According to the State Sales Tax Rates updated January 1, 2004, Texas ranks 8th highest at 6.25%, with California being the highest at 7.25%, per the Federation of Tax Administrators, Washington, D.C.
Revenue was generated for Texas taxes per the 2002 tables are as follows:
|
|
Property |
Sales |
Selective Sales |
Indv. Income |
Corp Income |
Other |
|
Texas |
-- |
50.8 |
31.5 |
-- |
-- |
17.7 |
No state property taxes, no individual income taxes, and no corporate income taxes – yet. Other states are doing it, though.
Other state comparison:
|
|
Property |
Sales |
Selective Sales |
Indv. Income |
Corp Income |
Other |
|
Pennsylvania |
0.2 |
33.1 |
16.3 |
30.4 |
5.4 |
14.5 |
They still have a devastated budget.
In Pennsylvania, the budget problems have been present for quite some time, and the bottom line after trying to implement a remedy was a snatch and grab of a million dollars a week from the school system, leaving it in near bankruptcy last fall. On the 19th, Governor Perry appeared before the School Finance Committee and touted his 6-point plan, and reminded the panel that the lesson learned from the California failures were to be heeded. In Pennsylvania, they too have highlighted the failures and compared them to California. It has been reported there that the impasses and problems were caused by the Republican state legislature refusing to raise taxes, including the income taxes there, but Texas does not have an income tax…yet.
It was mandated that the state pay 50% of the schools’ needs, and in review, was not observed. The actual level of state participation was 35%. They passed legislation that deeply cut public library, mass transit and other social funding, but the Governor line-item vetoed the $4 billion for the schools for the funding increases he sought. They left it at that, closed the session, and the unworkable plan began the drain on school finance to near ruin.
While that battle rages on in PA and diverts focus, the legislature has begun the takeover of city governments by appointing a five-member panel with budgeting power answering only to the legislature. There have been reports of similar takeovers in Detroit and other major cities that opposed the privatization of schools and the promotion of charter schools, as reported by the Pittsburgh Post-Gazette on October 3rd of last year. The state had not supported the tax increases necessary for the city to operate and the result was a devastating slash of social services and the loss of 20% of the city’s workforce. It seems there is a quiet wave of municipalities in crisis statewide. The school district are trying to maintain by making large short-term loans, and some of the programs suffering are transportation and special education.
One of the proposals on the Hill in Austin is taking a hard look at administrative staffing for the schools. Another wants ‘at value’ taxing of property. There is a payroll tax in the mix, and a 1% tax consideration on employees for employers being considered, so they can participate in funding the education of the future workforce, as one speaker put it.
DELAWARE:
|
Title 30, Delaware Code; Section: |
Tax Type |
Annual Fee |
Tax Rate |
Exclusion |
|
2301(a) |
Occupations |
$75 + $25 for each extra establishment |
0.384% |
$50,000/month |
|
2301(b) |
General Services |
$75 + $25 for each extra establishment |
0.384% |
$50,000/month |
Per the state website, Delaware does not impose a state sales tax or compensating use tax. “Delaware imposes a tax on the gross receipts of most businesses. Business and occupational license tax rates range from 0.096% to 1.92%, depending upon the category of business activity. Unless specified otherwise by statute, the term "gross receipts" comprises the total receipts of a business; no deductions for the cost of goods or property sold, labor costs, interest expense, discount paid, delivery costs, state or federal taxes, or any other expenses are allowed. In instances where a taxpayer derives income from more than one type of activity, separate licenses and gross receipts taxes are required for each activity. A table of the statutory provisions, tax rate, annual license fee and the monthly exclusion is provided as a summary. “ (Click here to see the summary of: License Categories, License Fees and Gross Receipts Tax Rates)
For Louisiana, according to their state website, “all businesses not otherwise covered by or specifically exempted by ordinance, the license shall be one-tenth of one percent (.1%) of the annual gross receipts with a minimum tax of $50 and a maximum tax of $2,000.”
The Chancellor of the legal association of Pennsylvania, said in February of this year that a sales tax on attorneys was a ‘misery tax’. He cited, on behalf of the association’s 13,000 members, that there were issues of concern such as attorney-client relationship, impose unfair tax burden on citizens trying to manage their affairs, stated that citizens may not retain attorneys if they had to pay sales tax, it would burden the middle class and the poor with additional expense, and would be an unfair burden on the justice system.
Taxes collected only on the amounts paid to private attorneys – gross receipts, but many attorneys, like other businesses, are in corporation formations that exempt them from taxes. I fail to see how taxing attorneys would put additional burden on the middle and lower classes if it would relieve tax burdens they are already paying. Defense council and ad litem appointments, investigators, and those appointed by the courts, including mediators APPOINTED or APPROVED by the Court by agreement of the parties, could be exempt. Of course, government attorneys would be exempt, as other states have mandated.
Hiring an attorney has been said to be a necessity and not a discretionary expenditure for the consumer. That is a narrow perspective of the services offered and sought by the consumer, as well. In comparison, opposing factions offer that clothing and food are necessity purchases for the consumer. This is true, but consumers make choices about the selection of the items to purchase that often go far beyond the need, which is part of what makes consumer goods so competitive and lucrative. Consumers shop for attorney’s like they shop for a cut of meat. The product is the end result of services, and the price and items desired vary from attorney to attorney, just like a roast from a butcher shop may be a few cents more per pound, but the end product is a much tastier and flavorful experience.
The argument that the attorney/client privilege is at risk if attorney’s fees are taxed is a swallow defense. Consumers would, most likely, welcome the oversight of attorneys by virtue of auditing for sale tax concerns, as opposed to the honor system for billing that is currently endorsed and applied. With the passage of the Patriot Act, there are no attorney-client privileges that are sacred. Moreover, client billings are often exchanged, testified to, and entered into the record of civil suits and filed with the courts for appointments. There is no attorney-client privilege on billings in this instance. There are other ‘fees’ that Texas attorneys would have subjected to such a tax, though.
Per the Task Force Preliminary Report received by the Texas Supreme Court and State Bar of Texas Board of Directors regarding referral fees, there are several issues that would impact generation of revenue that may shift the overall impact of total receipts in Texas. Forwarding fees are not applicable in any jurisdiction except Texas. Pure forwarding is a process by which an attorney ‘forwards’ a client to another attorney and receives a fee for that forwarding of a client to them. It’s sort of like a punt. You don’t get any points, but you didn’t have to give up the ball on the line of scrimmage and the game’s still on.
But, public disclosure is one of the considerations of the Task Force, and with the current rules, some have indicated that attorneys would continue to be able to skirt the rules of conduct, but attorneys argue that the attorney-client privilege and work-product privilege would be
violated, and concerns for satellite litigation.
Another argument is public record of the states. Audits may not be subject to release to the public, so given that a state would have the necessity to audit an attorneys records would not violate confidentiality by placing the bills in the public domain. Even if such records were copied for attachment to audit files, redacting in the event of release under a public information request could be implemented.
Changes in local sales tax collections, which by the way go into effect on July 1, 2004, are burdensome and are not enforceable. For example, “Point of Delivery” taxation on services are required at the place where a taxable service is performed or delivered. A carpet cleaning company that has wide appeal with his clients in a county where there are no major metropolitan areas, must rely to some extent on the favorable recommendation of customers to friends in the many area rural cities. It forces the accounting systems of the small business owner to become increasingly complex, and to be aware when any local changes are made to tax rates. Because of the burdensome effort and costs to collect sales tax, small business owners will be forced into a smaller area of service, thereby reducing their profits, and subsequently costing jobs.
Another example is the private investigator’s report. How is anyone going to track the point of delivery for those? They are hired by out-of-town or out-of-state clients, they deliver by mail, hand delivery or electronic transfers – who’s going to monitor that? So, whatever local tax should have been charged for a particular point of delivery is unenforceable, because there are not many small businesses, such as investigative businesses, that are going to go to the effort and expense of tracking all the local tax rates in this state, much less another.
If you take the time to listen to the Select Committee on School Finance Reform in Austin, the hearings have parades of witnesses, many of them from state agencies, and a boat load of amendments being considered that run the gambit from the sublime to the ridiculous. The issues at hand (no money for schools and high property taxes) and the issues that have been generated out of the bantering of this subject for over a year in Austin, leave the average citizen weak in the knees. Legislators offer up amendments in the hearings that immediately become footballs to pitch around the room, and in final analysis someone says ‘tax code reform’, and the whole room lets out a groan in unison.
Why does this have to be so hard???
Delaware has a gross receipts tax, and they seem to be doing all right. Louisiana has an occupation license tax, maximized at $2,000 per year, per license, and that doesn’t seem to sound unreasonable for say, an attorney? But, they don’t want businesses going to charter in Delaware.
Per PKF North American Network, a global association of independently owned accounting and consulting : “The legal industry in the United States consists of approximately 165,000 law offices that generate about $140 billion in annual revenue. While about 150 law firms have an annual revenue of over $100 million with more than 200 attorneys on staff, the average firm is small, with one location, a staff of about six lawyers, and $1 million in annual revenue.”
Texas Lawyer reports that the top 25 law firms in Texas, gross revenues were approximately $41.1B in 2002 (report issued July 2003). At a 1% tax rate, that would be approximately $4M from 25 firms. There are approximately 296 lawyers for every 100,000 citizens in Texas.
In the heated days of school finance reform, it doesn’t help that the Governor and the Comptroller are trading political barbs through their press releases, either. One says this, the other slings a little mud, and here we go. I have to say that ‘consensus, not combat’ starts at the top, one would think, and attitude reflects leadership (I stole that line from ‘Remember the Titans’, starring Denzel Washington).
If you take a long, hard look at what happened to Pennsylvania, with their urban governments being taken over by State appointed panels and privatization of education with the public school system going in the tank, and line item vetoes that started out looking like bi-partisan efforts, you might want to keep a close eye on what’s happening in Austin over school finance reform. They aren’t talking about just a Bill and everyone goes home for the summer, they are talking Constitutional amendment – and everybody goes home until next year.
There are states that are doing well that have taxed service businesses such as attorneys, so the arguments to keep it out of Texas are nothing more than a warm breeze. It would be prudent to consider a sales tax on high-dollar services, especially if the guy that mows my yard has to spend a couple of thousand a year just keeping up with the tax tables, and no doubt, pay for an attorney to help him with it.
At $40 per yard, the state just cost him the profits on about 100 yards, and at least one somebody’s job. How much will that cost?
It’s like stacking an infinite supply of dominoes, back to front, intertwined around everything else, getting really close to having the whole, massive display finished – and somebody bumps the table.
You hold your breath, watch the whole thing collapse, and even though it is a spectacle to see – there isn’t a thing in the world you can do to stop it.
References:
Coping with the economy by Austin Anderson
Referral Fee Task Force Preliminary Report
CHANCELLOR TESTIFIES AGAINST LEGAL SERVICES SALES TAX
Audio of Gov. Perry at April 19th Hearing
Prepared Text of Governor’s speech to Joint Select Committee on School Finance – April 19, 2004