Sales and Use Tax on Services

I just received a call to action from the Georgia State Bar regarding Speaker Glenn Richardson's proposal for a constitutional amendment to repeal the collection of certain property taxes and to replace that revenue stream with an additional sales and use tax, this time on services. It has been hotly contested, in the newspapers, blogs, and other local media, throughout the fall.

Now, the House Ways & Means Committee has favorably reported HR 1246 and HB 979.

According to the email from the Georgia Bar, they oppose the new sales and use tax on services because it would interfere with the attorney-client relationship. (In some instances, just the fact that an attorney represents a certain client can be privileged information.) The Georgia Department of Revenue would have the ability, under its audit authority, to have access to a list containing the clients names and the fees paid. Additionally, businesses would be exempt from this tax, so only individuals seeking legal assistance would have to pay the sales tax. This is clearly a disparate treatment and could cause challenges to its constitutionality.

My practice is mostly geared to small businesses and their owners. Think about this from their perspective. Many of my clients will come to me for several issues, both personal and professional. For their company, I will write a buy-sell agreement or succession plan that has many estate plan implications. I will then write their Last Will and Testament and the rest of their estate plan. Part of their legal services will have a sales tax while the remaining part will not. There will be incentives for attorneys and clients to mis-categorize certain legal services in order to avoid the additional tax.

Think about what this will do for you and your attorney. Increased record keeping. More difficult and harder to understand bills. Increased costs for the individual consumers.

This tax does not apply just to your attorneys. It would also apply to many of the professionals that you see on a constant basis, including accountants and CPAs, dry cleaners, beauty technicians (nail, hair, massage), consultants, interior designers, doctors, dentists, and many more.

In addition to the burden on the professionals, remember that you pay your property taxes directly to your county, not the State. This proposed regime would remove almost all of a county's revenue collection authority and place it in the hands of the state government. Under the sales and use tax regime, all the sales and use taxes are paid to the State who then distributes the collected sales taxes to the individual counties. There is at least one current battle going on between a county and the state over the amount of sales tax that should be paid to the county. The State has also been known to rob one portion of its budget to pay for another portion of its budget. With the State handling the collection of sales tax instead of the county handling the property tax, do not be surprised if money would get cut off from the schools to fund another project, perhaps roads, water management, or public buildings or parks.

This is not a good deal for Georgia taxpayers, the counties, or the professionals that you deal with on a constant basis.