The Washington Blade and Tagg magazine, the local publication that covers issues of interest to lesbians of color, have joined the Washington Informer, one of D.C.’s two African-American newspapers, in calling on the D.C. Council to drop a 3 percent sales tax on advertising that it approved in a preliminary vote on July 7.
The Council included the advertising tax provision, introduced by Council Chair Phil Mendelson (D-At-Large), as part of the city’s Fiscal Year 2021 budget. The Council is scheduled to hold a final vote on the budget that includes the advertising tax provision on July 28.
Mendelson said the tax is projected to raise $18 million in revenue annually for the city at a time when the city is struggling to maintain services for those in need during a pandemic.
“As local business owners, we understand as well as anyone the grave impact coronavirus is having on commerce and tax revenues and the need for the city to find new sources of revenue,” the Blade and Tagg said in a joint statement.
“But this misguided measure will only further damage the local economy by taxing businesses that are already strained,” the statement says. “An additional three percent tax on our primary source of revenue will force some outlets to lay off additional staff and others to shutter entirely,” it says, adding, “We are not aware of a tax like this on media outlets anywhere else.”
In an editorial published on July 8, one day after the Council gave preliminary approval for the ad tax, the Washington Informer called on the Council to “reconsider this measure and remove it from the city’s budget.”
The Informer’s editorial says the newspaper was “disheartened by Chairman Mendelson’s proposal to create a 3 percent tax on advertising – the life-blood of media – and the Council’s unanimous approval. While other jurisdictions across the country have proposed similar measures, nowhere does a tax on advertising exist. And to do so without public input is questionable.”
The editorial by the Informer says it appreciates expressions of concern raised by some Council members that an ad tax could have a detrimental impact on media organizations “holding on by a thread,” including minority publications.
“The term ‘Black Lives Matter’ applies to the Black Press that has never received its fair share of ad revenue comparable to what Black consumers spend,” the editorial states. “The last thing we need now is a tax that will diminish what few dollars we rely on to stay alive.”
Mendelson told the Blade in a phone interview on Monday that he and fellow Council members do not believe a 3 percent sales tax on advertising, which will be paid by the advertisers, not the publications that display the ads, will have a significant negative impact on revenue for the publications.
“I recognize that businesses fear that a sales tax will depress revenues,” Mendelson said. “I think that effect is overstated. And I recall that a couple of years ago health clubs were furious when we expanded the sales tax to include health club memberships,” he said, noting that tax was placed at 6 percent.
“They made it clear in no uncertain terms that they were going to lose customers and close outlets in the District,” Mendelson said. “And the exact opposite happened.”
He told the Blade that the 3 percent sales tax proposed for advertising is half the amount of the city’s standard 6 percent sales tax rate.
Mendelson said he understands that newspapers, which have not had a sales tax on ads before, may be concerned about administrative costs for having to collect the tax and dispense it to the city. He said businesses have been doing that for decades and the administrative costs should not be significant.
He said he did not consult with media outlets such as small local publications before introducing the ad tax proposal.
Blade Publisher Lynne Brown criticized the proposal.
“A tax stifles free trade of ideas and goods,” Brown said. “While I understand the City Council’s need for cash, taxing the media industry into silence, as this is a speech issue too, is simply a bad idea.”
Brown continued, “Covid challenges exist. My business partners and I approached the challenge not with increased fees, but with reduced spending. We are taxed enough in this city. This is a bad idea, a wrong direction. D.C. should not be the first municipality to tax advertising.”
In their joint statement, which they sent to all 13 Council members, including Mendelson, the Blade and Tagg magazine said the advertising tax would have a detrimental impact on local newspapers.
“In addition, this tax will hit outlets that serve underrepresented communities much harder, including outlets that serve the LGBTQ community and communities of color,” it says.
“Our businesses are already stressed to the limit,” the statement continues. “All of our arts and entertainment related advertising disappeared overnight in the aftermath of coronavirus restrictions. Forcing us to pass along a three percent rate increase at this vulnerable time will lead to further advertising cancellations,” the statement says.
“We know that everyone’s goal is for D.C. to flourish, however, taxing businesses that have already seen a huge decrease in revenue is not the answer,” the statement says. “We urge you to reconsider this measure and remove it from the city’s budget.”
D.C. Mayor Muriel Bowser has also expressed concern over the proposed advertising tax, saying it could create an additional burden on struggling community newspapers. But Bowser did not say she would veto the massive, multi-billion dollar budget bill that the ad tax is a part of.
Also expressing strong opposition to the ad tax is the Association of National Advertisers, which issued a statement urging the D.C. Council not to pass such a tax.
“Advertising taxes suppress consumer demand, slow job growth, and ultimately cause products and services to become more expensive for consumers,” ANA Executive Vice President Dan Jaffe said in a statement. “A tax on advertising is always counterproductive but would be even more damaging during the COVID pandemic and the accompanying severe economic downturn,” he said.
“Clearly, this tax could be backbreaking for small businesses and community publications,” he concluded.
The Maryland-Delaware-D.C. Press Association also weighed in, assailing the new tax.
“This revenue provision — proposed at the 11th hour, without even a public hearing — would essentially kick the newspaper industry when it’s down, subjecting it to new taxes that will be difficult to calculate and economically devastating to pay, at a time when the District’s newspaper industry is working round the clock to keep our citizens informed about an ongoing public health crisis,” the association said in a statement.