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District of Columbia Tax Rate Changes Effective October 1, 2020

Monday, September 21, 2020

(Washington, DC) – The District of Columbia Office of Tax and Revenue (OTR) reminds taxpayers, tax professional, software providers, businesses, and others about tax changes that were enacted in the Fiscal Year 2021 Budget Support Emergency Amendment Act of 2020.  

The new provisions include real property, sales and use, motor vehicle fuel, Stevie Sellows ICF-MR, games of skill, corporate franchise, unincorporated business franchise, estate, and individual income. There is also a tax rate increase on cigarettes.

These tax changes will take effect October 1, 2020, unless otherwise noted, for the following tax types:

Transfer and Recordation Taxes

  • Transfer and recordation taxes related to title or security interest instruments are exempted if recorded between Oct. 1, 2020 and December 31, 2020 for lots 802 – 818, 822 – 831, 7000 and 7009 – 7010 in sq. 5633, not to exceed $420,840.

Sales and Use Taxes

  • Spirituous or malt liquors, beers, and wine sold for off-premises consumption by certain the Alcoholic Beverage Control Board licensed vendors are subject to the 10% sales and use tax rate. (D.C. Code § 47-2002(a)).

Motor Vehicle Fuel Taxes

  • There is a surcharge of $.053 per gallon on the sale of gasoline, gasohol, and other motor vehicle fuel. This surcharge is in addition to the $.235 tax on the sale of gasoline, gasohol, and other motor vehicle fuel. (See D.C. Official Code § 47-2301(a-1)).

Stevie Sellows ICF-MR Taxes

  • The rate paid by all intermediate-care facilities for the intellectually disabled is increased from 5.5 percent to 6.0 percent. (See D.C. Official Code § 47-1274(a)).

Games of Skill Machines Taxes

  • A 10.0 percent tax is imposed on gross game revenues generated by games of skill machines.

Corporation Franchise Taxes

  • Qualified High Technology Companies (QHTC): QHTC Definition: A company must have ten qualified employees to qualify as a QHTC as of January 1, 2020. (See D.C. Official Code § 47- 1817.01(5)(A)(ii)).
  • Expensing of Depreciable Property: The allowance as a deduction up to $40,000 for the cost of property and the special tax treatment tenant improvements by a QHTC are repealed as January 1, 2020.  (See D.C. Official Code § 47- 1803.02(18)).
  • Employment Relocation Cost Credits: The employee relocation credit is repealed as of January 1, 2020. (See D.C. Official Code § 47-1817.02).
  • Qualified Disadvantaged Employee Retraining Cost Credits: The total credit is limited to $10,000 per year as of January 1, 2020 and repeals all carryover credits (both accumulated and going forward) as of January 1, 2020. (See D.C. Official Code § 47-1817.04).
  • Qualified Disadvantaged Employee Wage Credits: All carryover credits (both accumulated and going forward) are repealed as of January 1, 2020. (See D.C. Official Code § 47-1817.05(c)).
  • Franchise Tax Rate Relief: All QHTC rate relief provisions are repealed in their entirely as of January 1, 2020. Beginning with tax year 2020, all QHTC’s will pay corporation franchise tax at the regular franchise tax rate, currently 8.25%. (See D.C. Official Code § 47-1817.06).
  • Rollover Relief: (See D.C. Official Code § 47-1817.07).
  • Capital Gains Tax Relief: The capital gains tax relief for investments in QHTC’s is suspended for tax years 2020 through 2024.  (See D.C. Official Code § 47-1817.07a).
     

FAS 109 Deduction: The deduction for certain taxpayer’s net deferred tax liability is now deferred until 2025. (See D.C. Official Code § 47-1810.08(b)).
 

Personal Property Taxes

  • Definition of Personal Property: The definition of personal property will include computer software incorporated into a machine or other equipment for tax year beginning July 1, 2021. (See D.C. Official Code §§ 47-1508 and 47-1521).
  • Exemptions: The exemption for the personal property of a Qualified High Technology Company is repealed beginning for tax year beginning July 1, 2021. (See D.C. Official Code § 47-1508(a)(10)).

Unincorporated Business Franchise Taxes

  • QHTC Capital Gains Tax Relief: The capital gains tax relief for investments in QHTC’s is suspended for tax years 2020 through 2024.  (See D.C. Official Code § 47-1817.07a).
  • Termination: Beginning with tax year 2021, the definition of taxable income will include gain from the sale of tangible or intangible property, including real property, even when the sale results in the termination of the unincorporated business. (See D.C. Official Code § §47-1808.02(1)).

District of Columbia Low Income Housing Tax Credit

  • A District of Columbia Low Income Housing Tax Credit is established that is equal to 25% of the value of the federal low-income housing tax credit received after October 1, 2021 and approved by DHCD on or after October 1, 2021.  (See D.C. Official Code § 47-4801, et seq.).

Opportunity Zones

  • Decoupling from Federal Treatment: The Tax Cuts and Jobs Act established a deferral of capital gains for federal income tax purposes if a taxpayer invests in a Qualified Opportunity Fund. (See 26 U.S.C. § 1400Z-2(a)(1)(A)). Additionally, the federal law provides for a basis adjustment in the Qualified Opportunity Zone, if the taxpayer maintains the investment for a five, seven, or ten or more years. (See 26 U.S.C. §§ 1400Z-2(b)(2)(B)(iii) and 1400Z-2(c)). For District income tax purposes, the deferral and basis adjustments will only be allowed if the Qualified Opportunity Zone meets certain criteria and is approved by the Office of the Deputy Mayor for Planning and Economic Development. (See D.C. Official Code § 47-1803.03(a)(20)).

Individual Income Taxes

  • QHTC Capital Gains Tax Relief: The capital gains tax relief for investments in QHTC’s is suspended for tax years 2020 through 2024. (See D.C. Official Code § 47-1817.07(a)).
  • Excluded Workers: Cash assistance for excluded workers given pursuant to grants awarded by the Washington Convention and Sports Authority in 2020 are excluded from taxable income.  (See D.C. Official Code § 47-1803.023(a)(2)(JJ)).

Estate Taxes

  • The zero bracket amount is decreased to $4 million for deaths after December 31, 2020.  (See D.C. Official Code §47-1803.02.)

Additional Changes Effective October 1 – Not Included in the Fiscal Year 2021 Budget Support Emergency Amendment Act of 2020

Cigarette Tax

  • Cigarettes: The fixed tax remains $4.50 per package of 20 cigarettes. However, the surtax is increased from $.48 cents to $.50 cents per package of 20 cigarettes. As a result, the combined cigarette excise tax per package of 20 cigarettes is $5.00.

OTR will not administer a floor tax in connection with this increase in the cigarette tax, nor will the cigarette stamps currently in use be changed when the tax increases on October 1. Cigarette stamps purchased on or after October 1 will be sold at the new tax rate.

  • Other Tobacco: The tax rate on other tobacco products remains 91 percent of wholesale sales of other tobacco products.  Additionally, the rate for littler cigars is increased from $.249 to $.25 per little cigar.

For additional information, contact OTR’s Customer Service Center at (202) 727-4TAX (4829).

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