With the government's fiscal year coming to a close on September 30, a number of local tax hikes are set to go into effect on Monday, October 1.
Chief among the tax increases is the general sales tax, which is set to go from 5.75 percent to an even 6 percent, increasing the cost of all goods and services sold inside the District of Columbia.
The alcohol tax -- beer, wine, and liquor sold at package stores -- is also set to increase by half a percent.
If you use ridesharing services like Uber or Lyft, you'll see your fares increase starting in October. The tax on these services will increase from 1 percent to a whopping 6 percent. The D.C. City Council expects to raise an additional $23 million in taxes a year just from these new Uber/Lyft taxes.
Commercial properties valued at more than $5 million will see an increase in their local property taxes and hotels bookings made after October 1 will be charged 14.95 percent (as opposed to the current 14.8 percent). The combination of these two will likely lead to noticeable hotel price increases inside the District.
Perhaps the most contentious new tax, however, is the new levy on cigarettes. Currently, Washington D.C., charges $2.94 of tax on every pack of cigarettes sold. Starting in October, that tax will increase to $4.94, making it one of the highest in the country.
The City Council unanimously approved these new taxes earlier this year in order to fully fund the $174 million a year they have pledged to the Metro.
Experts worry, however, that these new taxes could actually have the opposite effect. Researchers have spent years studying the effect of state cigarette taxes on the market. Without fail, when states raise their cigarette taxes, especially higher than the tobacco taxes neighboring states, smokers tend to purchase their cigarettes out of state. Even with higher taxes, fewer purchases usually result in a decrease in tax revenues.
Currently, the Commonwealth of Virginia levies a 1.5¢ tax on each cigarette sold. That comes out to 30¢ per pack. Towns and cities are allowed to levy their own taxes. Alexandria, VA, charging an additional $1.15 per pack, has the highest cigarette tax in Northern Virginia.
That means that when D.C.'s new cigarette tax goes into effect, smokers will stand to save $34.90 in taxes by crossing over the state line and buying a carton of cigarettes in Alexandria instead of inside the District. Since Alexandria's cigarette tax is the highest, they would save more the farther into Virginia they drive.
This phenomenon certainly isn't limited to tobacco products. The same is true for hotel taxes. Instead of paying an almost 15 percent tax to stay in a hotel in Washington, D.C., many will opt to stay in Alexandria where hotel stays are only taxed at 6.5 percent.
It will take time to see what effects these new taxes will have on the local economy, but local officials are hopeful that they will allow the city to meet its requirements without having to make cuts to any government services.
Have you ever bought anything in Maryland or Virginia because of the lower taxes there? Tell us in the comment section below!
Facebook made us change our passwords this week. Here's why.
