District of Columbia businesses will pay 50 percent more personal property taxes this year -- not because the tax rate has gone up, but because the city has changed its tax collection schedule.
Local insurance companies will pay 75 percent more premiums taxes this year for the same reason.
By switching the dates on which the taxes are due, the city council has created a one-time 75.5 windfall in tax collections that enabled it to balance its budget without raising taxes.
Speeding up collections of personal property taxes will cost District businesses $8 million; the added insurance premiums tax collections will amount to $7.5 million. But the new collection schedules are causing cash flow problems for businesses, which will have to pay 1 1/2 years of personal property taxes and 1 3/4 years of insurance premiums taxes in a single year.
The gimmicks were written into the District's fiscal plan a year ago by City Council Chairman Sterling Tucker and Mayor Walter Washington. Buried in the city's complex budget, the changes in collection dates drew little attention at the time and are still virtually unknown to most Washington businesses.
A similar speed-up in the collection of real estate taxes has been proposed, but it would be limited to businesses that pay more than $100,000 a year in property taxes.
Originally included in this year's city budget, it was instead put off until next year, because city fiscal officials discovered they didn't need the windfall to balance this year's budget.
The change in the personal property tax collection schedule alone will cost District businesses $8 million this year.
The district of Columbia personal property tax is paid only by businesses on equipment, machinery and fixtures and other operating materials --has been $2.82 per $100 of assessed valuation for several years. Mayor Washington last Friday recommended that the city council set the same rate for the 1979 tax year, which begins July 1.
Until now, the personal property tax forms were filed by businesses in July, and the tax was paid in two installments, due in September and March.
Starting with fiscal 1979, however, the entire tax will be due in July when the tax return is filed.
That means a District of Columbia business that pays the second half of its 1978 personal property tax this coming March will have to pay its entire 1979 tax only four months later, in July.
"This is going to cause real cash flow problems," said Robert Kaufman, owner of Expedite Service Inc., a printing and mailing firm. A long-time D.C. businessman, Kaufman has frequently has criticized the city's deteriorating business conditions.
Kaufman said his business pays $15,000 a year in personal property taxes, and will have to put out an additional $7,500 because of the change in collection schedules.
"It's going to be darn tough to come up with $15,000 at one time," he said. He predicted that many businesses will have to borrow money to pay the unexpected taxes.
"It's not fair. They're using our money and they haven't earned it," he said.
The change in collection of the tax on insurance premiums will accelerate those collections even more.
The premiums' tax has been paid each March, based on actual premiums collected in the previous year.
But starting this year, the tax will be due in four installments, due in May, July, September and March. The May, July, and September payments will amount to 25 percent of the premiums written in the previous year. Thus, insurance companies will pay the tax on premiums they collected last year in March, then will pay three-quarters of that amount in May, July and September. Next March they will make a final payment amounting to the difference between the three estimated payments and their actual premiums' tax due for the year.
Unlike the personal property tax collection change, which is not widely understood in the business community, the insurance premiums' taxes changes were spelled out in detail to the industry.
Tucker and Maximilian Wallach, D.C. superintendent of insurance, met privately with top insurance executives last year to discuss the proposal. Although some insurance men reportedly objected that the plan would hurt their companies' investment income, there was no public opposition to the plan.
Tucker argued that the one-time switch in collection schedules would enable the city of District to avoid tax increases this year and would improve the city's cash flow.
Businessmen, however, say the schedule will cause a cash-flow crunch this year and will complicate their cash management in future years. Not only is it more difficult to come up with the taxes all at once, they complain, but the July payment deadline comes at a time when many businesses -- particularly retailers -- are in their summer slump.
Paying the taxes at the same time the personal property tax forms are filed will further complicate taxing for some businesses which have trouble filing the reports on time.
All the additional taxes the District collects from juggling the collection dates will fall into the citys budget for fiscal year 1978, which then collect a October. The city will then collect a full-year's taxes during fiscal 1979.