The Wilson Building
The Wilson Building Credit: Darrow Montgomery

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Your Uber rides could be more expensive come October. Users of ride-hailing services would pay an extra 60 cents on a $10 ride due to an increased tax that D.C. would levy on those companies under a pending $14.5 billion budget plan for fiscal year 2019. The D.C. Council is expected to approve the plan—which includes both local and federal funds—on Tuesday morning in the first of two votes.

The proposed budget makes significant long-term investments in public transportation and the arts via dedicated funding sources. It also establishes a new tax credit for small retail businesses that face rising rents and invests $15.6 million more than what Mayor Muriel Bowser had pitched in her budget plan, released in March, to fund subsidized housing for homeless residents, survivors of domestic violence, and extremely low-income households, largely through vouchers.

But the tax changes in the Council’s proposal may upset ride-hailing companies. Currently, they pay 1 percent of the gross receipts of all their trips that commence in the District. To finance D.C.’s commitment to fund Metro with $178.5 million annually, Bowser’s plan would have raised this tax rate to 4.75 percent on the companies’ gross receipts, or a 47 cents charge passed on to riders for a $10 trip. Uber, Lyft, and Via pushed back against such a potential increase.

Earlier this month, Ward 2 Councilmember Jack Evans‘ committee on finance and revenue sought to exempt shared rides from a higher tax rate at the urging of ride-hailing companies. But in the budget proposal that Council Chairman Phil Mendelson‘s committee of the whole released on Monday night—one that consolidated the recommendations of the Council’s other committees—a 6 percent tax on the companies’ gross receipts would apply to all ride-hailing trips.

“Ride-hailing services such as Uber and Lyft contribute to traffic congestion, add wear and tear to the District’s roads, and there is evidence that they draw people away from public transit,” Mendelson’s committee wrote in its report on the fiscal year 2019 local budget bill. “The Council believes that such services should be taxed at the same rate as other services.”

The budget bill must have support from a majority of the 13 councilmembers to advance as-is to a second and final vote in the coming weeks. The Council is scheduled to discuss the proposed budget starting at 11 a.m. Tuesday before voting on it.

The plan also makes small changes to commercial property tax rates to help finance Metro and a new “enterprise fund” for the arts. All properties assessed at more than $5 million would be taxed at $1.89 per $100 of assessed value. Of this, 3 cents per $100 of assessed value would support Metro and 1 cent per $100 of assessed value would enter a new “Commission on the Arts and Humanities and the Creative Economy Enterprise Fund.”

That fund would also receive .30 percent, or $30 million, of the general sales tax as a dedicated funding stream next fiscal year. Commercial properties assessed at less than $5 million would be taxed at $1.65 per $100 of assessed value, the current standard rate.

Credit: D.C. Council

“Being in close proximity to a Metro station or a public transportation hub can significantly increase a commercial property’s value, and the Council therefore believes that it is appropriate for commercial property owners to help shoulder the burden of funding [the Washington Metropolitan Area Transit Authority],” the committee of the whole explains in the budget report.

To fund Metro, the proposal would also increase the sales tax rate on hotels to 14.95 percent from 14.8 percent now (this is less than the 15.05 percent that Bowser had floated), but keeps the restaurant sales tax at 10 percent.

Additionally for this purpose, the Council is set to raise the general sales tax from 5.75 percent to 6 percent, the sales tax on renting or leasing a car from 9 percent to 10.25 percent, and the sales tax on alcohol from 9 percent to 10.25 percent. 

In a prospective change that would effectively reverse a major estate-tax break Congress achieved through recent federal tax reform, the Council is proposing to “decouple” the District from the federal estate-tax exemption limit, which jumped to $11.2 million from $5.6 million for individuals and to $22 million from $10.9 million for married couples under congressional action. The change would preserve about $6.5 million in expected revenue next fiscal year that could fund social services.

The Council touted two other differences between its plan and Bowser’s. First, a new tax credit would allow small retailers—defined as those who have less than $2.5 million in gross revenue—to decrease their business tax liability by up to $5,000 annually. (The credit would be applied against property taxes for businesses that own the properties they operate in and against yearly lease costs for businesses that rent properties.) The committee of the whole says this would let an estimated 4,400 small retail businesses “lower or eliminate their minimum franchise tax bill or receive a tax rebate.”

Second, the Council proposes investing an additional $15.6 million in housing programs, which it says would produce “957 units of permanent and transitional housing vouchers and subsidies.” In part, the plan would move $6.5 million from D.C.’s rapid rehousing program to other rental programs. In recent years, advocates for low-income families have criticized rapid rehousing subsidies, which usually last for 12 months, for not doing enough to stabilize families in D.C.’s high-cost market.

As for capital investments, the Council’s budget recommends moving up the construction of a new hospital at the St. Elizabeths East Campus by one year. The budget also recommends $15 million total in renovations for the University of the District of Columbia and $1.5 million for the District to acquire a Metro-owned parcel of land in Columbia Heights that people use as a dog park, but that Metro has indicated it may sell.