil legal aid funding by our state government must improve. But other, more equitable revenue tools exist to state lawmakers. Surely as part of negotiations over billions of dollars in state funding of education, a $20-million commitment to civil legal aid is doable through general funds or even business-and-occupation tax receipts. That’s less than 1% of the billions in changes being proposed to the state tax code.


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