United States

District of Columbia mayor unveils 2018 budget—tax on digital products

Proposal to tax digital products described as ‘clarification’

TAX ALERT  | 

The District of Columbia Mayor Muriel Bowser recently unveiled her fiscal year 2018 budget entitled DC Values in Action. With few surprises, one new tax provision stood out – a proposal to impose the sales and use tax on digital products, including audio, video and electronic books, whether downloaded individually or streamed.

On April 6, 2017, the district’s Chief Financial Officer Jeffrey DeWitt provided testimony clarifying the digital products tax proposal. Mr. DeWitt stated that the proposal was not a ‘new tax.’ Instead, Mr. DeWitt explained that it was intended to ‘clarify the existing administrative authority’ regarding the taxation of those digital products. The district does not currently define digital products for purposes of the sales and use tax.

The proposal is estimated to bring in an additional $1.8 million of revenue in fiscal year 2018. The district would follow Pennsylvania, which most recently enacted a similar tax effective Aug. 1, 2016.

Additional budget proposals

DC Values in Action also includes the final round of tax cuts recommended by the D.C. Tax Revision Commission originally enacted in 2014, and reducing the business franchise tax rate from 9.0 percent to 8.75 percent.

Additional proposals include increasing the district’s personal exemption from $1,775 to $4,000 to conform to the federal level and increasing the exemption amounts for single, head of household and married filers to $6,100, $8,950 and $12,200, respectively.

Finally, other major revenue-generating proposals include a D.C. Office of Tax and Revenue compliance initiative to identify bank accounts of delinquent taxpayers for collection and a new fee on hotels to fund emergency 911 and non-emergency 311 systems.

The D.C. Council will hold budget oversight hearings over the next few weeks. The council is expected to vote on the budget by June.

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