Extras on Excise: Yoga Is No Sin and Other Lessons from D.C.’s Budget Debate

The District of Columbia Council so far is adopting many of the D.C. Tax Revision Commission’s recommendations to overhaul the city’s tax code—including the controversial “yoga tax” or “wellness tax” that would subject gym memberships to the District’s 5.75 percent sales tax—but  what are some of the excise-related provisions that did not make it into the final budget package? At a D.C. Bar meeting on June 19, state and local tax practitioners talked about some of the provisions and their potential success with several individuals who were very involved in the commission’s work.

Replacing business taxes with gross a receipts tax: The Commission considered, but did not recommend, replacing the District’s business franchise tax, unincorporated business tax and personal property tax with a gross receipts tax. According to the commission’s Final Report, members wanted this kind of change to be revenue neutral. However, after looking at tax estimates, a gross receipts tax in the District would have to be set at 0.71 percent to be revenue-neutral, and members deemed this far too high to be feasible. 

The report compared Ohio’s gross receipts tax to make its point—at 0.26 percent, the Ohio Commercial Activity Tax (CAT) is much lower than what the District would have to impose to be revenue neutral. When Ohio switched its business taxes from a corporate income tax system to the CAT several years ago, the change was not revenue neutral and brought in less revenue, according to Bloomberg BNA’s Ohio Commercial Activity Tax Portfolio 2260.

$25-per-employee-per-quarter local services fee on all non-governmental employers:  The commission recommended this provision as a backdoor commuter tax, but it did not make it into the District’s budget. The Final Report stated that the commission tried to set the fee low enough to spread the District’s tax burden in a more equitable way—citing the many out-of-state residents who work in the District but do not pay for local services, and the nonprofit organizations that have offices in the District but are exempt from D.C.’s business income tax.

And what about that yoga tax? The new sales tax expansion has stayed in the budget bill so far, but fitness gurus are fighting it like it’s a sin tax, more akin to the excise taxes imposed on alcohol, tobacco and sugary beverages. Even D.C. Mayoral candidate David Catania used the hashtag #DontTaxWellness when he stated on Twitter yesterday that if elected, he would submit a fiscal year 2016 budget that would repeal the “Wellness Tax.”

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Should D.C. change its business tax to a gross receipts tax, or should it charge employers an employee fee?

For more information about state tax issues, sign up for a free trial of the Bloomberg BNA Premier State Tax Library.

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