Blogs | February, 28 2020

MSBA Opposes HB 1628 and Taxation of Legal Services

The MSBA continues to oppose HB 1628, a proposed expanded sales tax to include legal services. House Bill 1628 is expected to reduce the Maryland sales tax from 6% to 5% but expand that tax to include several businesses, such as legal services, accounting services, and realtors, among others. The text of the bill can be found here.

The MSBA has been hard at work with legislative advocacy in Annapolis, incorporating the concerned voices of our membership and partnering with other organizations including the Maryland Defense Counsel and the Maryland Association for Justice.

Since learning of this proposal, the MSBA has issued alerts to members, met with bill sponsors and other legislators, conducted interviews with the media, and is joining a Maryland Chamber of Commerce coalition of affected professions.

HB 1628 will negatively affect the legal profession and those seeking legal services in significant ways:

• The bill will discourage citizens from seeking legal advice, particularly for those who cannot afford paying an additional charge and are seeking legal advice on important issues such as the dissolution of marriage, bankruptcy, child support, and debt collection.
• The bill will create an administrative nightmare for businesses that provide legal services in multiple states, including Maryland, as they would have to apportion the percentage of overall legal services provided in Maryland and collect tax on that portion of legal services.
• Clients will easily cross the border and seek legal services in Washington D.C. or Virginia to avoid paying additional taxes for Maryland legal fees.
• Maryland firms providing counseling and representation to out-of-state clients in specialized practice areas, such as patent and copyright matters, taxation, franchising, trademarks, cyber security, and data privacy, will lose business from the proposed tax, as out-of-state clients will likely go to comparable specialists in other states without a legal services tax.

The Hearing on HB 1628 is scheduled before the House Ways and Means Committee on Monday, March 2, at 1:00 p.m. MSBA leadership and members will testify before the Committee and participate in a joint press conference with a coalition of Maryland business organizations at 11:00 a.m., prior to the hearing.

How You Can Help

1. MSBA encourages its members to join MSBA in Annapolis on this critical issue.

• What: Hearing on 1628 – Sales & Use Tax – Rate Reduction & Services (applies sales tax on legal services except for Public Defender representation) – MSBA OPPOSES.
• When: Monday, March 2, 2020 at 1:00pm
• Where: House Ways & Means Committee, Rm 130 House Office Bldg, 6 Bladen St., Annapolis, MD 21401
• Who: Ways & Means Committee Roster
• Who else: Find My Representatives

2. MSBA encourages its members to call or write to their local representatives in opposition to HB 1628.

Please call or write to your local representative in opposition to HB 1628. Here is a link to find your representative.

We have provided sample language here that can be included in your written communication or as talking points for a phone call:

—

Dear [YOUR REPRESENTATIVE],

My name is [YOUR NAME] and I am an attorney residing in your District. I am writing to you in opposition to HB 1628 and urge you to oppose this legislation due to the following:

1. Access to Justice: Although sales taxes generally are intrinsically regressive, taxes on vital services disproportionately affect low-income taxpayers. This is especially true with respect to legal services. Many Maryland constituents are members of low-income households but are not eligible to benefit from pro bono legal services because the threshold for eligibility is too low, or, there simply isn’t a sufficient supply of lawyers to meet their pro bono needs. A tax on legal services could be the dispositive factor that determines whether someone goes into court with adequate representation.
2. Criminal Law: Under the bill, an innocent criminal defendant who is found not guilty, must pay the State a tax on his or her attorney’s fee after being charged by the State with a crime he or she did not commit.
3. Solo and Small Firms: Maryland is home to many small and solo practitioner law firms. The additional burden of collecting and paying taxes will have a detrimental impact upon those small businesses. Many small law firms employ bookkeepers (but not accountants) to handle basic billing and receivables. Under the imposition of a sales tax upon receivables coming as partial bill payments, those firms will be unduly burdened by having to calculate sales tax on very small dollar payments, often received long after an invoice was issued. Such a reality will create new anxiety for solo and small firm practitioners unaccustomed to complying with tax collection laws and guidelines set forth by the State Comptroller. Those fears will be compounded by concerns over inadvertent tax misreporting, which could lead to professional sanctions by the Attorney Grievance Commission. As a result, administrative costs will increase for many of these practitioners, as they seek administrative staff with greater tax expertise.

Please consider the negative impact of this legislation on legal professionals and on Maryland citizens seeking legal representation, and vote to oppose HB 1628.

Sincerely,
[YOUR NAME]

—

MSBA strongly encourages its members to call or write to members of the Ways and Means Committee within the MSBA member’s district and ask them to vote to OPPOSE HB 1628:

Not yet a member of MSBA? Join us!

For more than a century, the MSBA has been the voice of lawyers across the state, from nearly every practice area, career stage, and demographic. This representation extends to the public policy arena. The MSBA takes an active role in shaping legislation considered in Annapolis and D.C. to realize the best possible outcomes for Maryland’s lawyers and legal professionals.

Membership in MSBA helps us maintain a strong presence in the legislative process each year. Click below to learn more about membership and help strengthen our collective voice.