Sales Tax on Legal Services Hurts Ohio Employees and the Employment Dispute Resolution Process
The Ohio Employment Lawyers Association opposes the proposed tax on legal services contained in Ohio House Bill 59. In opposing HB 59, OELA joins other bar associations throughout Ohio that have already stated their opposition. Bar associations such as the Ohio State Bar Association, the Ohio Association for Justice, the Ohio Association of Civil Trial Attorneys, the Akron Bar Association, the Columbus Bar Association, the Cuyahoga Metro Bar Association, and the Toledo Bar Association have all voiced their opposition with good reason. However, OELA opposes the tax because it additionally harms Ohio employees and the employment dispute resolution process.
Civil attorneys, like the members of the Ohio Employment Lawyers Association, serve the public by helping individuals peacefully resolve their most serious disputes. Generally speaking, many employers already have an advantage in financial resources over an employee. Taxing the essential service provided to employees by their counsel, makes it even more expensive, and penalizes employees’ access to it. Worse, it escalates an existing perception many employees have that legal counseling is not affordable and therefore not an option for them. A serious workplace dispute without adequate means for peaceful resolution drains valuable financial and human resources from the economy and can even result in tragedy.
A sales tax on employment-related legal services is unfair to employees. Dispute resolution is most justly achieved when the negotiation leverage is determined by the facts giving rise to the dispute. The proposed tax will impede just resolution by giving employers additional economic leverage over employees as both parties seek legal counsel. While the proposed legislation will allow employers to deduct as a business expense the tax paid on the legal services, most employees will not enjoy a similar tax advantage. As a result, employees face a 5% premium on obtaining the legal services they need while employers will not share that same burden as the parties negotiate to resolve their dispute.
As all of the other bar associations opposing this tax have recognized, it is a “misery tax.” The most common reasons employees seek legal counsel are because either the employee faces serious employment discipline or termination. At the very moment the employee’s ability to earn income is threatened or terminated, the employee has to pay a tax for legal counsel to help resolve the dispute, or simply get advice. This process should be encouraged rather than discouraged with added costs.
As applied to employees who are enforcing their civil rights because they have been victims of unlawful discrimination or retaliation, the tax is a tax on those civil rights. Ohio has already pared to the bone the budget of the Ohio Civil Rights Commission. Adding a tax to individuals who obtain legal counsel as part of their effort to protect civil rights further diminishes those rights.
The proposed tax legislation is also replete with its own enforcement problems. For example, nothing clarifies how to treat contingent fees as a taxable event. Yet these fees are the highest amount of fees paid by most employees. But questions remain about taxing the legal services provided under a contingent fee agreement or when there are fee shifting provisions within a statute (see R.C 4112.02(H)(housing discrimination). Also, does the tax apply when the services are provided without a monetary recovery for the employee? Does the tax apply when the “contingency” is not satisfied? Does the tax apply to costs that the attorney pays for in advance on behalf of the employee? These questions are real; they affect Ohio employees disproportionately; they concern a substantial portion of the tax revenues represented by the proposed legislation; and they are not answered by the legislation.
This is bad policy and an ineffective means to add to the State’s revenue. Taxing legal services chills the employment dispute resolution process. With a lawyer’s help, employees facing termination can often save their employment or obtain severance pay that will support the employee in the transition to new employment. Such resolutions benefit both employee and employer. Without a job or severance pay, the former employee frequently becomes a welfare recipient who needs additional State provided benefits and services. The Ohio Employment Lawyers Association urges all legislators to vote in favor of Ohio, Ohio employees, and against House Bill 59.
For additional information on this attempt to gut Ohio's anti-discrimination laws, please contact:
Margolius, Margolius & Associates
55 Public Square
Cleveland, OH 44113
Valore & Gordillo
21055 Lorain Rd.
Fairview Park, OH 44126
OELA Press Releases
- Legislation Robs Women, Minorities and People with Disabilities of Protections Against Discrimination and Harassment in the WorkplaceFeb 3, 2016
- Sales Tax on Legal Services Hurts Ohio Employees and the Employment Dispute Resolution ProcessApr 4, 2013
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- Another Attack on Ohio Workers: Draft Bill Seeks to Gut Ohio’s Laws Prohibiting Sex, Age, Race, Disability and Other Forms of Discrimination by Eliminating Protections for Most Ohio WorkersDec 9, 2011
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