May 16, 2018

Tax on Professional Services


During difficult financial times, it is incumbent on all to make necessary sacrifices and contribute to weathering financial storms. Further, the American Bar Association supports the appropriate simplification of the tax Code, particularly as it facilitates the public’s understanding of, and compliance with, the tax laws.

Nevertheless, the ABA opposes imposing a new tax, or lifting the exemption from sales tax in many states, for the provision of legal services. Imposing a new tax on legal services can have significant unintended consequences to consumers, to the delivery of legal services, and a backlash to state bottom lines that undermines whatever modest revenue such a proposal might initially raise.

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As a means of raising revenue, particularly during times of economic crisis, many states revisit the idea of imposing a tax on professional services, whether as a sales tax (including lifting an exemption in many states’ sales tax code for professional services), an excise tax, gross receipts tax or as a new form of fee applicable only to professional service providers. One justification for this is an often mistaken assumption that the providers of these services, including lawyers, are lucrative and easily absorb such a tax, and that such a tax will not have a material impact on those seeking services assistance. It is also mistakenly believed that service providers are unduly enriched without such a tax and the revenues raised will significantly contribute to state deficits. Of course, this all ignores the reasoning that led to keeping such services free from taxation in the first place. Rarely would such a tax have a meaningful impact on deficit budgets, and whatever contribution it would make is often more than offset by the harm to vulnerable populations and potential impact to state bottom lines in the long run.

Currently, only three states have a tax on legal services – Hawaii, New Mexico and South Dakota – which takes the form of a gross receipts tax in each state. One state, Florida, did impose a sales tax but problems with the cost of administration and enforcement led to its prompt repeal. Nevertheless, Florida along with many other states, has repeatedly come close to approving some version of such a tax.


  • What does “professional services” mean or include?
  • What’s the difference between a sales, excise, and gross receipts tax?
  • What about dedicated fees?

States considering the tax today

SLC Resources:

Talking points, reports, states or coalitions that have confronted/defeated such proposals.