DC amends QHTC, combined group, unincorporated business tax rules

Overview

Signed on August 31, B23-0760/Act 23-407 enacts the District’s Fiscal Year 2021 Budget Support Act of 2020 (Act). One element of the Act amends and repeals provisions relating to Qualified High Technology Companies (QHTCs). 

Prior to the Act, QHTCs qualified for several favorable tax provisions, including a general credit against the corporate income tax, credits for wages paid to certain qualified employees, credits for retaining qualified disadvantaged employees, enhanced Section 179 expensing provisions, and personal property tax exemptions. The Act significantly modifies or repeals most of these provisions, applicable as of January 1, 2020. 

The Act also delays application of the District’s deduction relating to an increase in a combined group’s net deferred tax liability resulting from combined reporting. Originally due to start in a taxpayer’s tenth year of combined filing, it is delayed until a taxpayer’s fifteenth year of combined filing.

Finally, effective January 1, 2021, the Act includes within the tax base of an unincorporated business certain capital gains, even when a sale results in the termination of an unincorporated business.

The Act is effective following a 60-day period of Congressional review and publication in the D.C. Register.

The takeaway

Taxpayers continue to see significant modifications to DC’s QHTC provisions. This most recent legislation may represent another step toward potentially limiting the overall benefits of QHTC qualification. However, certain benefits have been retained. Further, there is some question as to the application of these provisions to fiscal-year filers. Taxpayers should evaluate the potential effects of this legislation on their QHTC credits as well as on their expected future benefits related to the QHTC provisions.