The Obama’s haven’t even had their official tour of their new home and the bad news just keeps pouring in. Jobs lost in 2008: 1.2 million. Survival Problems: General Motors (GM) and Ford Motor (F). Stocks fall sharply for 2nd day, with Dow down 443 points.
And, for us Californians, it just gets worse. Schwarzenegger calls for sales tax hike.
While the details have yet to be ironed out, a special sessions has just been called to address the state’s revenue/spending problem. A
adding a sales tax to services is on the table. The tax rate in California will then stand at 8.75%.
Broadening the Sales and Use Tax to Include Certain Services: Effective February 1, 2009, the sales and use tax rate will be applied to appliance and furniture repair, vehicle repair, golf, and veterinarian services. Effective March 1, 2009, the sales and use tax rate will be applied to amusement parks and sporting events. This is expected to generate additional General Fund sales tax revenue of $357 million in 2008-09.
In the recent past (June 2008), expanding the service tax to include legal fess has been on the table. There’s no telling right now what stand the legislature will take on taxing legal service fees.
If the proposed tax increase does goes into effect, the tax rate in Los Angeles will increase to 10.25% and San Francisco at 10%.
What client would voluntarily send work to a California law firm if they will have an additional 10% tacked onto their bills? It is more likely that the California firms will have to automatically discount their bills by 10% just to remain competitive for the work. This is on top of the discounts they are already providing to their top clients. So law firms, which are already suffering the strains of the economy, from the dissolutions of Thelen and Heller, to more law firm layoffs, will now be faced with an automatic reduction in their revenue by 10%.
To steal a line from Ross Perot, that”giant sucking sound” you’ll hear will be all the lawyers leaving California.