D.C. starts taxing more services, like yoga studios

Kate Davidson Jun 24, 2014

D.C. starts taxing more services, like yoga studios

Kate Davidson Jun 24, 2014

The following story was updated after the D.C. Council approved the city’s new budget today. It also voted to start charging sales tax on gyms, yoga studios, and other services.

Yogis in Washington D.C. are taking deep breaths. Very deep breaths.

Partly because that’s what they always do. And partly because the D.C. Council gave final approval to a tax proposal that has yoga teachers and fitness buffs worried.

It also highlights the changing nature of the sales tax. The council expanded the sales tax on the things we buy to include more services like gyms and yoga studios.

Debra Mishalove owns Flow Yoga Center (where, full disclosure, this reporter used to cat/cow).

“I have people who come to my studio, they’re dealing with symptoms from MS,” Mishalove says, referring to muscular sclerosis. “I have people who are dealing with depression, the pills weren’t working the yoga is. I have people who are coming for weight management, for eating disorders.”

The list goes on.

“I hate to see anybody have to pay any more than they do right now to access wellness.”

Opponents have dubbed this a wellness or fitness tax. But the tax expansion will also cover tanning salons, carpet cleaners, and car washes — services that weren’t exactly mainstream when the sales tax began in the 1930s.

Back then, we spent most of our personal consumption dollars on stuff — physical goods — and that’s the base of the sales tax. But now, the service sector accounts for two-thirds of what we buy.

“If you don’t tax services in the long run, you don’t have a sales tax. End of story,” says Matt Gardner, executive director of the Institute on Taxation and Economic Policy. He says states should tax more services, ideally at a lower rate. But broadening the tax base isn’t easy, he says.

“Nobody really knew that Ohio tattoo parlors had a lobby in 2003. They found out really fast that they actually did,” he says. “In Maryland in 2007, I certainly don’t think lawmakers dreamed that landscapers would be surrounding the state capitol, but they did.”

What’s at stake is revenue for education, health care, transportation.

A group of tax wonks called the Federation of Tax Administrators compiled a list of 183 services that conceivably could be subject to sales tax — everything from automotive rustproofing to taxidermy. D.C. currently taxes about 75 of them.

D.C.’s new sales tax expansion is part of a larger budget and tax proposal that reduces business and personal income taxes.

Kim Rueben, a commissioner on DC’s Tax Revision Commission, says the idea is to tax services that aren’t that portable. For example, you’re not going to remove your wall-to-wall carpet to get it cleaned. That has to happen in your house.

Likewise, “If you live and work in D.C., it’s going to be really tough for you to decide that you’re going to go to a gym in Virginia or Maryland instead,” she says.

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