Imposing a tax on professional services would have a negative impact on the Minnesota economy, according to a new study conducted by Matrix Global Advisors, a national economic consulting firm. The study, Economic Impact of Taxing Professional Service in Minnesota—sponsored by the MSBA and several other Minnesota professional associations—shows that a professional services tax would effectively raise the price of those services, resulting in private-sector job losses beyond the professional sector, a decline in the state’s GDP, and a decline in labor income.
Serious efforts to enact a tax on professional services surface periodically at the Minnesota Legislature, most recently in 2013. A bill introduced in 2019 proposed to replace income and business taxes with a broader sales tax that would include professional services, such as legal services. The proposal did not gain traction. The discussion will undoubtedly happen again, with the most serious threat likely to arise the next time the state faces a budget deficit.
The success of previous efforts to defeat service tax proposals was largely due to a broad and cohesive coalition of organizations, including the MSBA, that opposed the proposals. What our arguments have lacked, however, was hard data. We have that now thanks to the economic impact study. We expect this study to serve us well for years to come as we argue that taxing professional services is bad policy.