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SACRAMENTO — It’s not often that the California Chamber of Commerce, the Howard Jarvis Taxpayers Association and the Consumer Attorneys of California end up on the same side of a bill. But Assembly Bill 9, by Joe Coto, D-San Jose, calls for taxing professional services — a concept designed to raise the hackles of any number of pro-business and professional groups. The plan calls for extending a 6.25 percent sales tax on a variety of professional services, including legal services, as a way of raising money for K-12 public school education. Private club memberships and security, detective, engineering, architectural and technical consulting services would all be taxed under the plan — as would legal services. The measure is on hold in the Legislature, but lawyers around the state are still watching the idea warily as the Legislature tackles funding issues during budget talks this month — particularly in light of the need to fund education. “The idea, to our knowledge, is very much alive, and is something to be watched,” said Larry Doyle, the State Bar’s chief legislative counsel. Doyle said attorneys are generally opposed to the idea of paying a tax on their services, but he also says it would be difficult to figure out when and how to apply such a tax. “If you accept a retainer, what does that do?” Doyle asked. “If the court orders a fee to be paid, how is that money apportioned?” According to an analysis by the state Board of Equalization, a majority of states already tax some professional services, although legal services have been largely excluded. The American Bar Association found, in a 2001 survey, that only Hawaii, New Mexico, South Dakota, Texas and Wisconsin taxed legal services. Attempts to add similar taxes failed in seven other states and Washington, D.C. The American Bar Association in 1987 adopted a policy opposing the idea “based on constitutional and policy considerations.” Coto’s bill was originally introduced in December, calling for improved education funding — without saying how to fund it. Language calling for taxes on professional services wasn’t added until mid-April — enough time for a broad coalition of groups to voice their opposition, including the State Bar, Consumer Attorneys, the California Chamber of Commerce, the California Telephone Association and the California Manufacturers and Technology Association. As envisioned by Coto, the money would fund an annual increase in per-pupil spending so that the amount climbs from $7,100 per student to $10,200 by fiscal year 2006. According to the Board of Equalization’s analysis, adding a sales tax to 11 new professional service categories, including legal services, could generate $4.6 million in tax revenue per year. Bill opponents are taking some comfort in the idea that revenue-generating strategies this year appear to be focusing on the idea of increasing the tax bracket on the wealthiest 2 percent of Californians — a move that proponents say could raise more than $2 billion. That’s a plan that makes infinitely more sense to CAOC President Sharon Arkin than an across-the-board levy on legal services that she says would end up being passed on to consumers. “Lawyers that make a lot of money will pay more taxes,” Arkin said. “That way, none of our clients will suffer.”

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