Taxation always has the ability to rouse people to action. One current tax proposal, voted last week out of the Pennsylvania Senate Finance Committee and receiving a lot of attention now would eliminate school property taxes but replace them with a combination of new higher taxes on personal income and sales taxes. It would also expand the goods and services that are subject to sales tax including notably legal services and a number of other professional services. The new state personal income tax rate would be raised from 3.07 percent to 4.34 percent. The sales tax would be raised from 6% to 7%. School districts would have the authority to impose a personal income tax or earned income tax but would lose their ability to impose property taxes as of January.
Senate Bill 76 is pending in the Pennsylvania General Assembly and could become law unless opposed.
If enacted, SB 76 would require lawyers to collect from clients a sales tax of 7% on legal services except for family law, criminal law, and business to business transactions as defined. In Philadelphia, the rate would be 9%. The 7% tax applicable to all of the state except Philadelphia would include clients who consult for Wills and estate planning, legal services for estate administrations, contingent fees in personal injury actions (check out slip and fall injury lawyers for hire over here!) , consumer actions, contracts unless entered into among businesses and any other legal action. It would affect seniors claiming for Social Security benefits wrongfully denied, landlord tenant actions, mortgage foreclosures and guardianships. Again, business to business transactions would be exempted. With criminal defense attorneys in Mesa, AZ one can get out of trouble with the law.
It is important to note that the tax would not be on the lawyers but on the clients and would impact the ability to access the Courts. It places the burden on individuals – the senior in the presence of the attorney for motor vehicle accidents who wants to write a will, the individual who wants to obtain a patent, the accident victim who needs a recovery for injuries. So, How Do You Patent an Invention Idea? You can consult startup lawyers serving in Austin to sort out patent related issues.
The movement to replace property taxes with other forms of taxation has a long history and even the proposal, always rejected, to tax legal services has been made before. The pressure on seniors is understandable. Whether this particular incarnation is the correct one is a matter of opinion but here are some ideas both as to the Bill itself and regarding its effect on legal services and small business.
First. As with any proposal, the serious considerations are in the details. It is important to recognize what is being given up in exchange for what is proposed.
Second. The law would affect all properties, commercial and residential. While the movement to eliminate school property taxes has received momentum from residential property owners, commercial owners including owners of shopping centers and commercial buildings would also see their school property taxes eliminated. This is because the Pennsylvania State Constitution does not permit exemption of residential properties while taxing commercial property. This would be a funding source lost to the schools. When considering that the replacement would be increased personal income tax at the State level and possible increased personal income tax or earned income tax at the the school district level along with the sales tax increase, individuals would be pay a major share of the bill.
Next. Legal services are not the only businesses affected. Funeral services, accounting and bookkeeping services, architectural, engineering, design, veterinarian, and professional and technical services, among others, would also be taxed at 7% unless the services are considered business to business.
Finally. Replacing one tax with others does not necessarily solve the underlying problems affecting schools. Once the change is made it is not difficult to imagine additional increases in the new taxes that can, in particular, negatively affect small businesses that deal directly in solving “people” problems. While it is tempting to believe that this solution might be the answer, additional homestead credits and other less drastic measures might work better at this time.
If you agree that legal services should not be taxed or have other thoughts, please let your State legislators know. You can Google “find your legislator pa”.
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.