Lobbyist for Lawyers: 'Tax us, but ... '

A heads up to the lawyers - get ready the tax man cometh!

As I speak to many of my friends in the legal profession, very few of them are aware that the upcoming session includes a senario where they may see added taxes. As you may recall Governor Perry created a special committee headed by former comptroller John Sharp to issue recommendations to the legislature.

The Sharp commission, as it is sometimes called, is rumored to propose a 1 percent tax on the money earned by partners above $300,000 a year. A survey by Texas Lawyer last year put the average pay for a partner in the largest 25 Texas law firms at $819,000 in 2004, up from $776,000 the year before.

Wait a minute, my law loving friend.That's not fair, you say! Before you start demanding a grand jury investigation, please consider that the Sharp plan would be expected to cut school taxes on your homes and ranches by one-third. Also consider that if you are a sole practitioner and not in a partnership you would not be taxed under the expected plan.

The Texas Trial Lawyers Association endorsed the Sharp plan last week. Also leadership within the legal profession tells me that as long as all the professions are treated the same, that they don't have a problem with the proposal. So why do we hear arguments from large law firms that it is unfair for big-firm partners to pay $1,000 for every $100,000 they make over $300,000 in order to pay for schools?

In a recent Houston Chronicle story Glen Rosenbaum of Vinson & Elkins had the answer. Rosenbaum is the point man for 18 of the state's largest law firms that have banded together to fight certain expected proposals from the Sharp Commission. These is his reported response to the question:

"* The big firms are not against paying business taxes. They have been on record in committee testimony since 1997 as supporting some forms of taxation that would include them. "We are not trying to kill or scuttle the Sharp Commission proposal," he said. "We are simply trying to get a compromise when the bill is filed in the Legislature."

* Rosenbaum's coalition has offered three compromises. The simplest one is to apply the tax to compensation over $500,000 or $550,000 rather than $300,000. That would amount to an annual savings of $2,000 or $2,500 per partner.

* The primary objection is that the plan amounts to an income tax on partners in law firms, accounting firms, architectural firms and other professional partnerships. The partners are the ones who have to pay, unlike corporations, where the CEO may make well over $300,000 but the tax is levied on stockholders. The difference is that the partners are not only workers, but owners as well.

* Rosenbaum argues that the way the plan is structured, it would tax lawyers and other professional partnership at a higher rate than the current franchise tax. I don't know if that's true. He admits lawyers have escaped the franchise tax, but says it is not good policy to try to overcharge a group because it has been undercharged in the past.

* While 1 percent seems like a pittance, the firms are concerned that the Legislature would soon be under pressure to raise the rate. With the business tax, a 1 percent raise would bring in $6 billion," he said. A 1 percent raise in the sales tax is $2.5 or $2.6 billion. So if you need to raise a billion dollars, you raise the business tax 0.2 percent."

These are the arguments, so don't tell me that you were not aware of what is going on. In the end we have to find a solution to our school finance problem. If you have input that you would like me to consider, please feel free to post, comment, e-mail or pay a visit to my office. With the session starting on April 17, 2006, we are only weeks away from voting on this and other proposals.