District of Columbia Tax Updates

August 8, 2024

Authored by: Kiana McGowan, CPA, MBA and Penny Sweeting, CPA

On July 15, 2024, the D.C. Council passed an emergency budget that was returned unsigned by Mayor Bowser. This emergency legislation, effective from July 15, 2024, will remain in force until October 13, 2024.

The act includes numerous temporary changes to the City’s tax code, including an amendment to shift from the Joyce method of apportionment to the Finnigan method beginning in 2026. The Joyce and Finnigan rules are two approaches states use to calculate a unitary group’s apportionment sales factor. The Joyce rule treats each corporation in the group separately for tax purposes, while the Finnigan rule considers the entire group as a single entity.

Additional tax provisions in the act include:

Permanent legislation with these provisions has not yet been confirmed.

Please see a copy of the act here for additional details.

If you have questions about state apportionment requirements, please reach out to a member of the Withum SALT Team.

February 24, 2023

Authored by: Brandon Spinella and Courtney Easterday, MS

The DC Office of Tax and Revenue (OTR) issued a notice that the sales and use tax rate on the transient rental of rooms, lodgings, and accommodations furnished by any hotel, inn, tourist camp or tourist cabin will temporarily increase, effective April 1, 2023. The rate will increase from 14.95% to 15.95% from April 1, 2023, through March 30, 2027. Bookings made but not fully paid by April 1, 2023, will be subject to the increased rate. Fully paid bookings made prior to April 1, 2023, remain subject to the 14.95% rate even if the booking is for after April 1, 2023.

If you have questions about whether your business is subject to transient occupancy taxes, please reach out to a member of the Withum SALT Team.

June 10, 2022

The Washington DC Office of Tax and Revenue (“OTR”) issued an update in OTR Tax Notice 2022 – 06 regarding taxpayer relief from corporation franchise tax or unincorporated business franchise tax nexus. This relief will expireon July 16, 2022, as the mayor did not extend the public emergency in DC after April 17, 2022. The OTR did not impose corporate franchise tax or unincorporated business franchise tax on those taxpayers who established nexus by having employees or property present in the District or permitted employees to work from home temporarily in DC during the COVID health emergency. Property used by employees included computers and computer equipment. With the DC mayor extending the public emergency various times, the OTR also protected taxpayers from losing their Public Law 86-272 protection.

January 31, 2021

On January 24, 2022, the District of Columbia Office of Tax and Revenue clarified via its website that at-home Covid-19 tests are exempt from sales tax pursuant to DC Code 47-2005(14). As such, vendors should not collect sales tax on the sale of at-home COVID test kits.

November 23, 2021

Congress has approved DC’s “Fiscal Year 2022 Budget Support Act of 2021,” which enacted several tax provisions. The legislation includes the following tax changes: (1) increasing personal income tax rates and amending personal income tax brackets for high-income taxpayers for tax years beginning after December 31, 2021; (2) increasing the DC earned income credit for tax years beginning after December 31, 2021; (3) exempting unemployment benefits from income taxation; (4) allowing for income tax exemptions for grants and benefits provided to DC taxpayers; and (5) amending various other tax credits and property tax exemptions and abatement amounts. The Act also updated the District’s unclaimed property law. The Act updated the requirements for how the District should handle certain unclaimed property, expanded the type of property that can be considered unclaimed, and further rules on contacting the Unclaimed Property Unit to handle certain other items such as virtual currency, payroll cards, and health saving accounts.

September 10, 2021

Washington’s Department of Revenue (DOR) released additional guidance on the taxation of online instructional classes. Online instructional classes that have real-time participants and interaction between the presenter and the participants will not be subject to retail sales tax. The interaction that the presenter and the participant have must be interactively part of a live class other than a chat room or help desk for a pre-recorded video. The revenue generated from interactive online instructional classes are subject to the state’s business and occupation (B&O) tax under the “Service and Other Activities” classification. Revenue generated from online classes where there is not an interaction between the presenter and the participant other than a chat room or help desk are subject to retail sales tax and B&O tax under the “Retailing” classification.

September 2, 2021

DC enacted emergency budget legislation for DC fiscal year 2022 which includes numerous tax law changes. The legislation includes:

Please note that DC can only impose a personal income tax on DC residents. As such, DC nonresidents who work in DC are not subject to these increases.

June 3, 2021

Effective May 25, 2011 (and expiring August 23, 2021), D.C. enacts the “Coronavirus Business Assistance Income Tax Relief Emergency Amendment Act of 2021.” The emergency legislation provides that, for tax years beginning after December 31, 2020, public health emergency response grants issued pursuant to Section 5b of the District of Columbia Public Emergency Act of 1980, effective March 17, 2021 (D.C. Act 24-30; D.C. Official Code § 7-2304.02) or successor law, are excluded from the computation of District gross income for purposes of the income and franchise tax.

May 21, 2021

For sales tax purposes, the District of Columbia has amended its casual and isolated sales exception underD.C. Code Ann. §47-2005(7). Effective May 14, 2021, this exception is limited to sales of a non-recurring nature that are made by a vendor who is not regularly engaged in the business of making sales at retail. The casual and isolated sale exemption does not apply to the following sales: (1) sales by a vendor who is registered with the OTR for a sales and use tax account; (2) sales by a vendor who is regularly engaged in the business of making sales at retail regardless of whether the property being disposed was originally acquired for use or consumption by that vendor; (3) sales made on a marketplace as defined inD.C. Code Ann. §47-2002(g-4); or (4) a sale of the entire operating assets of a business or of a separate division, branch, or identifiable segment of a business where the sale is by a vendor who is regularly engaged in the business of making sales at retail.

May 13, 2021

D.C.’s “Coronavirus Support Temporary Amendment Act of 2021” (the “Act”) has been signed and will be sent to Congress for review. The temporary legislation consolidates, updates, and amends previously enacted coronavirus (COVID-19) relief legislation, which had previously been enacted on an emergency and temporary basis. Among the temporary provisions of the Act, for tax years beginning after December 31, 2017, corporations, unincorporated businesses, and financial institutions are allowed an 80% deduction for any apportioned District of Columbia net operating loss (NOL) carryover, to be deducted from net income after apportionment. Further, the following items are excluded from District gross income for purposes of the income and franchise tax: (1) small business loans awarded and subsequently forgiven under 15 U.S.C § 9005; (2) public health emergency small business grants awarded under Section 2316 of the Small and Certified Business Enterprise Development and Assistance Act of 2005; and (3) public health emergency grants authorized pursuant toD.C. Code Ann. §1-309.13(m)(1). The provisions of the temporary legislation are made applicable as of March 12, 2021 and will expire 225 days after taking effect. For specific information, please see L. 2021, Act 24-62.

May 5, 2021

Enacted April 27, 2021, the District of Columbia’s “Fiscal Year 2021 Budget Support Clarification Amendment Act of 2020,” among other things, makes permanent the additional 1% sales and use tax imposed on gross receipts from the sale of or charges for spirituous or malt liquors, beer, and wine sold for consumption off the premises where sold under D.C. Code Ann. §47-2002.02(2)andD.C. Code Ann. §47-2202.01(2).This tax is applicable to sellers that are properly registered/licensed to sell beer, wine, or spirits in closed containers to individuals for carry out and delivery to consumers in the District between the hours of 6:00 a.m. and 1:00 a.m., 7 days a week (other limitations may apply in order to make such sales). Please see D.C. Code Ann. § 25-112(h)(1),D.C. Code Ann. § 25-113(a)(3)(C),D.C. Code Ann. § 25-113.01(f), andD.C. Code Ann. § 25-113.01(g)for full rules on the licensed sellers to which this tax applies. The additional 1% tax applies in addition to any applicable standard sales tax. This provision was previously enacted on a temporary basis by Law 23-176 (expires 08/04/2021) and on an emergency basis by Act 23-554 (expired 03/21/2021).

April 23, 2021

The D.C. Office of Tax and Revenue (OTR) issued guidance regarding steps D.C. taxpayers must take to claim the federal unemployment compensation exclusion on their individual District income tax returns. Because federal adjusted gross income (“AGI”) is the starting point for calculating D.C. tax liability, the federal exclusion for unemployment compensation paid in 2020 under the American Rescue Plan Act will also be reflected on District individual tax returns.For taxpayers who have not yet filed their D.C. tax return, taxpayers should use federal AGI as reported on their federal return. Taxpayers who have already filed their D.C. tax return should not file an amended return at this time because the OTR is waiting for more guidance from the IRS on how these re-calculations will be reported to taxpayers and state taxing agencies. For additional details, please see Dist. of Columbia Revenue Notice No. 2021-06, 04/15/2021.

The D.C. Office of Tax and Revenue (OTR) issued a notice providing guidance to businesses and individuals on how to report and exclude from District gross income the amount of certain microgrants made by the District on their District income or franchise tax returns for tax year 2020. Dist. of Columbia Revenue Notice No. 2021-05, 04/14/2021 provides specific details on what lines and schedules should be used on D.C. tax returns to appropriately report and/or exclude grant amounts, for both corporate income tax and individual tax purposes. Additionally, with respect to the treatment of Paycheck Protection Program (PPP) loans, D.C. gross income does not include PPP loans that are awarded and subsequently forgiven. For D.C. purposes, to the extent that deductions for expenses paid using PPP loans are allowed by the Internal Revenue Code, the deductions will also be allowed to determine a taxpayer’s District taxable income. Please consult Dist. of Columbia Revenue Notice No. 2021-04, 04/14/2021 for specifics pertaining to PPP loans.

March 25, 2021

Effective as of March 16, 2021, the District of Columbia’s “False Claims Amendment Act of 2020” allows certain tax enforcement actions to be filed under the False Claims Act. Previously tax-related claims could not be brought under the DC False Claims Act. Moreover, informants who report tax fraud can receive anywhere between 15% and 30% of the proceeds (other than penalties and interest) that the District of Columbia recovers, if successful.

March 23, 2021

The D.C. Office of Tax and Revenue (OTR) has extended the deadline for taxpayers to file and pay all income tax returns until May 17, 2021. The extension is automatic and does not require taxpayers to apply. The extension applies to all D-20 (Corporation Franchise Tax), D-30 (Unincorporated Business Franchise Tax), D-40 (Individual Income Tax), Standalone Schedule H (Homeowner/Renter Property Tax Credit), D-41 (Fiduciary Income Tax) , D-40B (Nonresident Request for Refund), and D-65 (Partnership Return) tax filers, and includes combined return filers. Taxpayers requiring additional time may request an extension to file their income, partnership and franchise tax returns to October 15, 2021, or November 15, 2021 for combined return filers. All extension requests must be made by filing the applicable extension form with the OTR and making all required payments for tax year 2020 by May 17, 2021. The deadlines to file Forms D-20ES, D-30ES, D-40ES and D-41ES and to make estimated tax payments remains unchanged. First quarter estimated tax payments are due April 15, 2021. (https://otr.cfo.dc.gov/node/1528916; Dist. of Columbia Revenue Notice No. 2021-02, 03/19/2021.)

March 21, 2020

The District of Columbia enacts the “COVID-19 Response Emergency Amendment Act of 2020.” The emergency legislation, enacted to address the COVID-19 pandemic, provides that the Chief Financial Officer (CFO) may waive penalties and abate interest for failure to timely pay sales and use tax for periods ending on February 29, 2020, or March 31, 2020, provided that all taxes for such periods are paid in full on or before July 20, 2020. However, the waiver does not apply to hotels or motels that are permitted to defer property tax under another provision of the emergency legislation. Furthermore, property that is commercially improved and occupied and is a hotel or motel, the CFO may waive penalties and abate interest for the first installment of real property tax for the 2020 tax year (due on or before March 31) provided the property owner pays the installment by June 20, 2020. The D.C. Office of Tax and Revenue must issue guidance on the definition of a hotel or motel for this purpose.

Disclaimer: Please note this is the information that is readily available at this time, it is subject to change so please consult your Withum tax advisor.