Re: Commuter Taxes -- Taxes Earned in the District by Non-Residents; Plus Congestion Fee

The folks from Greater Greater Washington wrote about this issue a couple of years back, and make a similar case for a congestion charge, but it is not certain that commuters actually get to take that deduction that on their state taxes in states where there is not reciprocity, as there is between DC, MD and VA.  There are numerous court cases that uphold the District's right to impose taxes on businesses and residents, but those also are subject to potential Home Rule Act prohibitions and then actually getting the law through Congress.

However, I'm not so sure the the article is correct in determining that the breadth of the prohibition in the Home Rule Act is so narrow as to permit a congestion tax:

(5) impose any tax on the whole or any portion of the personal income, either directly or at the source thereof, of any individual not a resident of the District (the terms “individual” and “resident” to be understood for the purposes of this paragraph as they are defined in section 4 of title I of the District of Columbia Income and Franchise Tax Act of 1947[, approved July 16, 1947 (61 Stat. 332; D.C. Official Code § 47-1801.04)]);

I have a vague recollection that back in the late 1990s, the City Council was considering the issue of a gross receipts tax on telecom firms doing business in DC, and was nervous about the fact that the companies would pass through those taxes to consumers from out of state.  I found some history about this:

Concern about the Effect of Passing Through Gross Receipts Taxes to Consumers — An Important Note on Statutory and Effective Tax Rates
The D.C. Council, when considering the Clarification Act, debated about the effective 11.1% rate of the gross receipts tax on commercial mobile services. In most cases, businesses subject to gross receipts taxes explicitly pass through the tax to consumers as a line-item charge on consumers' bills. Thus, while the statutory incidence is on the provider, the customer often bears the full cost of the tax. However, because the tax is imposed on the provider, the tax, if collected from customers through a line-item charge, is itself included as revenue for purposes of calculating tax liability. In most cases, this means that the consumer pays an effective tax rate of 11.1% on taxable charges, in essence a tax on a tax. The Council expressed a lack of comfort about the difference between the statutory rate (10%) and the effective rate for most consumers (11.1%). As a result, beginning in FY 1999, the District will allow firms paying gross receipts taxes on commercial mobile services to exclude revenues explicitly collected from consumers to pay the gross receipts tax for purposes of determining tax liability.

So it seems there has been a legal question looming that would also apply to whether a congestion tax would itself be a de facto personal income tax.  There is case law that prevents the District from imposing a business tax on unincorporated businesses who earn income in DC. 

Based on this ruling, the question I would raise is whether taxing someone who decides to drive their car so they could earn personal income in the District violates the above-cited provision in the Home Rule Act on taxing personal income.  I suspect the courts would find that the answer could be yes.  On the other hand, DC is able to impose a gas tax on those in the same boat (car, really), and that is permissible even if the person uses the car to earn income in the City.

Steve Seelig 

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