Akron Bar Association rallies against new Kasich taxes
Ohio Gov. John Kasich presents the fiscal year 2014-15 executive budget proposal during a news conference in Columbus, Ohio last month. By timing his annual policy address to follow his major budget, tax reform and school funding proposals, Kasich has turned this year's State of the State into a stump speech kicking off his 2014 re-election bid. (AP Photo/Jay LaPrete, File)
Published: March 18, 2013
The Akron Bar Association recently followed its state-level counterpart in formally opposing Ohio Gov. John Kasich’s controversial proposed budget, which would tax previously exempt services of lawyers and other professionals.
ABA President Jack Weisensell said the vast majority of Ohio attorneys oppose the plan because of its regressive impact on the poor and the potential breaches of both the attorney-client relationship and the defendant’s constitutional right to an attorney. The Ohio State Bar Association also holds that the new tax will increase the relative cost of doing business in Ohio.
The heart of the Republican governor’s tax plan lies in slashing income taxes for all citizens and small businesses by 20 and 50 percent, respectively. Gov. Kasich plans to pay for the resulting $4 billion difference by broadening the sales tax (dropped from 5.5 to 5 percent) to include over 70 previously exempt services. The newly taxed services in the proposed plan include accounting, ebook downloads, hair styling, investment counseling, coin-operated laundry, newspaper and magazine advertising, tax return preparation and legal services.
Weisensell said he discussed the proposed tax on legal services with members of the Ohio Metropolitan Bar Association Consortium, which includes the Akron, Toledo, Dayton, Cincinnati, Cleveland and Columbus bar associations, and found overwhelming disapproval of the plan from Ohio’s legal community.
“Nobody’s going to say, ‘yeah, this is a good plan,’” he said. “At this time, it’s a coordinated effort.”
The first problem with Gov. Kasich’s plan Weisensell mentioned was the regressive nature of the tax combined with the ethical and constitutional considerations of taxing legal services for the poor.
“It’s a flat 5 percent, so it applies to everybody in the same way,” Weisensell said. “It feels like a bigger portion of income to somebody who’s making $20,000 than somebody who’s making $100,000.”
With Community Legal Aid Services still reeling from the effects of the recession, Weisensell said the proposed tax would place another hurdle between the poor and adequate legal representation ensured by the Constitution.
“Increasing the costs to these individuals will unnecessarily and, in some instances, prohibitively increase their expenses,” read a recent ABA press release. It went on to predict that the increase in pro se #### representation would produce unnecessary mistakes and “cause the legal issues to become more complex and more expensive in the second instance.”
Perhaps the tax plan’s most pressing problem for the average attorney is the plan’s wispy and indefinite wording concerning how exactly the tax would be levied on legal services.
Weisensell said that, under the proposed plan, he would need to pay a 5 percent tax on auxiliary legal services like court reporting. In a hypothetical situation where he charged a standard one-third contingency fee on a $30,000 judgment, he sees the opportunity for double taxation.
“Now I’ve got a bill for my client for $10,000 plus $200 for the court reporter fees. Can I pass that 5 percent that I already paid onto my client? Does my client have to pay another 5 percent of the $200?
“It’s up in the air,” he said, noting that attorneys often hire appraisers, actuaries and accountants, all of whom the broadened tax covers. “I don’t know how it’s going to be applied.”
Another roadblock Weisensell foresees is a major change in the confidentiality of the attorney-client relationship. If an attorney merely consults with a client under the proposed plan, she would have “a whole new set of forms to fill out,” which would divulge the existence of the relationship, itself a privileged fact.
High on the list of talking points provided by the Ohio State Bar Association is the notion that the taxation of legal services would increase the cost of doing business in Ohio and decrease its competitiveness.
“A broader sales tax base makes due diligence on business acquisitions more difficult, thus making the purchase of sale of an existing business with Ohio locations more difficult,” the memo read.
According to the OSBA, as few as three states employ comparably broad sales taxes. Michigan, Florida and Massachusetts recently enacted broader sales tax bases, but backpedaled after problems surfaced.
Weisensell said the ABA came to its conclusion on the matter independent from the OSBA, but worked with its statewide counterpart in making plans to defeat the measure. Currently, a list of documents including form letters from attorneys to clients and clients to legislators is available for download from www.akronbar.org.
Gov. Kasich’s proposed budget would also drop Summit County’s local tax rate from 0.5 to 0.35 percent and retain control until 2016. If the expected revenue from the local sales tax falls short of the revenues promised, Columbus will provide supplemental payments to affected counties.
The budget has also drawn criticism from Gov. Kasich’s fellow Republicans, including Ohio Treasurer Josh Mandel, for expanding Medicaid coverage in light of the Affordable Care Act’s impending implementation as well as levying new taxes on the state’s budding oil and gas industry.
The left has criticized the bill for the rising reach of the regressive sales tax along with changes to Ohio’s progressive income tax. According to Politifact, the Washington-based Institute on Taxation and Economic Policy used a microsimulation tax model (endorsed by Bloomberg and the New York Times) to show that the proposed tax plan would generally result in a net loss for anyone making under $51,000 per year. The top one percent of earners in Ohio would typically pay $10,000 less in income tax per year.
The proposed budget, introduced as House Bill 59 on Feb. 12, is currently undergoing revision in the Ohio House of Representatives’ Finance and Appropriations Committee.