Annapolis, MD – March 11, 2024
Advocacy Alert: Today, the Maryland State Bar Association (MSBA) joins a statewide coalition in Annapolis to testify in strong opposition to House Bill 1515 that would raise revenue through a 5% sales tax on everyday professional services, including legal services, accounting and financial services, appraisals, real estate services, advertising, printing, and media streaming services.
HB 1515 would have a direct and devastating effect on every MSBA attorney, law firm, and legal organization by increasing operational costs and decreasing competitiveness. The bill would also reduce the affordability of Maryland legal services for clients and businesses. MSBA has been nationally-recognized for previously opposing and defeating an identical bill in 2020 (HB 1628).
Laws Committee Co-Chair Kelly Hughes Iverson and Business Law Section Council Steven Rinaldi provided compelling testimony against the bill. Ms. Iverson noted that “legal services are not a tax on luxury services but on the people who need the service the most.” Mr. Rinaldi shared his perspective as a business attorney of a solo practice: “This is not just about me and my business. It’s about my clients. In my area of practice, the consequences of not accessing legal services in a business transaction can be utterly apocalyptic: you could lose your home, your child’s college savings, or fall into bankruptcy.” Legislators were engaged and asked Ms. Iverson and Mr. Rinaldi questions following their testimony. Many legislators agreed that this would be a difficult choice to hand to a client seeking legal services.
MSBA will continue to keep you informed as we protect our members, firms, and the future of the legal industry through our ongoing advocacy and opposition to the bill.
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MSBA opposes the bill given the dramatic impact it will have on all aspects of the legal profession, as well as the reduced ability of individuals and businesses to access legal services:
HB 1515 Imposes a Regressive Tax on the State’s Most Vulnerable Population and Limits Access to Justice
A tax on legal services could be the deciding factor in whether someone can afford to hire an attorney or appear pro se on complex legal issues including criminal charges, bankruptcy, divorce, custody, domestic violence, immigration, foreclosure, evictions, personal injury, and estate settlements. This bill would hinder access to justice for vulnerable communities, undermining the fundamental principle of equal representation under the law. Consumers of legal services who deposit funds into attorney trust (IOLTA) accounts already provide a benefit to the public given that the interest they would have otherwise earned on their money goes to fund legal services for low-income Marylanders. Having to pay a sales tax could lead to the unfair result of them being double taxed.
Self-represented litigants often lack an understanding of proper trial preparation, evidentiary rules, and courtroom procedures, leading to unwanted case outcomes. Maryland should not course correct funding gaps through a sales tax that increases the cost of legal services, expands the justice gap, and reduces the ability of legal service providers and firms to serve Marylanders with limited financial resources.
HB 1515 Discriminates Against Small Businesses (Including Solo and Small Law Firms)
Small businesses that seek legal guidance and representation will face financial challenges with the proposed tax as they lack the ability to afford in-house legal departments and must seek outside counsel for legal needs. Small businesses with limited means may forego legal advice altogether on important business considerations, given the increased fees. Corporations and government agencies with in-house counsel will have an unfair advantage, as they will not have to pay a legal services tax.
Many MSBA attorneys practice in solo or small practitioner law firms. HB 1515 will lead to increased administrative costs for these firms, as they will have to purchase additional software and hire administrative staff with greater financial expertise to track, calculate, and process sales tax on billings and receivables. Unlike larger firms, solo and small law firms lack an ability to bring these financial services in-house. Additional firm hours and dollars will be spent on complying with tax collection laws and guidelines, resulting in higher rates for clients and challenges to maintaining a law firm’s profitability.
HB 1515 Puts Larger Firms at a Competitive Disadvantage, Incentivizing Them to Relocate Out of State
Most of Maryland’s successful law firms have specialized practice groups whose experience leads to out-of-state clients hiring them as counselors and for representation matters including patent and copyright, taxation, franchising, trademarks, cybersecurity, and data privacy. This business from out of state clients has an overall positive impact on Maryland’s economy. The proposed sales tax will discourage out-of-state clients to continue hiring Maryland law firms, as they would not have to pay a tax with comparable specialists out of state and will look for a more competitive rate in neighboring areas like Virginia, Washington D.C., Delaware, Pennsylvania, and New Jersey. Large law firms and corporations in Maryland will have an incentive to relocate out of state given tax advantages and increased competitiveness. Maryland should not promote an exodus of businesses, jobs, and entrepreneurship out of state.
HB 1515 Reduces Housing Affordability for Marylanders
Maryland already has some of the highest closing costs in the nation. HB 1515 will tax every aspect of a real estate transaction and make buying a home even more prohibitively expensive than it already is in Maryland, with new taxes on real estate sales, financing, title insurance, settlements, recording services, any related attorneys’ fees, and more. Homebuyers will have higher cash requirements at closing due to the higher sales and use tax, likely delaying homeownership for first-time buyers and those in the lower-to-middle income bracket. Every dollar of additional tax on a real estate purchase makes home buying more difficult for Maryland residents, who may choose to relocate to neighboring jurisdictions with more affordable options.
HB 1515 Creates Complex Administrative and Compliance Issues for Maryland Law Firms
The bill creates ambiguity around what precisely constitutes a taxable service, potentially complicating compliance and enforcement efforts. Determining whether a specific service falls within the expanded definition of a “taxable service” will be an ongoing challenge for the legal industry.
Many Maryland law firms are part of regional, national, or international firms, with legal transactions that include attorneys and contractors providing services from Maryland and other states or countries. Apportioning the percentage of overall legal services, then factoring out Maryland costs, calculating and collecting the sales tax, and maintaining adequate records will be administratively burdensome for both attorneys and clients.
The bill provides no guidance on the taxability of Maryland attorneys who provide legal advice and services on cases in other states. The bill also fails to clarify whether to include the tax on the state providing the service or on the state receiving the service, how to resolve jurisdictional differences on the taxing authority of states, whether the attorney’s or client’s physical or digital presence in the state triggers the tax, and whether and how the tax applies to attorneys barred in multiple jurisdictions.
