D.C. to invest money from online retail taxes in tax breaks and the arts, not affordable housing

Update, Dec. 5: On Tuesday, the D.C. Council voted 8–4 to collect sales taxes from the vast majority of out-of-state online retailers, starting on Jan. 1. The move is expected to produce millions of dollars in new tax revenue a year. The lion’s share of that revenue will go toward lowering the tax rate for commercial properties assessed at over $10 million. A piece of it—the revenue collected from Jan. 1 through Sept. 30, 2019—will fund the arts and humanities.

Introduced by Ward 1 Councilmember Brianne Nadeau, an amendment to a bill would have distributed the tax revenue differently, including to affordable housing programs that serve homeless and low-income residents. More than $45 million of the $96.9 million in projected revenue over the next four years, or about 46 percent, would have funded the District’s Local Rent Supplement Program and permanent supportive housing, under her proposal. The rest of the money would have subsidized the arts, housing counseling services, school programs, anti-violence efforts, water fees, and a tinier portion of the commercial property tax breaks.

The amendment failed on a 6–6 vote, with Ward 5 Councilmember Kenyan McDuffie absent. (A spokesman for McDuffie says the councilmember was “on travel.”) Lawmakers debated how the District should prioritize its tax dollars. Ward 2’s Jack Evans, the main sponsor of the bill, cast it as a return to commercial property tax rates before they were raised to fund Metro earlier this year. “It frankly is unfair, because we made a commitment that as soon as we got this money, we would, again, restore the rate to where it started out,” Evans claimed.

But Nadeau said cutting these tax rates would contravene action the Council took five years ago, when it approved splitting revenue from internet sales taxes equally between homeless services and Metro. “New sources of revenue do not come around every day,” she said. At-Large Councilmember Elissa Silverman noted that this past spring, the Council raised various other taxes, but it was not going to reduce those. “The underlying bill is a lopsided giveaway to our largest property holders,” she said. Council Chairman Phil Mendelson rejected that view. “This is about maintaining the status quo...rather than raising it for a purpose, and then using it for another purpose,” he argued.

But in a statement, The Way Home—a campaign focused on ending chronic homelessness in the District—called the Council’s vote “an immoral use of DC’s scarce resources and a direct contradiction of our city’s commitment to end homelessness.” “We will continue our fight for the $35.5 million needed to put DC on track to end chronic homelessness this coming fiscal year,” the campaign added. Lawmakers undertake their annual budget process in the spring.

This post has been updated with comment from The Way Home campaign.

Original post, Dec. 3:

Thanks to a Supreme Court decision earlier this year, the District may legally impose sales taxes on online purchases from retailers who lack a physical presence in D.C. Policymakers are set to green-light such taxes on Tuesday, during one of their final meetings of 2018, but they disagree about what the millions of dollars in anticipated annual revenue should fund: homeless services and other programs, or a reduction in certain commercial property taxes.

Currently, the “Internet Sales Tax Amendment Act of 2018” favors the latter. Phil Mendelson and Jack Evans—the chair of the D.C. Council and the Ward 2 councilmember, respectively—quietly filed the legislation in July, days before the Council broke for summer recess. Evans’ finance committee held a public hearing on the bill in October and advanced it the following month. On Nov. 13, the Council approved the measure 12–1 in the first of two required votes. At-Large Councilmember Elissa Silverman requested a discussion on the bill and voted “no.”

“This bill levels the playing field for our locally owned businesses, and then quickly unlevels it,” Silverman said, noting that online retailers would have to pay sales taxes, like brick-and-mortar retailers already do. “The good the bill does is undone by how the bill spends the tax money it collects.” Silverman said the measure would enrich large, wealthy property owners because it would direct new revenue from online sales taxes toward tax cuts for commercial landlords whose properties are assessed at more than $10 million (starting on Oct. 1, 2019).

Specifically, the legislation would reduce the real estate tax rate for this subset of “Class 2” commercial properties from $1.89 per $100 of assessed value to $1.85 per $100 of assessed value. The difference between the two rates may seem minuscule, but it amounts to tens of thousands of dollars in tax breaks for a landlord of a multimillion-dollar property annually. Lawmakers set the current, higher rate this past spring as part of the District’s fiscal year 2019 budget. It is one of several tax increases they approved for dedicated Metro funding.

The bill exempts “small sellers”—out-of-state retailers whose gross receipts from D.C. sales total less than $100,000 a year or who make no more than 200 D.C. sales a year—from the online sales taxes. “Digital goods,” such as audiovisual works and e-books, would be taxed.

The D.C. Chief Financial Officer projects that over the next four years, the new online sales taxes would generate about $96.9 million in revenue for the District. But the proposed tax cuts would take up about $75.8 million—or almost 80 percent—of that revenue. Meanwhile, all of the revenue produced during the first several months of the internet sales taxes, some $14 million, would fund the District’s Commission on the Arts and Humanities. This leaves a net revenue increase of about $6.7 million by the end of fiscal year 2022 (on Sept. 30, 2022).

D.C. government

But the proposal has rankled advocacy groups devoted to the needs of low-income residents, including the D.C. Fiscal Policy Institute and the Washington Legal Clinic for the Homeless. They say that in the midst of an affordability crisis, the District should use the new revenue from internet sales taxes on social programs and supportive housing, not tax breaks for the owners of D.C.’s highest-valued properties. They also underscore that the measure repeals budget language from 2013 through which lawmakers lined up online sales tax revenue for Metro and homeless services, in expectation of congressional action that did not take place.

“D.C. has an incredible opportunity with this new revenue stream created by the online sales tax that allows us to back our commitments to end homelessness,” says Jesse Rabinowitz, an advocate with Miriam’s Kitchen who described the Council’s choice on Dec. 4 as a “moral” one. “Votes have consequences. We know that D.C. is in the middle of a homelessness crisis and 45 people died without the dignity of a home last year.” With the projected revenue, the District could create hundreds of additional units of affordable housing, Rabinowitz added.

Ward 1 Councilmember Brianne Nadeau, who chairs the human services committee, says she is working on an amendment to the bill that would help accomplish just that. As of Monday afternoon, the draft amendment would designate funding for D.C.’s Local Rent Supplement Program and permanent supportive housing units, according to Nadeau’s office. But it was unclear whether the amendment would have the necessary seven votes to pass on Tuesday.

At a press conference on Monday, Mendelson, the Council chairman, said he would not support any such amendment. He defended the current version of the legislation, saying the government should not raise taxes “unless it absolutely has to,” and that commercial property owners often pass tax increases on to their office and retail tenants, including brick-and-mortar stores. He added that the Council has in recent months increased funding for homeless services as well as affordable housing.

Last month, San Francisco voters approved a ballot measure, Prop C, that directs the city to further tax large tech companies to bankroll homeless services. It may face a legal challenge.

• Big States Missing Out on Online Sales Taxes for the Holidays [Pew]
• D.C. Council Poised to Pass $14.5 Billion Budget With Dedicated Funding for Metro and the Arts [Washington City Paper]
• Congress Backs Borderless Internet Sales Tax (And So Does Amazon) [Wired]
• Activists mourn steady pace of homeless deaths in the nation’s capital [Street Sense]
• Election results 2018: Proposition C homeless tax passes [Updated] [Curbed SF]
• City girds for lawsuit over homeless tax [Curbed SF]