Philadelphia’s efforts to ease the pressure from Mayor Kenney’s underfunded budget by collecting more taxes, without raising a lot more new ones, includes outreach to the high-priced visiting lawyers who come to press and defend drug companies and other firms in the city’s courtrooms.
The Revenue Department is “working to improve” tax collection from out-of-town lawyers, says spokeswoman Kelly Colafrancisco. “Conversations are ongoing,” she added, “to improve discovery processes involving lawyers who work in Philadelphia but are not based in Philadelphia.”
Tax officers in Philadelphia were among the nation’s pioneers in targeting visiting athletes and entertainers:
They checked game and show schedules at the Spectrum and went after the stars.
But visiting lawyers often escape. In orders admitting out-of-town lawyers to work in Philadelphia’s Complex Litigation courtrooms, judges have routinely advised those visiting lawyers that they are liable for city business and wage taxes, though “I don’t know about compliance with those orders,” says Philadelphia-based Shanin Specter, personal-injury and medical-malpractice lawyer.
The taxes aren’t always paid, and there’s a lot the city can do to enforce tax compliance on out-of-town lawyers, if it really wants to, says Judge Mark I. Bernstein. He retired in 2016 after a long career that included Complex Litigation cases, in which he found it easier to force Walmart, J&J and other firms to pay what they owed workers or patients than to get city officials to enforce tax collection on the companies’ out-of-town lawyers.
In the mid-2000s, with plaintiff’s lawyers ramping up class-action suits against big drug companies, Bernstein says, the city was hosting two or three major trials a month featuring national firms and their expensive out-of-town law firms.
“One case I presided over lasted four weeks. Four plaintiff’s attorneys were from Texas, two defense attorneys were from Baltimore and the other two from Cincinnati.”
Legal wages could run into the millions of dollars a month for each case. But Bernstein says he expects “that not one of those eight attorneys who spent one-twelfth of their working life in Philadelphia and earned one-twelfth of their [yearly pay] in Philadelphia ever paid a penny in wage tax.”
The judge says he occasionally ruined an out-of-town lawyer’s day by asking if they’d made sure to pay their city taxes. On at least one occasion, the lawyer quickly did so.
Bernstein argues for a more systematic approach. He says “several judges, myself included, tried to interest the Revenue Department in this issue.” Some City Council members seconded the appeal, “but to no avail,” says Bernstein, who says he was “infuriated” that the city let so much out-of-town lawyer pay leave town untaxed. (Colafrancisco says the department has been talking to judges and suggesting improved lawyer tax collection procedures for “the past decade.”)
Bernstein says visiting lawyers are even easier to track than athletes: Every out-of-town lawyer appearing in a city court “requires a court order permitting them to practice law in Philadelphia,” he notes. “The court orders we issued had not only the name of the case for which they were being admitted but also the lawyer’s name, firm name and address, together with the order that they pay all taxes as required.” It’s a road map right into the lawyer’s wallet.
And tax collectors have extra leverage over lawyers, the judge added: “These attorneys are all subject to Pennsylvania lawyer disciplinary rules. Failure to obey the court order to pay all taxes can result in a complaint to the Disciplinary Board.”
He added: “Why would out-of-town lawyers who practice nationally care about a ‘local’ disciplinary complaint? Because when they apply to be admitted to practice in a state, they have to reveal whether they have ever been the subject of a disciplinary complaint — any such complaint could directly impact their ability to practice nationally.”
So even lawyers who don’t enjoy a stay in Center City will feel obligated to pay Philadelphia its almost 4 percent if they have reason to believe they’ll be caught trying to skip out untaxed, Bernstein told me. It can be an extra jackpot for the city if the lawyer wins a multimillion-dollar settlement and pockets a taxable chunk as his or her fee.
Won’t strict enforcement drive lawyers away from Philly, as high-taxed factory owners were before them?
“No way,” said Bernstein. “Plaintiff’s lawyers like Philadelphia for two reasons: Our juries are sympathetic,” though not pushovers as in some “hellhole” jurisdictions, he said. (The American Tort Reform Association, a pro-corporate-defendant group, calls Philadelphia the “City of Unbrotherly Torts” but ranks it as less of a “Judicial Hellhole” than courts in Florida, California or New York.)
Plus, Bernstein concludes, “while cases can linger forever — and I mean it literally — in Federal (Multi-District Litigation), in Philadelphia we bring cases to trial.”