District of Columbia budget legislation includes multiple tax changes

Washington D.C. (DC) approved its fiscal 2025 Budget Support Act (B25-0784) (the Legislation) on July 26, 2024, without the mayor’s signature. The Act was subsequently transmitted to Congress on Aug. 6 for a required 30-day congressional review.

Prior to the Legislation’s approval, on July 15, 2024, DC enacted emergency budget support legislation (B25-0875), which is effective until Oct. 13, 2024.

Both legislative actions include several tax changes including raising the sales tax rate, transitioning from the Joyce to the Finnigan method of apportionment and repealing the Qualified High-Technology Company (QHTC) benefit.

Tax changes

Sales and use tax increase

• The Legislation increases the sales and use tax rate from 6% to 6.5%, beginning Oct. 1, 2025, and increases the rate further to 7% beginning Oct. 1, 2026.

Transition to the Finnigan method of apportionment

• The Legislation includes a transition from the Joyce method of apportionment to the Finnigan method of apportionment. Specifically, “for tax years beginning after Dec. 31, 2025, a combined group of entities will be treated as one taxpayer for purposes of sourcing unitary receipts, as required by this chapter, and the apportionment factor attributes in the numerator, as required by this chapter, will be derived from all the members of the combined group, regardless of whether a member has nexus with the District of Columbia.”

QHTC Benefit repeal

• The Legislation includes a repeal of the 3% tax on capital gains from a sale or exchange of an investment in a QHTC.

What’s next?

As noted above, the Legislation was transmitted to Congress on Aug. 6, 2024, and is currently under congressional review. The 30-day review is the final step and if approved, the Legislation will be enacted. Note: the 30-day review process excludes Saturdays, Sundays, holidays and any period where both the House and Senate are out for more than three days. As such, a projected “law date” is estimated as Dec. 7, 2024; however, that date may change (see the legislation tracking link below which is updated as the Legislation progresses).

In the meantime, please consult your Baker Tilly state tax advisor to discuss the impact, if any, the Legislation will have on your DC filings.

For tracking the Legislation please see B25-0784 Fiscal Year Budget Support Act of 2024. Please reach out to your Baker Tilly tax professional to discuss how tax policy developments may impact your tax planning and compliance.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.