Washington DC Economic Partnership

District of ColumbiaOffice of Tax and Revenue

Tax Update

Stephen M. CordiDeputy Chief Financial Officer

April 16, 2014

Tax Revision Commission

Commission, chaired by former mayor Anthony Williams, released its recommendations to the Council on February 12, 2014

Made 10 major recommendations of which 5 have been picked up, at least in part, by Mayor Gray in his FY 2015 budget proposal

Tax Revision Commission - 2

Mayor is proposing for business taxes Beginning for tax year 2015

Franchise tax rate of 9.4% Single sales factor An exemption for proprietary trading Unified treatment of tobacco tax –

essentially taxing other tobacco products on the basis of the rate the cigarette tax is applied to the wholesale price of cigarettes

Tax Revision Commission - 3

Mayor is proposing for individual taxes Beginning for tax year 2015 New brackets:

0 - $10k @ 4% $10k - $40k @6.5% $40k - $60k @ 7.5% $60k - $350k @ 8.5% > $350k @ 8.95%

Tax Revision Commission - 4

Failing to make the Mayor’s cut were: Expand the sales tax to more services – primarily

construction services Add a use tax line to income tax returns Increase general sales tax from 5.75% to 6% Increase standard deduction & personal

exemption to federal level & expand EITC to singles

Raise the estate tax threshold to $5.25 million Levy a local services fee of $25 per quarter on

non-governmental employers

Qualified High Technology Company (QHTC) - 1

Revisions, enacted in March 2013: Eliminates exclusion for capital gain from

the sale of a QHTC asset held more than 5 years

Mandates that the minimum requirement for 2 employees work in DC

Requires that the 51% requirement of income from high tech activities relate to DC income only

Qualified High Technology Company (QHTC) - 2

oEliminates technology zone requirementoBeginning 1/1/12, the 5-year period of the 0% franchise tax rate does not start until QHTC has taxable incomeoLimits the amount of franchise tax relief at the 0% rate to $15 million

Sales Tax Rate Change

Effective October 1, 2013, the DC sales tax rate decreases to 5.75%

This decrease applies only to the general 6% sales tax.

It does not affect the sales tax on medical marijuana

Clean Hands

Clean Hands certificate required for a wide variety of DC related activities

Failure to file a required return is now a basis for denying clean hands

Restaurant Utility Tax

District restaurants are entitled to an exemption from sales tax on their utility use

Must be separately metered or sub-metered restaurants.

Includes: Pizzeria, delicatessen, ice cream parlor, cafeteria, take-out counter and caterer, and banquet and food processing areas in hotels.

Motor Fuel Tax

Rate changes to 8%

2 different base periods per year

FY 2014 Rate – Revised Notice

Individual Income Tax Changes

Personal Exemption & Standard Deduction The base CPI for the COLA changed last

year and indexing added. Amounts will be analyzed annually.

Interest on Out of State Bonds. Taxation of interest on out of state bonds is

repealed.

Schedule H Property Tax Relief

Schedule H Property Tax Relief

Increases income eligibility

Increases maximum benefit

Allows > 1 filing unit per household

Adds a cost of living adjustment

Applicable as of 1/1/2014

Same Sex Marriage Tax Issues

New law required that a clarification be added to the estate tax form for same sex marriage

The Supreme Court and subsequent IRS Ruling negates the need for preparing Dummy returns for income and estate tax and the required form clarification.