The 20 member District Tax Commission has yet to write its final recommendations for unsnarling Washington's taxing red tape, but businessmen already are suspicious that revenue, not reform, will be the main result.
Extending the 5 per cent sales tax to services, setting separate tax rates for business and residential property, ending property tax exemptions for some institutions, and revising the taxing of utilities and financial institutions are among the proposals the commission is considering.
The token businessman on the commission, shoe retailer Frank Rich, insists it is unfair and inappropriate to criticize a tax plan that still is being drafted. He fears the year-long effort will be undercut by complaints before it is completed.
The Tax Commission's mandate to rewrite the city's tax program expires at the end of this month, and after another meeting this week, the final recommendations are expected to be ready by mid-October.
Ready or not, the criticism is coming. The washington Metropolitan Boiard of Trade is preparing position papers taking issue with two of the preliminary suggestions. Pepco and Washington Gas Light are dubious about the "reforms" in utility taxes. Washington bank executives say they still will be at a disadvantage in competing with suburban financial institutions.
The strongest criticism is expected to fous on the proposal to create what is euphamastically called "a classified property tax system." There would be two classes of property - residential and commercial - with the commercial rate no more than 10 per cent above the residential rate.
Critics raise "foot-in-the-door arguments" on two grounds. Once two different types of property start paying two different tax rates, that concept can be expanded into dozens of different tax rates, they complain. Anticipating that complaint, the tax commission insists a two-class system is all that is desirable.
Similarly, a 10 per cent differential between residential and commercial property tax rates on escalate into a bigger bite from business. Rather than weeding out inequities, the classified property tax would plant them, one Board of Trade executive lamented this week.
The Tax Commission's working papers note that commercial property has been paying a declining share of the District's taxes because residential property values are climbing much faster than cmmercial values. The two-rate system is supposed to maintain that balance.
Other advantages claimed for the dual-rate system are reducing the property tax burden on low-income home owners, making non-residentials - who own much commercial property - pay a greater share of local government costs and stimulating the housing market.
The Board of Trade also will criticize the suggestion that private libraries, foundations and other tax-exempt institutions begin paying property taxes.Charities carry enough of society's burdens that they ought not to be asked to pay taxes as well, it is argued.
Revenue rather than reform seems to be behind the property tax changes, one Board of Trade executive said, contending the same is true of the proposal to extend the 5 per cent sales tax to such services.
Taxing laundry and dry cleanings, barber and beauty services, photography and amusements would raise $6.5 million a year, a commission document says.
Saying the District's sales tax is "inherently regressive" and ought not to be increased, the commission none the less suggests extending its base to services.
At the same time, the commission wants to eliminate the sales tax on utility receipts and raise the gross receipts tax on utilities from 6 to 11 per cent, in effect shifting the incidence of the tax from the consumer to the utility.
If all utility customers paid the tax, where it is collected wouldn't make much difference. But governments and tax-exempt bodies don't pay a sales tax on their light bills. That means a large aspect of the utilities business escapes the impact of a sales tax, the commission contends, and that loophole would be ended by switching to a gross receipts tax.
"We're opposed to it," a Pepco official said yesterday. "We have to be sensitive to anything that would increase the cost of service."
Washington Gas Light's spokesman agreed, saying that taking the 5 per cent tax off the gas bill as a separate item and including it in rates would be hiding the tax from consumers.
The gross receipts tax is an even tougher issue for District banks, which long have contended htat it makes it harder for them to compete with suburban banks that pay no such tax.
Heeding the complaints, the tax commission suggests replacing it with a net income tax on financial institutions and a personal property tax. But to protect the District government's revenus, the new tax would phase in over the next five years. In the interim, banks would have to figure their tax both ways and pay the old tax if it were higher than the new one.
Bankers can't very well complain about getting rid of a tax they're criticized for years, but the phase-in "means we will be paying no less money for the next five years," said American Security Bank's vice chairman. John Sumter.
That will keep District banks at a disadvantage during a period when suburban institutions are moving aggressively into their territory by offering lower loan rates, Sumter said.
Still undetermined is the tax rate banks would pay under such a plan.
A tax commission report notes that decision has been held up because "there is some strong feeling in the D.C. community - and on the part of some commissioners - that as a group local banks and S&Ls are not making a good-faith effort to help meet the investment needs of the city's low- and moderate-income residents."
One suggestion is to exempt from the tax banks and savings and loans which meet city government standards for making mortgages loans and other investments in the city.