District of Columbia: Emergency budget support act enacted

The District of Columbia Fiscal Year 2021 Emergency Budget Support Act has been enacted. As an emergency bill, the Act became effective immediately and will remain in effect for a period of 90 days (until November 16, 2020). The Council has also taken initial steps to enact a permanent Fiscal Year 2021 Budget Support Act that contains provisions identical to those in the Emergency Act. The permanent version is currently with the Mayor awaiting signature.  One of the changes in the Act is to defer the deduction that was intended to defray the financial statement effect of the District moving to combined reporting beginning in 2011. Under current law, if the adoption of combined reporting resulted in an increase to a combined group’s net deferred tax liability, the combined group was entitled to a deduction equal to the net increase in the taxable temporary differences causing the increase in the net deferred tax liability, as computed at the time of enactment of the combined reporting provisions. Originally, the deduction was to be taken in seven equal installments, beginning with the fifth year of the combined filing, which would have been 2015. In 2015, the deduction was delayed to the tenth year of combined filing, which is 2020. Under the Emergency Act, the deduction is delayed until the 15^th year of the combined filing, which would be 2025. If there is an underpayment of estimated tax for tax year 2020 due to the anticipated deduction, the estimated tax interest resulting from such underpayment, upon application, shall be waived.

Another provision in the Act modifies the term “taxable income” for purposes of the District’s Unincorporated Business Tax. As modified, the definition includes a new clause providing that “taxable income shall include gain from the sale or other disposition of any assets, including tangible assets and intangible assets, including real property and interests in real property, in the District, even when such a sale or other disposition results in the termination of an unincorporated business.” This provision becomes effective January 1, 2021.

Finally, the Act amends the District statute that provides deductions from gross income for corporations, financial institutions, and unincorporated businesses to address investments in Qualified Opportunity Zones. Notably, as amended, certain tax benefits stemming from making investments in Qualified Opportunity Funds, notably deferrals of capital gain, will be realized only if the taxpayer invests in a Qualified Opportunity Fund that is certified by the Mayor of the District and the taxpayer’s investment in the Fund is invested in an opportunity zone in the District. In other words, the District appears to be limiting the tax benefits of making such investments to local opportunity zones. Other tax related changes in the Act include the imposition of a motor vehicle fuel tax surcharge and revisions to the District’s Qualified High Technology Company incentives. Please stay tuned to TWIST for future legislative updates.