In Ohio, when you buy something from a convenience store, or a big box retailer, or a department store, or even online (increasingly), you will pay sales taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. on that purchase. But when you buy services from a lawyer, you don’t pay sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. . The reason is a historical accident: sales taxes were designed in the 1930s, when the economy was mostly goods and not services.
As our economy became less goods-oriented and more services-oriented, the sales tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. did not keep up. Sales of services to consumers in many states, including Ohio, remain untaxed. Because the base was not expanded as our economy expanded into the new things, the rate on what is taxed has had to go up and up. So while the tax was 3% in 1934, it rose to 4% in 1967, to 5% in 1980, and then to 5.5% today. In 1991, Ohio expanded the tax to a few personal services like lawn care and private investigative services, but the big ones (like legal and accounting services) remain tax-free.
Ohio Gov. John Kasich (R) has proposed ending these tax exemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the Internal Revenue Service (IRS), preventing them from having to pay income tax. s and applying the sales tax to all final retail purchases of services, and using the revenue to cut sales tax and income tax rates. It’s long overdue.
The Ohio State Bar Association opposes the plan’s ending of tax-free treatment of their services. Of course they couldn’t just say “we like what we do being tax-exempt because it makes us more money,” so they wrapped their opposition into concern for the plight of others:
A compelling reason for this decision was the board’s agreement that imposing a sales tax on legal services is inappropriate tax policy because it will unnecessarily burden Ohio consumers and impede access to the legal system.[…]
On behalf of the lawyers of Ohio and the clients they serve, the OSBA opposes the imposition of the Ohio sales tax on legal services because it jeopardizes access to the very legal services that are essential to every Ohio citizen and every Ohio business.
At one point, they even say that taxing legal services “could constitute an unconstitutional burden on the right to counsel,” which is garbage since it’s a broadly applicable tax, and as the saying goes, taxes are the cost of civilized society.
Certainly there could be a discussion about the best way to tax services. (We are not uniformly supportive of what Kasich wants to do.) But the OSBA statement is just putting a self-interested tax carveout ahead of a simple, neutral, pro-growth tax reform.
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