State sales tax on legal services considered

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HARRISBURG -- Law firms, watch out. To resolve the ongoing state budget impasse, state legislators may seek to apply the state sales tax to legal services.

Currently, legal services are among several dozen professional, recreational, personal and business services that are exempt from the state's 6 percent sales tax (the tax is 7 percent in Allegheny and Philadelphia counties).

But state Republican leader Sam Smith of Punxsutawney said yesterday that House Democrats may try to remove that exemption as a way to boost revenue to balance their proposed $29.1 billion budget plan for fiscal 2009-10, which began July 1.

By not subjecting legal services to the sales tax, the state will lose an estimated $530 million this fiscal year, according to the state Revenue Department.

"We killed the attempt by the governor and House Democrats to increase the income tax on working Pennsylvanians," said Mr. Smith. "Now it appears they are moving to get more money from the sales tax by taxing legal services, which are currently exempt. Their plan would limit access [for] people who truly need legal help. It's wrong."

Gov. Ed Rendell in June proposed a three-year, 16 percent increase in the personal income tax, but many legislators, of both parties, complained, so House Democrats have now taken that idea off the table. But Democratic leaders are still searching for additional revenues to fund Mr. Rendell's proposed $28.2 billion budget or their own $29.1 billion budget. Republicans generally favor a 2009-10 spending plan in the range of $27.3 billion, with no tax increases.

Brett Marcy, spokesman for House Democrats, said, "We have not offered any specific proposals for eliminating sales tax exemptions." But he added, "Everything -- except an increase in the personal income tax -- is on the table."

Without giving specifics, he said, "We have offered a long list of potential revenue options that would be sustainable beyond this year ... It is absolutely critical that this (2009-10) budget include sustainable, recurring revenues."

He accused Republicans of engaging in "scare tactics and hollow rhetoric" and urged them to work with Democrats to enact a "balanced, responsible budget."

Bureau Chief Tom Barnes can be reached at or 717-787-4254.


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