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Back in 2013, the D.C. Council was salivating over a shiny new source of revenue: sales tax from stuff bought on the internet. At the time, however, states and cities could not legally collect sales tax from sellers not physically located within their boundaries.
Still, councilmembers passed legislation that laid out how they would spend the internet sales tax revenue if and when it came pouring in. At the time, the Council determined that some of the funds would go toward Metro and the some would be used to bolster homeless services.
In June, the Supreme Court cleared the way for cities and states to collect internet sales tax, and in July, Ward 2 Councilmember Jack Evans and Council Chairman Phil Mendelson introduced a bill laying out how they want to spend that revenue.
The Evans/Mendo bill would use internet sales tax revenue to lower taxes on commercial properties worth more than $10 million, rather than be split between Metro and a homeless services fund. The Council will hold a second vote on the bill during tomorrow’s legislative meeting. The bill passed 12-1 on an initial vote with At-Large Councilmember Elissa Silverman dissenting.
Now some councilmembers and local advocates are crying foul on this legislative switcheroo.
“In my mind, it’s not in the spirit of that 2013 legislation,” Ward 1 Councilmember Brianne Nadeau of the plan to give a tax break to commercial business owners rather than to support homeless services.
She says she intends to introduce an amendment to Evans’ and Mendelson’s bill tomorrow that will spread the internet sales tax revenue around to several programs, including two affordable housing programs. The amendment also includes a one cent tax break for commercial properties, as opposed to the four cent reduction in Evans’ and Mendelson’s bill, Nadeau tells LL.
Ed Lazere, executive director of the D.C. Fiscal Policy Institute, a left-leaning think tank, sees Evans’ and Mendelson’s bill as a potential missed opportunity to help some of the District’s most vulnerable residents.
“There’s been a mantra within D.C. government for a while to use prosperity to address the challenges that the prosperity is bringing,” says Lazere, who has written on the topic in a Washington Post op-ed. “It’s disappointing to see that in this case, when this new revenue source comes in, the Council is considering choices that would squander that opportunity.”
Lazere challenged Mendelson for the Council chairmanship this year, but lost in the June primary.
Mendelson has previously said that because the Council raised the commercial property taxes earlier this year in order to fund the city’s Metro system, it’s only fair to lower the tax rate back down now that they can use the internet sales tax revenue instead.
“We expected a few years ago the increase in [internet sales tax] revenue from Congressional legislation that was never passed would be somewhere around $60 million, maybe $100 million—substantial,” Mendelson says. “Now we’re looking at about $20 million, and that $20 million will essentially be going to Metro, because it will replace the commercial property tax rate.”
He adds that he does not support Nadeau’s amendment and that the Council has already increased the budget for affordable housing and homeless services above what Mayor Muriel Bowser had requested.
“The government ought not to be about the business of raising taxes unless it absolutely has to, and we very quickly raised taxes in June because were were committed to raising funds for Metro,” Mendelson says. “That’s what the tax increases were about.”