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Ohio H.B. No.59: Taxation of Legal Services

There is legislation pending in the Ohio House of Representatives that would result in a tax on legal services. The Cleveland Metropolitan Bar Association has created a Tax Opposition Toolkit for lawyers and clients who want to encourage their representatives to oppose this tax.

The proposed legislation that would cause this change is H.B. 59. Page 408 of the Ohio Legislative Service Commission’s Bill Analysis explains that this change would cause services to be taxed by default, rather than untaxed by default. For those who would like to read the actual language in the 4,206-page bill itself, line 103676 is where the existing list of taxable services is removed, line 103735 is where all services are included as taxable services, and 104151-104244 are where “services” is redefined to exclude some enumerated services. (It is easiest to find these lines with CTRL-F, but I found that my first few searches didn’t work because the file takes a long time to load.)

Policy Matters Ohio’s February 2013 report says that this tax on services “will disproportionately affect low- and middle-income Ohioans, so steps should be taken to offset that.” (“Kasich tax proposal would further tilt tax system in favor of Ohio’s affluent,” Policy Matters Ohio) The Ohio State Bar association says that the tax will add to the burden of Ohioans who need legal services, and that it will encourage Ohio clients to hire out-of-state lawyers. (“Message to members: OSBA opposes extension of Ohio sales tax to legal services,” Ohio State Bar Association); “Ohio State Bar Association Opposes Kasich’s Sales Tax Proposal,” WVIZ Ideastream (originally aired on Feb. 28, 2013).)

Bill proponents claim that the state needs the money, services have become a larger part of the Ohio economy than they were when the current tax laws were enacted, and lawyers are “politically powerful groups… [who] should pay taxes like everyone else” (Scott Drenkard, “Ohio Tax Plan Broadens Sales Tax, Lowers Income Tax, Includes ‘Small Business’ Gimmick,” Tax Foundation; Joseph Henchman, “Ohio Lawyers Oppose Repealing Tax Exemption for Ohio Lawyers,” Tax Foundation)

According to the American Bar Association, “Currently, only three states have a tax on legal services — Hawaii, New Mexico and South Dakota” and Florida had such a tax, but repealed it. (“Tax on Professional Services” Governor Mark Dayton of Minnesota proposed a similar tax earlier this year (John Welbes, “Dayton’s Service Sales Tax Plan Lands with a Thud,” The Minnesota State Bar Association opposed the tax because, among other reasons, it would tax people who were already having problems (e.g. “Clients dealing with criminal charges, injury, death, divorce, domestic abuse, housing, credit, and bankruptcy”), it would tax the poor disproportionately, and large businesses could avoid it by hiring in-house attorneys. (Kent A. Gernander, “Why Not Tax Legal Services?,” Bench & B. Minn., Feb., 2001, at 5, available via WestlawNext. See also Terry Votel, “A Very Bad Idea: Sales Tax on Legal Services,”  Bench & B. Minn., Nov., 2010, at 7, available via WestlawNext.). Last week, Governor Dayton abandoned his plan to tax legal services (Patrick Thornton, “Tax on Legal Services off the Table,” Minnlawyer Blog.

One single comment

  1. Deb D says:

    Very informative and well researched! Thanks