Days after the D.C. Council gave its initial nod to a broad package of tax changes — one that could leave $225 million in taxpayers’ pockets over the next five years — objections to some of the proposed revisions have mounted.
Targeted increases that were among the recommendations of a blue-ribbon tax commission last year have stirred two disparate groups to action: fitness buffs and users of high-end tobacco, both of which say lawmakers acted rashly in budget legislation voted on Wednesday.
“It doesn’t really make a lot of sense,” said David von Storch, who owns a chain of health clubs in the District. “D.C. shouldn’t be taxing residents who want to be living healthier lives.”
Starting Jan. 1., gyms, tanning salons and yoga studios would be among a number of businesses newly subject to the city’s 5.75 percent sales tax under the new budget.
Shortly after Wednesday’s initial vote, von Storch’s Vida Fitness alerted its members to the “fitness tax” and urged them to contact lawmakers with their concerns. A “Say NO to DC Gym Tax” Facebook group had about 600 members Tuesday afternoon and an online petition urging the council to reverse course hit more than 1,330 signatures.
Mayor Vincent C. Gray (D) did not include the sales-tax expansion in the draft budget he sent to the council in April, and the measure was made public less than a day before Wednesday’s initial vote.
Council Chairman Phil Mendelson (D) defended the move to expand the sales tax — not only to health clubs but also to storage facilities, carpet cleaning, car washes and water deliveries — as part of a holistic effort to improve the city’s tax policy.
All but the very richest residents would see a cut of potentially hundreds of dollars to their yearly income-tax bills by 2019, when the changes would be completely phased in.
“The increase in the sales tax, if one has a gym membership, is insignificant to the reduction in the tax burden,” Mendelson said Monday.
Mendelson said he received some letters and e-mails from residents objecting to what has been termed the “yoga tax,” but when asked at a Monday news conference if there was any chance the council might omit it before a final budget vote, he said, “Probably not.”
The D.C. Tax Revision Commission, which spent a year and a half studying taxation in the District, was directed by the council to, among other things, find ways to broaden the city’s tax base. Expanding the sales tax, it concluded, would offset a long-term consumer shift from spending on goods toward spending on services.
But the council has regularly used targeted taxes to encourage or discourage particular behaviors — raising cigarette taxes, for example, and applying sales tax to sweetened beverages but not other foodstuffs.
Graham King, the owner of Roam Fitness in Glover Park who has organized opposition to the tax increase, said he feared the tax would discourage poorer residents from working out. “The yuppie will still do yoga,” he said. “It’s the person on the fringe who maybe won’t be able to afford to go to a gym.”
King and other fitness advocates protested the tax increase by exercising outside the John A. Wilson Building on Tuesday afternoon.
Meanwhile, a wholly different group — owners and patrons of high-end tobacco shops — have also spent recent days alerting lawmakers to what they say could be devastating tax changes. Under the bill, some feared that loose tobacco for pipe smoking and “premium cigars” — those costing more than $2 apiece — might be subject to cigarette-like levels of taxation in a bid to treat all tobacco products similarly.
Georgetown Tobacco said such a change would “put . . . tobacconists in the city out of business.”
Walter Gorski, the shop’s vice president, said a cigar tax hike would be particularly harmful. Cigar sales account for the bulk of the store’s sales, and its customer base could readily shift its business to Virginia establishments.
“It would drive a $5 cigar to $9 retail, and we think that would cause a lot of flight of customers,” he said. “With the rents here, it’s not like we have the room to lose that much business.”
Mendelson’s budget director said Monday that any changes will not affect premium cigars but that pipe tobacco will be taxed at a significantly higher rate. The changes to tobacco taxes are expected to raise $7 million next fiscal year.
But Gorski said he doubted much additional revenue would materialize. Instead, he said, pipe smokers would go to Virginia or turn to mail-order businesses that don’t remit tax to the District.
Mendelson said it would be difficult to make major changes to the package already passed before a second, and final, vote set for June 17.
“The fact is, it’s part of a package, and all of that fits within a budget that is balanced, so to undo a particular tax would have a fiscal impact,” he said.