Detailed District of Columbia Development
For the last decade, the District of Columbia has provided tax benefits to Qualified High Technology Companies (QHTC). Generally, these are companies that have office space in DC, have two or more qualified employees in the District, and derive at least 51 percent of their gross revenues earned in the District from certain permitted activities. These activities include, but are not limited to, Internet related services and associated trainings, information and communication technologies, advanced materials and processing technologies, engineering, production, biotechnology and defense technologies. Historically, there were numerous tax benefits available to QHTCs, including property tax abatements, special credits, sales and use tax exemptions, and a five-year abatement of corporate franchise tax followed by a reduced six percent corporate franchise tax rate. The program has been revised over the years, and the District of Columbia Fiscal Year 2021 Emergency Budget Support Act further limits QHTC tax benefits. First and foremost, the reduced six percent rate of corporate franchise applicable to QHTCs is repealed; therefore, QHTCs are subject to the normal rate of 8.75 percent. An enhanced depreciation deduction for certain property owned by a QHTC is also repealed. The definition of a QHTC is amended to require the company to have at least ten employees in the District, rather than two. A tax credit for a QHTC’s employment relocation costs is repealed, and a tax credit for QHTCs for costs associated with retraining qualified disadvantaged employees is limited to $10,000 (previously $20,000) for each qualified disadvantaged employee during the first 18 months of employment. Furthermore, carryovers (both accumulated and those earned in the future) of credits for wages paid to disadvantaged employees and employee retraining costs can no longer be used to offset taxes in future years. All of the changes related to QHTCs are effective January 1, 2020. However, an exemption from personal property taxes for property purchased by a QHTC for the first ten years following the purchase is repealed for a tax year beginning July 1, 2021. As an emergency bill, the Act became effective immediately and will remain in effect for a period of 90 days (until November 16, 2020). A permanent version of the Budget Support Act is currently pending congressional review. Please stay tuned to TWIST for future DC legislative updates.
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