The bag tax recently instituted in the District of Columbia is a daily annoyance for District residents and a burden on the poor. It was sold as a way to fill the Anacostia River Cleanup and Protection Fund, and it will move some money to that project, but what’s interesting about it is how exquisitely designed it is to ensure that the incidence of the tax falls on consumers, not on businesses. Indeed, the bag tax may add to businesses’ profits.
Below I’ve copied the language in the D.C. code that establishes the tax. (It’s referred to as a “fee.” Nobody’s buying that.)
It’s not a simple five-cent tax on bags. It requires the consumer to hand over the five cents, and makes it illegal for retailers to absorb the tax. If a sandwich shop wanted to cover the tax and just give you a bag, doing that would break the law.
For every five cents it collects from customers, businesses get to keep a penny straight away. The cost of bagging products goes down for them by a penny as it goes up for you five cents.
If a store wants to set up a refund system for returned bags (paying five cents or more), it can keep another penny. Your “green friendly” store can offer bag refunding at a little less cost than it otherwise would --- but keep in mind that the savings to the store come out of the Anacostia River Fund. Not quite as green a program as you may think.
And here’s an interesting tidbit: Considering that bags cost about four cents a piece, letting retailers keep that second penny might be the difference between their bag refund effort causing them small losses and letting them make a small profit on it. So much for the good feeling you get from your green-conscious store.
Finally, the part of the tax that the retailer keeps is not treated as income and is tax-exempt. That’s another little bonus to sweeten the deal under which retailers collect taxes from you.
When you get a look under the hood, you can see the greasy fingerprints of the log-rolling that it took to get this tax program established. The D.C. government was able to open up another revenue stream by bringing D.C. retailers in, structuring the tax so it had to be passed onto consumers, and giving D.C. businesses a cut of the action.
Anacostia river clean-up could be funded any number of ways, including a direct tax on D.C. residents if it's a true priority. Requiring consumers to pay the five-cent tax on bags will negatively impact the District's poorer residents, for whom small savings still matter. It will drive some shoppers to Virginia. And the shoppers who switch to reusable bags may just use them to carry home trash bags and dog waste bags that they buy to fill the void left by their forgone grocery bags. But at least they'll feel good about it.
Next time you cross over the Anacostia River, be sure to think about how its clean-up project is funded. Rather than a direct increase in your tax bill, or raising funds from the people who really care about the river, the D.C. government and business community got together to tax you in a way that increases businesses' revenues.
Sec. 4. Establishment of fee.
(a)(1) A consumer making a purchase from a retail establishment shall pay at the time of purchase a fee of $.05 for each disposable carryout bag.
(2) A retail establishment shall not advertise or hold out or state to the public or to a customer directly or indirectly that the reimbursement of the fee or any part thereof to be collected by the retail establishment will be assumed or absorbed by the retail establishment or otherwise refunded to the customer.
(3) All retail establishments shall indicate on the consumer transaction receipt the number of disposable carryout bags provided and the total amount of fee charged.
(b)(1) (A) Each retail establishment shall retain $.01 of each $.05 fee collected; provided, that an establishment that chooses to offer a carryout bag credit program to its customers, as set forth in subparagraph (B) of this paragraph, shall retain an additional $.01 from each fee collected, for a total of $.02 for each $.05 fee collected.
(B) A retail establishment shall retain an additional $.01 of each $.05 fee for a carryout program which:
(i) Credits the consumer no less than $.05 for each carryout bag provided by the consumer for packaging their purchases, regardless of whether that bag is paper, plastic, or reusable;
(ii) Is prominently advertised at each checkout register; and
(iii) Reflects the total credit amount on the consumer transaction receipt.
(C) The fees retained by the retail establishment under this paragraph shall not be classified as revenue and shall be tax-exempt for the purposes of Chapters 18, 20, and 27B of Title 47 of the District of Columbia Official Code.
(D) The fees retained by the retail establishment shall be excluded from the definition of retail sale under D.C. Official Code § 47-2001(n)(2) and from the definition of gross receipts under D.C. Official Code § 47-2761(5).
(E) The fees to be remitted to the District under subsection (b)(2) of this section shall be added to other tax payments in determining whether the electronic payment requirement under D.C. Official Code § 47-4402(c) applies.
(2) The remaining amount of each fee collected shall be paid to the Office of Tax and Revenue and shall be deposited in the Anacostia River Cleanup and Protection Fund established by section 6(a).
(c) The Office of Tax and Revenue shall develop rules for frequency and method for reporting and transmitting the fees, as set forth in subsection (a) of this section, to the District.
(d) Except to the extent of any inconsistency with this act, the same provisions to Title 47 of the District of Columbia Official Code that are applicable to the gross sales tax shall govern the administration, collection, and enforcement of the fee set forth in subsection (a) of this section.