State Bar Association opposes imposing sales tax on legal services

Listen to this article

While the two-year budget Gov. Tim Walz proposed Jan. 16 would slightly lower the overall state sales tax rate, it would expand the tax to include legal advice. While Walz argued it would enhance fairness, the president of the Minnesota State Bar Association argued it would tax misery.

“Taxing legal services will provide some revenue to the state, but at what cost?” MSBA President Samuel Edmunds said in a statement.

Two-year budgets must be proposed by the governor in January of odd-numbered years. To head off a potential shortfall, Walz’s current budget proposal totals $65.9 billion, compared with the last two-year budget, which totaled $71 billion.

In December, Minnesota Department of Management and Budget stated that, while there would a $616 million surplus for 2026 to 2027, a $5.1 billion deficit would arise in the following two years if revenue and spending stayed the same. Walz asserted that if the budget passed as proposed, there would be a $2.1 billion surplus in fiscal years 2026-2027, and then a $355 million surplus in fiscal years 2028-2029.

While the overall sales tax would decrease slightly from 6.875% to 6.8%, Walz’s proposal expands the types of transactions to be taxed, including legal and financial services. Walz provided two arguments for taxing legal services. The first is to keep up with a new trend in consumer spending. Walz said that while consumers spend on both goods and services, there was “change in spending behaviors.”

“You’re starting to see services significantly outplace goods, and what that does is, is the sales tax is one of the most consistent and dependable pieces to state budgeting because it’s the most consistent,” Walz said at the Jan. 16 announcement.

“What the change to the sales tax does is brings more consistency and more predictability around that,” Walz said.

The other argument he advanced was one of fairness. First, Walz asserted that taxing legal services would  “close loopholes in the state sales tax” by putting all services under the same umbrella.

“Why do we have tax on funeral escorts and we don’t have them on speaking to a lawyer?” Walz asked. “ Those are things that there’s not a fairness to the system.”

“If a tree falls in your yard, and you hire someone to remove that tree, you pay sales tax on that,” Walz explained. “If you call your stockbroker and make a deal, you do not pay sales tax on that.”

Additionally, Walz argued that, by taxing legal and financial services, the imposition would be spread around.

“It brings fairness back into who is paying the sales tax, so that it’s not, once again, lower and working class people pay sales tax on everything they buy,” Walz said. He asserted that most people would see a reduction in sales taxes they pay.

Charging sales tax on legal services is not common practice. Hawaii, New Mexico, and South Dakota impose tax on legal services.

Besides being an uncommon practice, lawyers expressed concerns about the fairness of imposing the taxes on people seeking attorneys. Although some people retain legal services to, for instance, minimize taxes on substantial assets, many people who retain lawyers are not wealthy or do so not for enrichment. Many people who do not qualify for legal aid struggle to afford legal bills.

The Minnesota State Bar Association issued a statement in which it expressed opposition to taxing legal services.

“Minnesotans often need to hire lawyers when they are vulnerable and suffering, including situations involving bankruptcy, eviction, foreclosure, child custody, criminal accusations, personal injury, and domestic violence,” the MSBA said in a statement.

“MSBA appreciates the need to balance the state budget, but it should not be accomplished by taxing people who are in situations that are highly consequential, stressful, and often unexpected,” Edmunds said. “A tax on legal services is a tax on misery.”