Phil Mendelson responds:

Phil Mendelson

I understand the argument that adding sales tax to a service has the effect of increasing the cost of that service, and that there are some services, e.g., health-related, that we ought to be favoring and, therefore, not taxing. The recommendation to expand the District’s sales tax to health clubs, work-out facilities, yoga studios, etc. came from the D.C. Tax Revision Commission chaired by former Mayor Anthony Williams. The recommendation was based on analyses by tax experts as to how to best structure the sales tax. It was also part of a package of proposed reforms that included revisions to the individual income tax. The goal of the Commission was to recommend an overall tax structure that is fair, equitable, and reduces the overall burden on District residents.

If an individual’s health club membership is $75 per month, the tax will add $4.32 to the cost. On the other hand, the revised income tax (also part of the tax package) will save the average resident taxpayer in the $50,000-$75,000 adjusted gross income bracket about $36.33 per month ($436 per year).

The following rationale is excerpted from the Tax Revision Commission’s final report (available at www.dctaxrevisioncommission.org):

“The District’s general sales tax is 5.75 percent, lower than the 6 percent sales tax rate in Maryland and Northern Virginia. …In presenting a paper on sales taxes to the Commission, Professor William F. Fox, director of the Center for Business and Economic Research at the University of Tennessee, Knoxville, noted that … the District, like many states, faces an eroding sales tax base as consumers shift their spending from goods to services. …The Commission recommended changes that will broaden the sales tax base without hurting the District’s competitiveness relative to neighboring jurisdictions. …While a broad tax base is optimal, Professor Fox cautioned that the District must carefully choose any new services to tax in order to minimize the economic effect.” Professor Fox recommended eight types of services be added to the sales tax, including “health clubs and tanning studios.”

I want to emphasize that the goal is not to increase revenue. Indeed, when fully implemented the tax package will reduce annual revenue by about $165 million. The goal is to have a stronger tax structure. What has been adopted is a package of changes – some increases, but mostly cuts. For the District government, we will have a broader, and therefore better, sales tax base. For District residents, there will be a lower tax burden.

I hope this explains what happened. I appreciate your taking the time to petition.

-Phil Mendelson

Enter your response here…


Posted on June 01, 2014
Discussion
  • Devin C WASHINGTON, DC
    • 9 months ago

    This is just one more way for the District to avoid taxing its own citizens and instead tax the people who come here to do business or for entertainment. I am disgusted by the District's attitude that it should maximize revenues from external sources (camera tickets, entertainment taxes and now gym taxes) so as to allow its residents to mooch off of the million or so people who come here to work and the tens of millions of people who travel here every year. If you want more tax revenue to pour into your failing schools, embarrassing emergency response services and corrupt political apparatus then get it from your own citizens and stop reaching in everyone else's pocket.

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    • 9 months ago

    Councilman Mendelson,

    Thank you for your time in reviewing this petition and responding. While we appreciate your thoughts, there's just so much for to it from our perspective as a small business operating in the District and that of our customers. A few points we'd encourage you and others to consider...

    - While the "Blue Ribbon" commission's findings may have been out for some time, the Council recommendations on the budget specifics were introduced only 18 hours before the vote was taken - hardly enough time to solicit or secure reasonable feedback from citizens. Clearly people are now speaking out (and doing push ups and burpees in public as they did today) and the sentiment is not positive.

    - We certainly support taxpayer relief for both businesses and individuals (most of us live in DC, after all), but the likelihood of individuals considering the overall personal economic impact when making day-to-day purchasing decisions is small. It's about everyday cash flow and the everyday impact on our wallets. An increase in cost for services will make an impact on individuals and businesses.

    - To ask businesses to reduce prices due to marginally smaller tax burdens is to assume that a business owner would increase pricing in the event of an increase in taxes. Any customer-centric business is pricing its goods and services based primarily on the offering and market value - not simply the cost of doing business. If that were the case, there would be no consumers, as no business could realistically pass along all of the costs associated with excessive rent in the District.

    - Finally, if the City is focused on extending the current tax on goods to that of services considering the state of the service-centric economy, the tax should be applied across the board - not to single out specific service industries. It is our understanding many (like hair salons) remain exempt. We're all for the importance of good hair days, but is it more valuable than physical fitness?

    We thank you again for your time in responding and consideration.

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  • brian uher WASHINGTON, DC
    • 9 months ago

    Unfortunately, it is not about "explaining what happened" it is about making a persuasive argument that actually shows it to be part of the best solution. You have not done this.

    Your comments do not address the fundamental issue here: taxing healthy behaviors is insane and backward on principle alone. Off the table on this basis, full stop.

    Taxing the perceived wealthy through activity "luxury" taxes is foolish and sets a dangerous, arbitrary, imbalanced, abusable precedent that stinks of many machine democrat cities-it is time to right the ship in that respect as well.

    The residential average is irrelevant: match the health club payers to their own average tax savings-many are younger, and in your middle class bracket. What effect now? Still an argument? Likely not.

    Adding burden to remaining brick and mortar will simply drive them out faster...professor Fox appears overreaching in his thinking in this respect - "broadening" the tax base might be better done through focused burdening - dance clubs, liquor stores, and bars...which are relatively inelastic economies and not truly exportable. Conversely, health clubs are elastic economies...didn't your economist emphasize that? And what in the world do tanning salons have to do with health clubs? The mere fact of the association in your direct quote bespeaks a fundamental lack of comprehension of the nature of the businesses or the patrons...or did the owners of the big gyms suggest that this could drive independent, small business personnel (like the small yoga or marital arts teachers) under their roofs and further erode competitive business development; and that was thought by some a good thing from a fundraising point of view?

    And why precisely is it we are reaching out to distant institutions for advice? We have universities nearby more than capable of understanding the local landscape...and weighing in with sound argument reflective of the specific environs.

    The alignment of the basic tax rates with surrounding jurisdictions is the sound approach in this legislation. Don't taint an otherwise workable solution with arbitrary, focused hyper-taxing. Finally, if the goal is not to increase revenue, then don't. Eliminate the tax from the legislation.

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  • Adam Sloane WASHINGTON`, DC
    • 9 months ago

    What's disturbing to me is the completely underhanded way you snuck the proposal in. You waited until the last minute in order to avoid any pre-vote campaigning or scrutiny, and then you had the nerve to defend that gambit by saying that it should have been obvious to the public all along that the sales tax would be proposed, since the Tax Revision Commission had recommended the tax. But obviously that defense won't work because you didn't adopt the Tax Revision Commission's proposals wholesale, as you yourself have noted. So the public would have to be mindreaders to have notice of anything. If this measure were subject to notice and comment rulemaking principles, it would be overturned for failure to provide adequate notice and opportunity for comment. Of course, legislative provisions are generally not subject to such requirements, but maybe they should be--especially, revenue proposals. In any event, what really rankles is your dishonest defenses of this, which are sadly completely in character with the high-handed way the Council, and the City government more generally, operates.

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