Why It Makes Sense to Modernize the Sales Tax– Yes, Even to Include Yoga Studios
In the past 24 hours, DC Councilmembers have been inundated with emails from local businesses and individuals, including many members of the DC yoga community, protesting a proposal to expand the sales tax to more services in DC. Expanding the sales tax to a variety of services is one of several revenue-raising measures supported by DCFPI and more than three dozen other organizations to help restore cuts to core services.
The District’s sales tax is a critical source of revenue, paying for more than one-fifth of the DC budget. It supports recreation centers and afterschool programs and helps make sure our trash is picked up on time and our streets are clean. It helps make DC a better place to live and do business.
But the strength of our sales tax has declined. The sales tax was designed to tax personal consumption, which when the tax was created, largely consisted of goods. However, over the past 40 years, personal consumption increasingly has shifted toward services. To address this, DC – like many other states — began extending its sales tax to more services. But there are still many that are left out.
This creates a whole host of unfair situations. A person who buys a treadmill pays the sales tax while a person who buys a health club membership doesn’t. A parent who buys diapers for their child does, but a parent who uses a diaper service doesn’t. Businesses that sell mainly services enjoy a competitive advantage over those that sell goods.
You pay tax on your yoga mat, your leggings, your water bottle — even a yoga DVD. Why do you not pay a tax on a yoga class?
The proposal to expand the sales tax is not about singling out yoga studios or any other business for that matter. Instead, the goal is to make sure the sales tax applies broadly to consumer purchases, strengthening the sales tax and eliminating favoritism that exists with some purchases taxed and others not. Also, it’s hard to argue that yoga shouldn’t be taxed because it promotes health. By that standard, the sales tax shouldn’t apply to books, either, because they promote literacy. That logic leads us in the wrong direction, toward a weaker sales tax.
While the impact on businesses certainly should be taken into account, both research and logic suggest customers are unlikely to take their business elsewhere when the sales tax is applied to locally-purchased services. It seems unlikely that a DC resident would give up their favorite yoga class and travel miles out of the city to a non-DC studio just to avoid a few dollars a month in sales taxes. At 6 percent, the sales tax charges themselves are quite nominal. Dropping into a yoga class for $18? With sales tax, you’d pay $19.08.
Allowing our sales tax base to weaken further hurts the family- and business-friendly city we all are working hard to create. Particularly at a time when the District doesn’t have enough resources to preserve core services, expanding the sales tax base to cover more services makes sense.