Washington, DC Economic Partnership’s Doing Business in DC program on Business Taxes in DC featuring the Office of Tax & Revenue.

1. Serving the Citizens of the District of Columbia
District of Columbia
Office of the Chief Financial Officer
Office of Tax and Revenue
Washington DC Economic Partnership
Stephen M. Cordi
Deputy Chief Financial Officer
January 11, 2012
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2. 2012 Tax Changes
• During the last year, the Mayor and
Council made a number of major
changes in DC taxes as an important
part of balancing the 2012 budget
• These generally appear in the 2011
Budget Support Act for FY 2012
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Office of Tax and Revenue

3. Combined Reporting
• By far the most important DC tax
change has been the enactment of
combined reporting beginning with
the current tax year
• DC has been an easy target for
intangible holding companies,
transfer pricing schemes and the like
• Legislation is effective for tax year
2011
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Office of Tax and Revenue

4. Combined Reporting -2
• The legislation is largely based on the
MTC model statute as modified by
West Virginia
• The legislation was the subject of
some last-minute taxpayer–friendly
amendments
• We are currently in the process of
publishing guidance to implement
combined reporting and revising our
franchise tax returns
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Office of Tax and Revenue

5. Double-Weighted Sales Factor
• For business franchise taxes,
apportionment is changed to
property, payroll and double-
weighted sales
• Previous law provided for equal-
weighted 3-factor formula
• Effective for tax year 2011
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Office of Tax and Revenue

6. Minimum Franchise Tax
Increase
• Effective for tax year 2011, the
minimum franchise tax has been
increased from $100 to $250
• For taxpayers with DC adjusted gross
income of $1,000,000, the minimum
tax has increased to $1,000
• Applies to both corporate in
unincorporated business franchise
taxes
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Office of Tax and Revenue

7. Individual Rate Increase
• Beginning with tax year 2012, an
additional income tax bracket of
8.95% for taxpayers with DC taxable
income over $350,000 has been
added
• Applies to estates and trusts as well
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Office of Tax and Revenue

8. Out of State Bonds
• DC has repealed its exemption for the
interest on out of state tax exempt bonds
• Effective for bonds acquired after December
31, 2011, including bonds held indirectly
through mutual funds
• By its terms , it does not include bonds
issued by the Washington Metropolitan
Airport Authority
• OTR has a notice out on this one - 2011-6
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Office of Tax and Revenue

9. Limitation on Itemized
Deductions
• New limitation applies to itemized
deductions for DC taxable income of
$200,000
• Itemized deductions are to be
reduced by 5% of the amount over
$200,000
• Doesn’t include medical, investment
interest or casualty losses
• Effective for tax year 2011
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Office of Tax and Revenue

10. Withholding on Retirement
Account Distributions
• Legislation will require withholding of DC
income taxes at the highest marginal rate
from distributions from retirement accounts
to DC residents if there is an IRS
withholding requirement
• Effective beginning January 1, 2012
• Clarifying legislation not enacted until
December 22nd
• Notice 2011-9 issued – telling providers to
use their best efforts
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Office of Tax and Revenue

11. Increased Withholding
• Effective January 1, 2012, employers
are to remove the standard deduction
from the withholding calculation
• DC standard deduction is $4,000, so
the additional w/h for each job
ranges up to $340 for a taxpayer with
DC income up to $40,000
• Intended to produce one-time
windfall of $41 million and ongoing
collection benefits
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Office of Tax and Revenue

12. Sales Tax on Cigarettes at
Wholesale
• DC has exempted sales of cigarettes at retail
effective October 1, 2011
• At the same time, we’ve increased the
stamp tax by 36 cents
• This new “sales tax” portion of the cigarette
stamp tax is adjustable annually on the
basis of changes in the retail price of
cigarettes
• The object is to reduce tax leakage at the
retail level & the amount of tax handled by
small merchants
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Office of Tax and Revenue

13. Sales Tax on Security Services
• The sales tax has been extended
to armored car, private detective
and security services
• Modeled on Maryland law in
effect since 1992
• Effective October 1, 2011
• Notice 2011-3
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Office of Tax and Revenue

14. Sales Tax Rate Increases
• Sales tax on sales of alcohol for off-
premise use increased from 9% to
10%, effective July 1, 2011
• Sales tax on charges for parking and
storage of vehicles increased from
12% to 18%, effective October 1,
2011
• Existing general 6% rate, set to
revert to 5.75% effective October 1,
2012, has been made permanent
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Office of Tax and Revenue

15. Contact Information
• Tax Practitioner Hotline (202) 727-1435
• Main Call Center (202) 727-4TAX (4829)
• Problem Resolution (202) 442-6348
• Collections Division (202) 724-5045
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Office of Tax and Revenue