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DC: 2015 Budget Would Bring Sales Tax Changes


 DC's new budget proposes taxing internet sales.

 

District of Columbia Mayor Vincent Gray submitted a Fiscal Year 2015 Budget to the City Council back in April. As required by law, the Council passed the Budget Support Act (BSA) twice: once in May and once in June. The BSA included tax reforms, which Mayor Gray vetoed. On Monday, July 14, 2014, the Council overrode the mayor’s veto.

According to the City Council, their veto override provides significant tax savings to DC businesses. It also significantly extends the sales tax.

It’s not easy to approve a budget in any state, and the process is particularly complicated in the capitol. Now that the mayor’s veto has been overridden, the budget goes to Congress for approval. If 30 Congressional legislative days pass without Congress blocking the budget, it will go into effect.

Sales tax changes

The BSA seeks to expand the 5.75% sales tax to certain services, including:

  • Gym memberships
  • Bowling
  • Water delivery

Perhaps in response to public outcry against the so-called “yoga tax,” a City Council newsletter reminds that many services are already taxed in the capital—74 out of 183 services recognized by accountants, in fact. It adds that “the District is simply closing a loophole … applying the tax to some additional services that had previously been excluded.”

Bowling? Does this have anything to do with the controversy surrounding President Obama’s reported plans to renovate the White House bowling alley?

In addition to these services, if the budget is approved sales tax will be expanded to:

  • Billiard parlors (keeping bowling alleys company)
  • Car washes and carpet and upholstery cleaning
  • Health clubs and tanning studios
  • Storage services (for personal items)

Sales in federal buildings

The budget would also subject certain commercial sales in federal buildings or by federal enterprises and organizations to sales tax. Federal buildings include but are not limited to memorials and museums, of which there are many in DC. Taxable sales include sales at gift shops, souvenir shops, kiosks, convenience stores, food shops, cafeterias, restaurants, and similar establishments in federal buildings. Of which there are many.

Internet sales tax

In addition, section 320 would “authorize and mandate that the District require remote vendors to collect and remit remote sales tax on sales made via the internet to a purchaser in the District.” The budget also references a plan to “substantially reduce the administrative burdens associated with sales and use taxes, including remote sales taxes.” A small seller exemption is allowed.

It will be interesting to see whether or not Congress takes issue with this aspect of the budget. Congress has stalled the discussion of the Marketplace Fairness Act of 2013 (MFA), which would allow states to require certain remote sellers to collect sales tax. MFA landed in the House after being passed by the Senate on May 6, 2013. Aside from releasing 7 principles to guide the discussion and holding a hearing or two, Congress has taken no significant action.

Use tax

Any untaxed remote sales would be captured on the new use tax line item added to the District’s personal income tax returns. Currently, there is no formal way to capture sales tax revenue from remote sales, including sales made by District residents while traveling to other states or abroad.

A draft of the FY 2015 Budget Request Act is available on the Council of the District of Columbia website.

Internet sales tax in the nation’s capital. Is your business prepared?

photo credit: alles-schlumpf via photopin cc


Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.