Lawyers, other professions oppose possible sales tax But many see signs of political favoritism


ANNAPOLIS -- James T. Brady, managing partner at Arthur Andersen & Co., one of Baltimore's biggest accounting firms, was forced to dodge the horns of a tricky dilemma last week.

As president of the Greater Baltimore Committee's public policy committee, he was on hand when the business group announced its support of the controversial Linowes commission proposals. The support was hailed, by the GBC among others, as courageous for a business group in light of the $800 million in new taxes the commission has proposed.

Although few legislators give the package much chance of passing in its entirety this year, some of its elements might succeed. And most agree that the proposals almost certainly will reappear next year.

Among the proposals suggested by the panel, formally called the Maryland Commission on State Taxes and Tax Structure, is an expansion of the sales tax to include several dozen service-oriented businesses. The new taxes -- on such services as dry cleaning, auto repair, interior decorating and data processing -- would raise almost $300 million in the first year.

Notably absent from the list, however, were white-collar professions such as law, medicine, accounting and architecture.

The omission smacked of political favoritism to many, since the professions of some of the most influential business people in the state, including many legislators, were excluded from a new tax that they easily could have killed in the General Assembly, the thinking went.

Recently, however, public officials including Lt. Governor Melvin A. Steinberg and R. Robert Linowes, the Montgomery County lawyer who was chairman of the commission, have been suggesting that the sales tax be expanded to include the omitted professions.

"There is serious discussion taking place on whether or not we will go with the sales tax . . . and make it include lawyers" and the other professions, Mr. Steinberg told a group of Maryland State Bar Association members this month.

"The perception is that the rich lawyers are getting out of being included in the sales tax," he said, adding that those perceptions also apply to doctors and accountants, among others.

Mr. Linowes said last week that although his 17-member commission was against it, he always favored taxing the professions. Gov. William Donald Schaefer has implicitly endorsed such a tax. "I happen to think that everyone should share the burden," he said recently when asked about such a tax.

So Mr. Brady faced a dilemma: The GBC, of which he is a prominent member, has backed the new taxes, but his firm, Arthur Andersen, would be hit by an extension of the new tax, which wasn't even a part of the original report.

If taxing the professions became part of the package, "that would certainly not get me to be opposed to it," Mr. Brady said. But he added, "I'm not so sure that that's in the best interests of the state."

Not surprisingly, he shares that view with lawyers and doctors in Maryland. The objections tend to fall into three categories: The sales tax would be costly to consumers, who would end up paying for it anyway; it would be a nightmare to administer, especially for firms with branches in other states; and it would put Maryland firms at a disadvantage to out-of-state competitors that could compete from across the state line.

Those objections ring hollow for some. "You can take your dry cleaning out of state, too," said Sen. Laurence Levitan, D-Montgomery, chairman of the Budget and Taxation Committee. "I think that was a rather weak excuse."

The Linowes report itself lays out more details to explain why professional firms were excluded from the proposed sales tax on services.

"Taxing services supplied by non-Maryland firms that conduct business within the state is difficult to administer," the report states. "If they are not successfully taxed, it places Maryland firms at a competitive disadvantage."

Further, the report says, "because many service businesses can easily move out of state, care must be taken not to encourage their relocation to neighboring jurisdictions.

Seymour Stern, president of the State Bar Association, expressed concerns relating to two of the three categories. "This is not a tax on lawyers; this is a tax on consumers," he said, adding that "the enforcement of it would be very difficult," especially for Maryland law firms with offices in several surrounding states."

"To control where a fee is being paid and where the client is being serviced," Mr. Stern said, "is going to be an accounting nightmare for the law firms."

The best reason for excluding physicians from the sales tax is the cost, said Gerard E. Evans, a lobbyist who represents the Medical and Chirurgical Faculty of Maryland, the state physicians group.

"Probably the prominent reason is that here at a time when we're talking about trying to control the cost of health care, they're talking about what is going to be another tax that's obviously going to be passed on to the consumers," Mr. Evans said.

Barbara Zorn, executive director of the Maryland Association of Certified Public Accountants, said the experience of some states that have tried to tax accountants bodes ill for such an effort in Maryland.

"It just proved to be too massive a task, and people just didn't pay it," Ms. Zorn said. Phillip Dearborn, the commission's executive director, said he knew of no other states that have repealed a sales tax on accountants except Florida, where the advertising industry helped defeat a new tax on professions.

If and when serious debate on the Linowes proposals begins, there apparently will be some sympathy for taxing the professions.

"We are turning to a service economy, and maybe you have to expand the [sales tax] base into some of the service industries," Mr. Levitan said.

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