These elements represent the business enterprise's outlays for the use of capital and labor in the District, i.e., the value added. Business enterprises with gross receipts below a minimum amount will be tax-exempt. Businesses are the intermediary through which they can be taxed. There are several ways to tax businesses. The District's current system is based on net income, or profits.
Some states tax gross receipts of sales of goods and services.
Taxing value added is the best way to make taxes proportional to the benefits derived from the District. For example, under the current profit-based system, large firms that place significant demands on city services often pay little in corporate income taxes. The business activities tax will generate more certain and predictable revenues than a profits-based tax. Profits can vary widely with fluctuations in the economy. The business activities tax base, however, has a stabler base because it is dominated by labor compensation, which tends to be stable over time.