D.C. Mun. Regs. tit. 9, r. 9-1106

Current through Register Vol. 71, No. 36, September 6, 2024

Rule 9-1106 - TAX ON QUALIFIED HIGH TECHNOLOGY COMPANIES

1106.1

For tax years ending on or before December 31, 2019, in lieu of the tax on taxable income imposed by D.C. Official Code § 47-1807.2, subject to the credits applicable thereto, a tax on taxable income at a rate of six percent (6%) shall be imposed upon QHTCs that are corporations except as modified by D.C. Official Code § 47-1817.06(a)(2)(A).

1106.2

For tax years beginning after December 31, 2019, a QHTC shall be allowed a credit against taxes imposed by § 47-1807.02 as follows:

(a) The credit shall be allowed in an amount equal to the lesser of:

(1) $250,000 per taxable year; or

(2) The difference between the amount of tax that would otherwise be due based on the applicable rate of tax imposed by § 47-1807.02 and the reduced rate of six percent (6%).

(b) The credit shall be allowed for five (5) taxable years from the later of:

(1) The tax year ending December 31, 2019 for annual year filers, or for fiscal year filers, the first tax year ending after December 31, 2019; or

(2) The last tax year the Qualified High Technology Company is eligible to receive an exemption under D.C. Official Code § 47-1817.06(a)(2).

(c) After the expiration of the period outlined in paragraph (B), the QHTC will pay franchise tax at the general rate as required by D.C. Official Code § 47-1807.02.

1106.3

Notwithstanding § 1106.1 or §1106.2, a QHTC certified pursuant to § 47-1805.05 shall not be subject to tax imposed under Chapter 18 of Title 47 of the D.C. Official Code for five (5) taxable years from the first tax year that the QHTC has District taxable income. The total amount that each QHTC may receive in benefits under this paragraph shall not exceed fifteen million dollars ($15,000,000). This $15 million cap is cumulative and applies to all benefits received by a QHTC under D.C. Official Code § 47-1817.06(2) beginning from the original enactment of the program in 2001.

1106.4

Examples.

(a)Newly Formed QHTC Example. Assume a QHTC that enters into business in the District for the first time in 2020, and has District taxable income for the first time in tax year 2021. The QHTC will be entitled to pay District franchise tax at a zero percent rate for 5 taxable years from tax year 2021, or until the cumulative franchise tax benefits received by the QHTC exceed $15 million. Beginning in tax year 2026, the QHTC will be allowed the credit provided for under § 1106.2(B) for a period of 5 years.

(b)Existing QHTC Example. Assume a QHTC that entered into business in the District for the first time in 2017, had District taxable income for the first time in 2017, and has received $2 million in QHTC franchise tax benefits. Under § 1106.3, the QHTC continues to be eligible for the 0% tax rate only through tax year 2021, so long as the cumulative benefits from the exemption do not exceed $15 million. Thereafter, the QHTC would be eligible only for the credit allowable under § 1106.2.

(c)Credit Calculation Example. Assume a QHTC entitled to the credit under § 1106.2 in a year in which its District taxable income was $15 million and the franchise tax rate under § 47-1807.02 is 8.25%. In order to calculate the credit to which it is entitled, the QHTC must first determine the tax it would be required to pay on its District taxable income if it were not a QHTC by applying the standard franchise tax rate found in § 47-1807.02 to its District taxable income ($15 million X 8.25% = $1,237,500). The QHTC must then apply the QHTC reduced rate of six percent §%) to the QHTC's District taxable income ($15 million X 6% =$900,000). The taxpayer must then compare the two tax due amounts to determine the difference ($1,237,500 -$900,000 = $337,500). Since the calculated difference of $337,500 exceeds $250,000, the taxpayer is entitled to a franchise tax credit of $250,000.

1106.5

The transfer of ownership of a QHTC shall not affect the provisions of this section. If a transfer of ownership of a QHTC occurs, the benefits and limitations of this section shall continue to apply as if no transfer occurred. A QHTC which has exhausted the franchise tax benefits allowable under this chapter will not be entitled to additional benefits after a transfer of ownership.

D.C. Mun. Regs. tit. 9, r. 9-1106

Final Rulemaking published at 49 DCR 2142 (March 8, 2002); amended by Final Rulemaking published at 67 DCR 4769 (5/1/2020)