One of the complicating factors for sales tax is the simple fact that it’s hard to predict what will and will not be taxable. One of the current sales tax controversies is on the so-called Yoga Tax being added in Washington, D.C. The new 5.57% tax applies to yoga studios, gyms, and a range of other services. Gym memberships in 22 states are already subject to sales tax. Exercise equipment, including yoga mats, already are taxable in D.C. Still, healthy lifestyle leaders see the Yoga Tax as an attack on fitness. Anything that makes it more difficult for Americans to get in shape, they say, is a problem.
Taxes of all kinds are used to provide incentives for behaviors the government wants to see more of in the citizenry. Healthier, fitter people are less expensive for governments to take care of in the long run, and legislatures generally would agree that they are committed to improving the health of their constituents. Those who oppose the Yoga Tax say that sedentary people will be less likely to take up visiting a gym or taking yoga classes if they have a financial reason to avoid it. “You want to incentivize people to do it,” said one fitness club chain in a mailing to members asking them to help lobby against the tax. “And you don’t incentivize people to do things by levying taxes and making things more expensive.” The tax in question doesn’t really focus on healthy lifestyle choices.
Gyms and yoga studios are affected, but so are tanning salons, carpet cleaners, car washes, storage units, and pool halls. D.C. actually wants to start charging sales tax on services. Traditionally, sales taxes have applied to tangible goods people buy for their own use: bicycles, shoes, briefcases, lamps, and such. However, people now are spending a larger proportion of their income on services. Consider the number of tangible goods that are now bought online, and you have a lot of transactions that don’t generate revenue for the states. For at least the past decade, states have been trying to tax services to consumers and even services to businesses. In many cases, the states have started out with a tax on all services and then chipped away at the taxes as different groups lobbied against the part of the tax that applies to their industry.
The Washington Post gives the example of Maryland’s service tax, which began as a general service tax and was reduced to a tax on computer services. The industry objected to having a service tax that applied only to their services, and that was the end of the Maryland service tax. The Yoga Tax protest has resonated with taxpayers in ways that a protest on car wash taxes might not. Presenting the service tax as the one thing that will keep D.C. residents sedentary might be a successful approach. We shouldn’t expect that the District will just tighten its belt, though; when one tax is cut, another rises to fill the space in the budget.
