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Qualified High Technology Companies (QHTCs)

The New E-Conomy Transformation Act of 2000 (the Act) granted certain tax benefits to DC Qualified High Technology Companies for tax years beginning after December 31, 2000. The Qualified High Technology Clarification Act of 2014 (Title VII, Subtitle R of FY 15 Budget Support Act of 2014, A20-750), has made several changes in the qualification requirements and clarification of certain provisions which will be applicable for the tax years beginning after 12/31/2014. You are advised to consult the new law to determine the impact on your company. This FR-399 revision applies to tax years beginning after 12/31/2015. Additional revisions effective 10/06/2017 can be found here: https://dcregs.dc.gov/Common/DCMR/SectionList.aspx?SectionId=1542

A Qualified High Technology Company (QHTC) is one which–

  • Is an individual or entity organized for profit;
  • Leases or owns an office in the District of Columbia (DC);
  • Has 2 or more qualified employees in the District;
  • Derives at least 51% of its gross revenues earned in the District from one or more of certain “permitted” activities* (DC Code §47-1817.01(5)(A)(iii)); and e) Is registered with the DC government as a business in DC.

A Qualified High Technology Company (QHTC) does not include–

  • An individual or entity that derives 51% or more of its gross revenues from the operation in the District of:
    • An online or brick and mortar retail store;
    • An electronic equipment facility that is primarily occupied, or intended to be occupied, by electronic and computer equipment that provides electronic data switching, transmission, or telecommunication functions between computers, both inside and outside the facility;
    • A building or construction company;
  • A professional athletic team, as defined in DC Code §47- 2002.05(a)(3); or
  • A business entity located in the DC Ballpark TIF Area, as defined in DC Code §2-1217.12.

Permitted Activities include–

  • Internet-related services and sales including website design, maintenance, hosting, or operation;
  • Internet-related training, consulting, advertising, or promotion services; the development, rental, lease, or sale of Internet-related applications, connectivity, or digital content; or products and services that may be considered e-commerce;
  • Information and communication technologies, equipment and systems that involve advanced computer software and hardware, data processing, visualization technologies, or human interface technologies, whether deployed on the Internet or other electronic or digital media;
  • Advanced materials and processing technologies that involve the development, modification, or improvement of one or more materials or methods to produce devices and structures with improved performance characteristics or special functional attributes, or to activate, speed up, or otherwise alter chemical, biochemical, or medical processes;
  • Engineering, production, biotechnology and defense technologies that involve knowledge-based control systems and architectures; advanced fabrication and design processes, equipment and tools; or propulsion, navigation, guidance, nautical, aeronautical and astronautical ground and airborne systems, instruments and equipment; and
  • Electronic and photonic devices and components for use in producing electronic, optoelectronic, mechanical equipment and products of electronic distribution with interactive media content.

TAX Benefits-Incorporated QHTCs
The various DC tax credits and other tax benefits available to incorporated QHTC are–Tax Credits for:

  • Costs of retraining qualified disadvantaged employees;
  • Wages paid to qualified disadvantaged employees;
  • Wages paid to qualified employees; and
  • Payments for or reimbursements of employee relocation costs. Other DC Tax Benefits:
  • Exemption from sales tax for sales by QHTCs of intangible property or services; See DC Code §47-2001(n)(2)(G);
  • Reduction of the corporate franchise tax rate;
  • Partial exemption from the personal property tax;
  • Exemption for 5 years, on or after January 1, 2012, from the DC corporate QHTC franchise tax, or $15 million, whichever is lesser;
  • Deduction for Internal Revenue Code (IRC) section 179 expenses (up to $40,000);
  • Reduction in real property tax for qualified leasehold improvements made by, or for, a QHTC tenant;
  • Rollover (deferral) of certain capital gains.

TAX BENEFITS-Unincorporated QHTCs
The tax benefits available to unincorporated QHTC are–

  • Exemption from sales tax for sales by QHTCs of intangible property or services; See DC Code §47-2001(n)(2)(G);
  • Partial exemption from the personal property tax;
  • Deduction for Internal Revenue Code (IRC) section 179 expenses (up to $40,000);
  • Reduction in real property tax for qualified leasehold improvements made by, or for, a QHTC tenant.

Claiming QHTC Tax Benefits
To be eligible to claim a tax credit or any of the other tax benefits available under the Act you must attach a QHTC-CERT form to the appropriate DC tax form: D-20; D-65; D-40; FP-31; or FR-800.

Note: as of November 1, 2017 the QHTC-CERT for the FR-800 (Sales and Use tax) return must be completed electronically on MyTax.DC.gov – more information here: https://mytaxdc.wordpress.com/2017/11/06/online-sales-and-use-tax-exemption-for-qualified-high-technology-companies-qhtc/

The QHTC-CERT form is a certification that you meet all of the conditions required of a QHTC. If the certification is not made in good faith, a penalty may be imposed. Incorporated QHTCs must complete the D-20, including the QHTC Tax, Exemption and Credits Schedule on page 4 of the D-20, and submit the Certification of Gross Revenue Worksheet from page 11 of the FR-399 Instruction booklet.