CompTIA Newsroom

State and local governments across the country are facing critical financial impacts from COVID-19. The National Conference of State Legislatures is projecting billions in state revenue losses this year and next. This comes as the need for social services, health care, education and other programs rise. As a result, state and local governments are looking at ways to increase revenues. However, one tax increase being proposed will do more harm than good.

In the District of Columbia, the D.C. Council is proposing an increase on the sales tax base in next year’s budget to include a 3% tax on the sale of or charges for personal information. Tacked on to another broad sales tax increase for advertising services, the charge or sale of personal information creates similar, yet even more troubling problems than the ad tax proposal.

The District of Columbia has one of the highest net tech employment concentrations in the nation, according to the recently released 2020 CompTIA Cyberstates report. This means District residents are more likely to hold a tech job relative to other industry sectors. The District of Columbia also ranks as one of the highest in representation of women in the tech sector workforce. As an essential and prominent industry sector within the District, many companies provide business-to-business, consumer-facing, and government contract services in the District, incorporating a wide variety of products and services that are impacted by this tax proposal, including in the tech sector.

As the district considers increased tax provisions in the middle of this pandemic, the economic burden of this broad new tax will fall on D.C. businesses, as well as vendors that contract with the District and Federal government, hurting a burgeoning technology community that constitutes a vibrant and productive economic force.

Including a 3% tax on gross receipts would create new burdens on the Office of Tax and Revenue (OTR) to manage the complex administration required to properly identify relevant sales of data and ensure that the tax is being remitted correctly. For example, as drafted, it is unclear if the tax would apply solely to the sale of personal information associated with D.C. residents. Should the District decide that any data sold in the district is subject to the tax, OTR will likely have to define its legal authority to collect taxes on out of state residents.

It is also likely that the bill’s general definition of personal information will result in audit disputes between a business and OTR as to whether a sale falls under this new category. If the budget were to pass, D.C. would be able to tax information that “is capable of being associated with” a particular person, whether or not the data is connected to the individual. While the definition includes specific information about a person, it includes items that “can be attributed to marketing” which puts companies in a position of choosing what categories of information to include. Such vague understanding makes compliance challenging and could further impact businesses.

Moreover, many companies provide information-based analytics and decision tools for professional and business customers. By putting this tax into place, the city is essentially increasing the cost of providing data analytics and management services for which the District itself contracts. This would increase the price of future government bids and lower the incentive for businesses to work within D.C.

State, city and local governments are on the front lines of the COVID-19 battle. They’re providing essential services around health care, education, unemployment insurance and emergency responses – all while dealing with budget shortfalls from the pandemic. But in this uncertain time, creating new and untried tax obligations on business would create an increased burden on those businesses who, like local governments, are also facing economic hardship. This bill would further erode the economic recovery efforts of businesses, slow innovation across the technology industry, and, most concerning of all, discourage future business growth in our nation’s capital.