Not a Lexis Advance subscriber? Try it out for free.

Tax Law

DC Council Poised for Budget Vote Tomorrow that Relies on the Expansion of Sales Tax to Sales of Advertising Services and Personal Information

In what could best be described as a “tax on talking,” the DC Council will vote on a budget tomorrow that relies on revenue from expanding the sales tax to advertising services and personal information. The rate is generally 3%, but could rise to 7.25% for certain taxpayers.

The legislation quickly moved through the Council with virtually no debate. As a result, taxpayers and policymakers struggle to understand the exact scope of the new tax. Given the broad definition of advertising services, the tax could apply to a broad swath of services. Examples of new taxable services subject to a 3% rate include traditional print and broadcast advertising; banner ads; marketing fees paid to food delivery platforms; marketing and click fees paid to real estate platforms; sign spinners; podcast product promotions; promoted search results; Instagram influencers; YouTube vloggers; sponsorships on sports team jerseys; naming rights for stadiums and arenas; sponsorships for non-profit organizations; and advertising at local conventions. Advertising at the Capital One Arena and Nationals Park could be subject to not just the 3% advertising service sales tax, but additionally the 4.25% arena-specific sales tax. Complicating the question of what is taxed is the absence of any language that sources advertising services that occur in multiple jurisdictions. Would DC tax every ad that is seen by a DC resident?

How the tax will apply to the sale of personal information is equally uncertain. The 3% tax applies to any “person” that sells personal information. Person includes not only individuals, but also corporations and other entities. The definition of personal information includes a list of examples of personal information and can be as simple as charging another person a fee for someone’s name. In the modern economy, there are numerous instances where this type of information exchange occurs on a routine basis. For example, making a restaurant reservation on OpenTable involves the reservation system transmitting personal information to a restaurant for a fee. Should restaurants expect to pay sales tax on their fees from OpenTable?

Despite many concerns with the imposition of the new taxes, the Council seems determined to enact a budget that relies on this new revenue. A final vote on the taxes will occur next Tuesday, after which it will await the Mayor’s signature and a congressional review period.