As a trial attorney handling serious injury and wrongful death cases in  Georgia, I have an intense interest in seeing that my clients are dealt with fairly, that the playing field is relatively level, and that the court system works reasonably well.

Currently there is a proposal in the legislature to impose a sales tax on services, including legal services, as part of a plan to eliminate property taxes for support of education. That proposal arises from deeply held feelings that the tax burden falls unfairly upon property owners. As a homeowner, I share that sentiment every time I receive a property tax bill. But as a parent whose children graduated from excellent public high schools, I know what a bargain that can be compared to private school tuition. Georgia should improve, and not diminish, support for quality public education.

Whatever general revenue measures our legislators may choose to support the quality of public education needed to provide Georgia an economically competitive workforce, it is important to examine the ramifications in detail. Specifically regarding the proposed tax on legal services, our legislators should consider a broad range of potential unintended consequences on our system of justice and the delivery of legal services.

Conflict with duty of confidentiality. Under current enforcement statutes, the Georgia Department of Revenue, under its audit authority, could claim access to detailed client billing records which are confidential under Georgia Rule of Professional Conduct 1.6. This could create a serious conflict between lawyers’ confidentiality obligations to clients and the requirement to respond to audit requests.

Burden on individuals but not businesses or governments that litigate against them. Individual Georgia citizens would bear the entire burden of the tax as currently proposed, while governments, corporations and insurance companies who litigate against them would be entirely free from the tax. This would make the playing field even more uneven in favor of corporate and governmental litigants and against individual Georgians.

Economic incentive to shift legal services – and law firms’ work, staff and investment – outside Georgia.  A tax on legal services would encourage sophisticated clients, and those in border communities, to use untaxed legal services outside Georgia. It would also create an incentive for Georgia law firms to perform more services outside Georgia, and to shift investment in facilities, staff and support services to other states. Given the ease of gaining admission in many other states by reciprocity, even the smallest firms might find it advantageous to do so. Determining which services are taxable in Georgia would be an administrative nightmare.

Burden on citizens’ constitutional right of access to courts. A tax on legal services would be a burden on the exercise of Georgia citizens’ basic, constitutional right of access to justice and to the courts.

“Misery tax”. The sales tax on legal services as proposed would amount to a “misery tax” levied on individuals and families in Georgia at times of misfortune and vulnerability. It is generally necessity rather than choice that leads Georgians to seek legal assistance in cases involving death, divorce, domestic abuse, end-of-life decisions, injury, accusation of criminal offenses, or bankruptcy.

 Effect on injury cases. Recovery for bodily injury is not taxable under either federal or state income tax laws, as our lawmakers have long recognized that there is no profit when an injured person involuntarily exchanges good health for a specified amount of money. The tax on legal services would erode the injury victim’s recovery for such injury, thereby making it even more difficult – and potentially more expensive – for corporations and insurance companies to reach reasonable compromise settlements. Moreover, an Georgian injured on the job gets no more than $450 per week in workers compensation indemnity benefits. If an attorney is required to obtain the benefits, a 25% attorney fee of $112.50 per week leaves only $337.50 for the injured worker. (The weekly benefit was recently increased to $500 per week for new claims, but you get the idea.)  A tax on legal services would further erode that meager benefit, thus increasing pressure to raise workers compensation benefits, a cost which eventually would be passed on to Georgia businesses.

Experience of other states. Apparently only Hawaii, New Mexico, and South Dakota currently tax legal services. Florida and Massachusetts enacted such taxes, but promptly repealed the measures when they proved to be unpopular and difficult to administer. Several other states, including Maine, Maryland, Ohio, and Vermont, as well as the District of Columbia, rejected similar proposals.

Constitutional questions.  There are numerous unresolved questions as to the constitutionality of the proposed tax on legal services, which the State of Georgia might well have to litigate over the next several years, including but not limited to the following:

    •    Access to courts. Would the proposed tax on legal services  impermissibly burden  access to and use of the state or federal courts in violation of Art. 1, § 1, ¶ 9 Ga. Const. of 1983, Article III of the U.S. Constitution and the 5th, 6th and 14th      Amendments to the U.S. Constitution?
    •    Equal protection and due process. Would unequal treatment of individuals and corporations, whereby a tax would be imposed on an individuals party’s access to the courts but no tax would be imposed upon a corporate party in the same litigation, be a violation of the Georgia Constitution under Art. 1, § 1, ¶ II  (equal protection) and under Art. 1, § 1, ¶ I (due process of law), and the 14th Amendment to the U.S. Constitution?
    •    Separation of powers.  Would the proposed tax on legal services constitute an unauthorized regulation of the practice of law by the Legislature in violation of the constitutional guarantee of separation of powers under Art. 1, § 2, ¶ III of the Georgia  Constitution?
    •    Tax on litigation in federal courts may violate U.S.  Constitution Supremacy Clause.  Would the proposed tax on legal services, in connection with litigation before the federal courts, violate the Supremacy Clause contained in Article VI of the U.S.  Constitution?
    •    Breach of confidentiality burdening right to counsel. Would the proposed tax on legal services breach the attorney-client privilege and confidentiality, and thus impermissibly burden the right to counsel under both Art. 1, § 1, ¶ I of the Georgia  Constitution and the 6th and 14th Amendments of the U.S. Constitution?
    •    Taxing some professions while exempting others may violate equal protection of law. Would imposing a tax on services performed by the legal, accounting, architectural and other professions, while exempting services rendered by the medical profession, be a violation of equal protection rights under Art. 1, § 1, ¶ II of the Georgia Constitution, and the 14th Amendment to the U.S.  Constitution?
    •    Burden on rights guaranteed in U.S. Constitution. Would the  proposed tax on legal services impermissibly burden the exercise  of rights secured by the 5th, 6th, and 8th Amendments to the U.S. Constitution?

We should encourage efforts to make our system of taxation more fair and efficient. At the same time, we should be careful to avoid the “law of unintended consequences," which could wreak havoc if a tax on legal services were enacted.