PHILADELPHIA (KYW Newsradio) — A City Council committee on Wednesday passed a bill that would require tax-preparation companies to inform low-income clients that they are entitled to free help with their tax return, despite hints from industry witnesses that the bill might be challenged on First Amendment grounds.
The bill, sponsored by Councilmember Rue Landau, seeks to increase the number of low-income taxpayers who take advantage of free services, saving them hundreds of dollars in fees.s
In addition to requiring for-profit tax preparation companies to secure signed confirmation from low-income clients that they’ve been informed about the free help available, the bill would also require private tax preparers to disclose their fees up front.
Laura Smith of Community Legal Services, testifying in support of the bill, said the fees are often hidden and later deducted from taxpayers’ refunds, including money returned to them from the Earned Income Tax Credit, which she said is one of the country’s most successful anti-poverty programs, returning up to $7,000 per taxpayer.
“We see CLS clients use their refund to pay for food, make needed repairs to their homes or catch up on their most important bills,” she said. “Unfortunately, for-profit tax preparers take enormous bites out of EITC returns. Together these for-profit tax preparers suck millions of dollars out of low income Philadelphia neighborhoods every year.”
Attorney Lazlo Beh of the Taxpayer Support Clinic testified he’s seen clients with less than $15,000 of income charged $500 for returns that should take less than an hour to complete.
“It is both enraging and disheartening that there are business people who are not ashamed to be charging these fees,” he said. “These fees are simply unjustifiable.”
Witnesses from the tax prep industry, testifying in opposition to the bill, painted a starkly different picture.
Stephen Ryan of the industry’s own nonprofit, Free File, Inc., testified that for-profit tax preparers have saved low-income clients millions of dollars by preparing their returns for free.
“The industry does more than any other industry in America to provide free services,” Ryan said.
Nonetheless, he continued, forcing them to tell clients about free services would violate the First Amendment, a warning echoed by David Ransom of the American Coalition for Taxpayer Rights.
“You would be requiring commercial enterprises to tell customers about free competing alternative services,” Ransom said, arguing that the Supreme Court has ruled companies cannot be compelled to do so.
Councilmember Jamie Gauthier pushed back, asking if the industry intended to take the city to court if the bill passes.
“If the industry is as benevolent and shares the same goals around providing free tax preparation, why would you not support an effort to provide low-income people with free tax preparation?” she asked.
“We’re absolutely supportive of providing (free tax returns),” Ransom replied. “The issue is the requirements associated with the bill and if you applied them in multiple jurisdictions around the country, that would be problematic from an industry standpoint.”
Ransom conceded that the fees Beh described were “egregious.”
“It can’t be defended,” he said, “but I would argue we shouldn’t allow anecdotal evidence to drive policy here.”
Council’s Committee on Commerce and Economic Development voted unanimously to advance the bill to the full Council, where it could be voted on as early as April 4. Landau, however, agreed to continue to work with the industry, suggesting that she may consider amending the bill which would delay passage until after the current tax season has passed.