Primary Concerns:
Much of the present concern about taxes in the District of Columbia, as it is in most areas, is based on trying to stay ahead of rising economic conditions that have caused much instability in state and city governments all across the United States. One of the recent measures that District government has tried to implement to offset this measure has been a beverage tax that would call for a $0.01 tax per ounce on all soft drinks sold in the District. This has led to a well funded opposition on the part of the beverage industry to combat the potential passing of this law.
Historically, though, many of the concerns of those living in the Washington, DC area have been complaints over the inconsistency of taxation. Taxes are changed with great regularity in the District, seemingly with every change in district government, and it becomes hard for many to try to keep adhering to the sudden changes in income and property tax requirements.
At a federal level, because the District has never had a say in federal taxation (because it is not located in a state it has no Congressional representation with voting power). Thus, there have historically been calls for city and district taxes to be reigned in to account for this, especially in its dependence on regressive taxes, such as high sales taxes on particular service that are designed to take advantage of tourism and travel to the nation’s capital. It is also felt that the district’s corporate tax policies discourage small business development in that they are too high.
However, with District incomes falling short in terms of revenue needed to maintain government, it is likely that District residents will likely see more and higher taxes in the future, not less and fewer ones; a sign of the precarious state of city budgetary concerns going forward.
Income Taxes:
Individuals who reside full or part time in Washington, DC are required to pay income taxes, however the manner that this is broken down is more complicated than it is in most of the fifty states. One of the key elements is the concept of permanent residency, since many individuals who work in the government sector of Washington, DC and are sometimes required to travel throughout the country in the world.
Therefore, if Washington, DC is listed as permanent resident, then an individual is required to file a District of Columbia tax return. However, even if the individual does NOT list Washington, D.C. as a permanent residence, but they resided in the District for 183 days or more of the year, then they are still required to file a District tax return.
Military personnel and their spouses who list Washington, DC as their residence while serving are also required to file District tax returns.
Individual income tax rates are based on a progressive rate, with staggered levels of flat tax and rates. The first $10,000 of an individual’s income is 4%, while anything between $10,000 and $40,000 is $400 plus 6% of everything above the base of $10,000.
Therefore, if an individual’s gross income is $15,000, the first $10,000 will be 4%, while the remaining $5,000 requires $400 plus 6%, or $430 when calculated. Anything above $40,000 is $2,200 dollars plus 8.5% above the base of $40,000.
Social security income is excluded from this, and there is a $3000 exclusion on military retired pay, pension income, and annuities from either the District or federal government.
Corporate Income Taxes:
Corporate taxes are classified under two categories in Washington, DC: corporate and unincorporated. Corporate businesses are corporations that are either based in the District or have a significant nexus in the District to become taxable, generally from income. The tax rate for these companies is 9.975% with a minimum tax of $100.
With unincorporated businesses the rate and minimum are identical, but the unincorporated businesses have more precise income specifications to be eligible for taxation. An unincorporated business must have gross receipts over $12,000, though there is a salary allowance for the owner 30%, as well as a $5000 exemption before arriving at the taxable income.
Property Tax:
Property taxes in Washington, DC are determined on the district level and based on an amount equivalent of every $100 of an assessed property’s worth. Property in the District is relegated into three classes: Class 1 is residential property, Class 2 is commercial and/or industrial property, and Class 3 is vacant property.
At present the rate for Class 1 property per $100 is $0.85, or in language commonly used in other states, 0.85 mills. Therefore a property worth $10,000 would have $85 in property taxes under this system.
Class 2 property assessed at a value of $3 million dollars or less, the tax rate is $1.65 per $100. Property valued at more than $3 million will have a split rate, with the first $3 million having a tax rate of $1.65 per $100, and anything above that base being taxed at a rate $1.85 per $100. Therefore, if a business property is worth $5 million, the taxes on the first $3 million would be $49,500, while on the next $2 million it would be an $37,000.
Class 3 property has an extremely high tax rate of $10 per $100.
About 30% of all property tax is exempt from property tax collection because it is owned by the federal government, foreign embassies, or diplomatic
offices.
Sales Taxes:
Sales and use tax in Washington, DC has a standard tax rate of 6%, with unprepared foods, prescription and non prescription drugs, and residential utilities being exempt. There are additional sales tax on additional items, many specifically related to tourism and travel (two important industries in Washington, DC). Restaurant meals and take out meals as well as rental cards have a 10% sales tax. Commercial parking has 12% tax rate, and hotel or motel lodging has a rate of 14.5%. Alcohol sold for independent consumption has a 9% tax rate.
Introduction
The United States of America is a country that is well known for its collection of taxes. Taxation is an essential part of government revenue, and it forms the basis for maintaining the economy and ensuring infrastructure development. Like all the other 50 states, the District of Columbia collects taxes too. DC is the capital of the United States, and it is a unique city as it doesn’t belong to any state but is under the direct jurisdiction of Congress. In this article, we will delve into the taxation system in the District of Columbia, its history, types of taxes, rates, and who pays them.
History of Taxation in the District of Columbia
The tax system in DC has a long history dating back to 1790 when Congress passed the first Revenue Act, which established a system of taxation in Washington, D.C. It was formed to support the newly formed federal government, and the tax was aimed at collecting revenue from a variety of sources such as distilled spirits, refined sugar, snuff, and carriages.
While the original tax system was basic, the creation of the District of Columbia in 1801 brought about new tax laws. In 1802, Congress passed the Charter of the City of Washington, which established the first municipal government, and with it came new tax laws. These laws formalized the structure of the tax system, and the municipality started collecting taxes from property owners in the city.
By 1847, tax rates in DC increased significantly as the city grew, and this led to a lot of public outcry. In response, Congress established a tax code that included a new method of assessing real estate taxes based on 60% of a property’s assessed value, which became known as the “60% formula.” This formula was in use until 1981 when it was changed to the current system, which we shall discuss later in this article.
Types of Taxes in the District of Columbia
The District of Columbia taxes its residents through various methods, including property taxes, sales taxes, income taxes, and estate taxes.
Property Taxes
The District of Columbia has one of the highest property tax rates in the country. Property taxes in DC are 0.85% of the assessed value of the property. The assessment is conducted by the Office of Tax and Revenue, which values the property to determine its market value. This value is then multiplied by the tax rate to determine the tax liability.
Homeowners who occupy their properties as their primary residences are eligible for the Homestead Deduction, which reduces the taxable value of a property by $75,700. Also, elderly residents (65 years and older) and residents with disabilities who meet certain income requirements may be eligible for a lower tax rate under the Senior Citizen and Disabled Property Tax Relief Program.
Sales Taxes
The District of Columbia collects sales taxes on the sale of goods and services. The sales tax rate is 6%, with an additional 0.25% being charged for the Metropolitan Area Transit Authority.
Some items such as groceries meant for home consumption, prescription drugs, and services provided by nonprofits are exempt from sales tax. However, luxury goods such as boats, jewelry, and fur are taxed at 10.25%.
Income Taxes
In DC, income taxes are collected at a progressive rate ranging from 4% to 8.95%. Residents of the District are taxed on their worldwide income, while non-residents are only taxed on the income earned within the District of Columbia. The tax rate depends on the taxpayer’s income level, with lower-income earners paying a lower tax rate and high-income earners being charged a higher tax rate.
The District of Columbia also has a separate taxation system for unincorporated businesses and sole proprietors. This system is called the Business and Occupation Tax, and the tax rates are set by the DC Council.
Estate Taxes
DC also levies estate taxes when a resident passes away, and their estate is transferred to their heirs. The estate tax rate in the District of Columbia ranges from 8% to 16% on estates worth $5.76 million or more. Estates valued at $4 million and below are exempt from estate taxes.
Who Pays Taxes in the District of Columbia?
All DC residents are required to pay taxes on their income, property, and sales made within the district. Non-residents, on the other hand, are only taxed on the income they earn within the District of Columbia.
Residents who own property in the district are expected to pay property taxes, and the same goes for non-residents who own property that is generating income within the district.
Sales taxes are charged on all goods and services within DC’s jurisdiction, including those sold through online marketplaces such as Amazon. However, some items are exempt from sales tax, such as food meant for home consumption and prescription drugs.
Conclusion
The District of Columbia is unique in its taxing system as it is not a state but operates under the direct jurisdiction of Congress. Taxes play a crucial role in the District’s revenue generation and serve as the cornerstone of infrastructure development and economic growth.
The types of taxes in DC include property taxes, sales taxes, income taxes, and estate taxes. Residents within the District are required to pay taxes on their income, property, and sales made within the region. Non-residents are only taxed on their income earned within the district.
In conclusion, the taxation system in the District of Columbia has evolved over the years, and its revenue generation has been essential in the development of the city’s infrastructure. As the city continues to expand, the tax system will undoubtedly undergo further changes to match the new demands of a rapidly growing city.
