These are the things that make a family-friendly and business- friendly city — and that allow the District to continue its phenomenal renaissance. Taking a cuts-only approach would have put these important public investments at risk.
Moreover, a closer look at the business tax changes show that they generally make policy sense and are designed to protect small businesses, many of which should see no tax changes.
Three business tax changes are worth noting. First, the minimum income tax, which has been $100 for nearly three decades, will go to $250. That catches up for ground lost to inflation and is important, given that a majority of D.C. businesses pay just the minimum. The minimum will rise to $1,000 for businesses with more than $1 million in receipts, because it makes sense to set a higher minimum for Giant and Safeway than for the corner grocery store.
Second, the budget adjusts the business income apportionment formula to put greater weight on a company’s sales in the District than on its D.C. property or personnel. This will increase taxes for companies that sell a lot here but have a small employment or physical presence, while lowering taxes for businesses located here that sell a lot outside of the city. That should protect many local businesses.
Third, the budget implements “combined reporting,” viewed by tax experts as the best way to prevent businesses from sheltering profits. Consider this example: Toys R Us licenses its logo in Delaware and requires stores to pay a royalty to this subsidiary. This sucks profits out of each store and into Delaware, which has no corporate income tax. While the District has closed this shelter, combined reporting ends all income-shifting shell games by requiring businesses to report income from all subsidiaries together.
The companies that pay more under combined reporting tend to be large multi-state corporations, which means that Frager’s or Brookland Hardware will be on a level playing field, tax-wise, with Home Depot. And combined reporting raises needed tax collections.
These are not blanket business tax increases. They focus on tax compliance and making sure that multi-state corporations pay their fair share of taxes to the District. In fact, small businesses that now pay more than $250 in D.C. income taxes won’t see their tax bill change at all. And with the District’s economy recovering solidly, the District should be able to pay its bills without further tax increases.
The District’s economy is vibrant, with an envious low office vacancy rate, a huge amount of foreign investment and growing neighborhoods that are helping businesses flourish. Keeping the city’s momentum moving forward should be everyone’s top priority. That requires public investments in education, public safety, infrastructure and more. Reasonable increases in taxes to support these investments are better than a simple focus on keeping taxes down.
Ed Lazere is executive director of the D.C. Fiscal Policy Institute, a nonprofit organization that engages in research and public education on the fiscal and economic health of the District of Columbia.
Loading...
Comments