Trade associations are opposing a new sales tax on advertising in the District, saying the 3% levy will only further hurt businesses already devastated by the economic recession created by the coronavirus pandemic.
Dan Jaffe, executive group president of the Association of National Advertisers, called the tax counterproductive, arguing that it would suppress sales and ultimately revenue from other sales taxes.
“When I do an ad, I am trying to make a sale. [The ad] is not the sale. It’s not soap or cereal or a car service. It’s trying to sell soap, cereal or a car service. You are taxing the effort to sell — that’s very, very different,” Mr. Jaffe told The Washington Times. “And that’s why advertising everywhere has almost been excluded from sales taxes.”
The Maryland-Delaware-District of Columbia Press Association said that newspapers “were fighting tooth and nail” before the pandemic to generate revenue amid declining subscriptions and circulation. So they turned to advertising to shore up their budgets, the trade group said.
“Now this revenue provision — proposed at the eleventh hour, without even a public hearing — would essentially kick the newspaper industry when it’s down, subjecting it to new taxes that will be difficult to calculate and economically devastating to pay, at a time when the District’s newspaper industry is working round the clock to keep our citizens informed about an ongoing public health crisis,” the press association said in a written statement.
On Tuesday, the D.C. Council gave unanimous preliminary approval of its $16.7 billion fiscal 2021 budget, which includes a 3% tax on advertising that is expected to generate $18 million in new revenue for the District.
The 3% tax would be applied to the sale of all advertising and personal data. The most common penalty for failing to pay the tax would be an additional 5% charge on what is owed for every month that it has not paid.
Some lawmakers raised concerns about the tax’s impact on businesses, particularly newspapers. But Council Chairman Phil Mendelson, who proposed the levy, said he thinks “we will see that the impact is not that great.”
Still, D.C. Mayor Muriel Bowser called it “problematic” that the public and small businesses were not given an opportunity to have input on the tax, noting that it was discussed in committee and that Mr. Mendelson made public his budget proposal just 15 hours before the council was to hold a first vote on it.
In a letter to the council, Miss Bowser called it “foolhardy” to raise taxes this year because the chief financial officer predicted the District will face uncertain finances for the next two years.
Hal Schild, president of the American Advertising Federation of Washington, echoed that sentiment in a brief interview with The Times.
“I understand you need to spread the pain of taxes, but is this the right time to start a new tax?” Mr. Schild said.
He pointed out that advertising agencies have been forced to cut staff and close due to the pandemic. He expressed worry that agencies would shrink further if businesses become reluctant to buy advertising because of the added cost of the new tax.
But Mr. Mendelson, at-large Democrat, told The Times that he thinks the tax is “modest” and that it’s good policy to have a broad sales tax base.
“Businesses typically oppose any broadening of a sales tax that apply to them and then they pull up arguments that don’t bear out,” the council chairman said, noting that fitness centers had threatened to leave the District after lawmakers included gym memberships and classes in the sales tax.
The D.C. Chamber of Commerce, which advocates on behalf of local businesses, said it opposes the proposed tax. The chamber has been critical of past measures that would increase costs on city businesses such as requiring paid family leave.
The D.C. Association of Realtors and Destination DC, the city’s tourism association, said they are evaluating how the tax would impact their industries and declined to comment further.
The Associated General Contractors of Metropolitan Washington and the Restaurant Association of Metropolitan Washington declined to comment.