D.C. theater tax: Killing the golden goose?

It can’t be easy to turn Washington’s performing arts community into a hotbed of anti-tax advocacy and activism.

Apparently, that hasn’t stopped District Mayor Vincent C. Gray from trying.

The mayor’s newly proposed budget for 2012 includes a broadly worded amendment that would extend the city’s 6 percent sales tax to previously exempt ticket sales for all “live performances.” Although known as the “theater tax,” the levy would reach far beyond the dramatic arts to encompass the full range of performing arts — including theater, dance and music.

If adopted, the effects of the performance tax could set back years of hard won progress in a nation’s capital that has belatedly earned national recognition as a leading cultural destination after decades of being written off as a cultural backwater. Adding the 6 percent tax to ticket prices would not only depress audience turnout and box office revenues, it could also impose an immediate new financial cost: In cases where ticket prices are set for the season, some theaters might have to pay the sales tax themselves in order to honor those pre-sold subscriptions. Piling new costs on already fragile businesses could also drive venues outside the District to seek tax-exempt refuge in neighboring Maryland and Virginia.

Arts advocates in cities across the country have successfully argued that a vibrant cultural sector is a lucrative economic multiplier, with the bulk of the revenue generated by the arts captured indirectly through ancillary consumer spending on activities such as dining and shopping.

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Performing arts venues such as the Shakespeare Theatre Company would be affected ... more >

Should the theater tax become law, the “ripple effect would be quite profound,” far outweighing its estimated $2.3 million in additional tax revenue for the city, says Linda Levy Grossman, president of the Helen Hayes awards. Now-thriving areas such as the Penn Quarter arts and entertainment district would be especially hard hit, with its restaurants, shops and parking garages emptying as arts patrons stay home or take their business outside the city.

Indeed, the D.C. government itself would be cutting off its own nose to spite its face, as it relies heavily on revenue from both the 10 percent restaurant tax, as well as the current 12 percent garage tax.

Among the arts advocates decrying the city’s “lack of due diligence” in proposing the tax is Anne L. Corbett, executive director of the nonprofit Cultural Development Corporation. Citing the amendment’s ambiguous language and the lack of comprehensive analysis weighing the levy’s potential impact on the economy and community, she says, “We need diligence on the part of our government in evaluating what public dollars do for our economy and its residents.”

While proponents of this amendment can argue that the performing arts are disproportionately the diversions of a wealthy elite, opponents can counter that like any sales tax, this one is inherently regressive, hitting lower income audience members far harder relative to their disposable incomes.

Ms. Corbett deplores the signal the mayor is sending with the tax proposal, saying it “implies the arts are for the wealthy, not all.” She fears the city is undermining the arts community’s myriad outreach efforts — like discounted or even free events and lower rates for school groups — by reinforcing old popular prejudices against culture as an unaffordable luxury in hard economic times.