D.C. Mun. Regs. tit. 9, r. 9-1199

Current through Register Vol. 71, No. 36, September 6, 2024
Rule 9-1199 - DEFINITIONS
1199.1

As used in this chapter, the following terms and phrases shall have the meaning ascribed:

Aggregate Sq. Footage means, for the purpose of § 1115, the net rentable area.

Applicant - for real property tax abatement purposes, is the landlord or the tenant, whichever qualifies as making the improvements for a QHTC and is liable for the tax.

Benefit period - for real property tax abatement purposes, is the period commencing on the first day of the month immediately following the rent commencement date and terminating no later than 60 months thereafter.

Billing assessed value - for real property tax abatement purposes, means the lesser of the taxable transitional assessed value or the taxable actual assessed value of the eligible building and the land on which the eligible building is located for the fiscal year in which the benefit period commences.

Eligible building - for real property tax abatement purposes, means a non-residential or mixed- use building in which:

(a) At least 50% of its tenants are QHTC; or
(b) At least 50% of its aggregate square footage is leased to a QHTC using the premises as an office or retail space.
(a) Internet-related services and sales, including website design, maintenance, hosting, or operation; Internet-related training, consulting, advertising, or promotion services; the development, rental, lease, or sale of Internet-related applications, connectivity, or digital content; or products and services that may be considered e-commerce;
(b) Information and communication technologies, equipment and systems that involve advanced computer software and hardware, data processing, visualization technologies, or human interface technologies, whether deployed on the Internet or other electronic or digital media. Such technologies, whether deployed on the Internet or other electronic or digital media, shall include operating and application software; Internet-related services, including design, strategic planning, deployment, and management services and artificial intelligence; computer modeling and simulation; high-level software languages; neural networks; processor architecture; animation and full-motion video; graphics hardware and software; speech and optical character recognition; high volume information storage and retrieval; data compression; and multiplexing, digital signal processing, and spectrum technologies;
(c) Advanced materials and processing technologies that involve the development, modification, or improvement of one or more materials or methods to produce devices and structures with improved performance characteristics or special functional attributes, or to activate, speed up, or otherwise alter chemical, biochemical, or medical processes. Such materials and technologies shall include metal alloys; metal matrix and ceramic composites; advanced polymers; thin films; membranes; superconductors; electronic and photonic reduction; pharmaceuticals; and waste processing technologies;
(d) Engineering, production, biotechnology and defense technologies that involve knowledge-based control systems and architectures; advanced fabrication and design processes, equipment, and tools; or propulsion, navigation, guidance, nautical, aeronautical and astronautical ground and airborne systems, instruments, and equipment. Such technologies shall include: computer-aided design and engineering; computer- integrated manufacturing; robotics and automated equipment integrated circuit fabrication and test equipment; sensors; biosensors; signal and image processing; medical and scientific instruments; precision machining and forming; biological and genetic research equipment; environmental analysis, remediation, control, and prevention equipment; defense command and control equipment; avionics and controls; guided missile and space vehicle propulsion units; military aircraft; space vehicles; and surveillance, tracking, and defense warning systems; or
(e) Electronic and photonic devices and components for use in producing electronic, optoelectronic, mechanical equipment and products of electronic distribution with interactive media content. Such technologies shall include microprocessors; logic chips; memory chips; lasers; printed circuit board technology; electroluminescent, liquid crystal, plasma, and vacuum fluorescent displays; optical fibers; magnetic and optical information storage; optical instruments, lenses, filters; simplex and duplex data bases; and solar cells.
(a) The Downtown East Area which shall consist of land within the boundary descriptions beginning at the intersection of Pennsylvania Avenue, NW, and New Jersey Avenue, NW, north to Massachusetts Avenue, NW, west on Massachusetts Avenue, NW, to 15th Street, NW; south on 15th Street, NW, to Pennsylvania Avenue, NW, and east on Pennsylvania Avenue, NW, to New Jersey Avenue NW;
(b) The Capital City Business and Industrial Area which shall consist of land within the boundary descriptions beginning at the intersection of New York Avenue, NE, and 9th Street, NE, to Montana Avenue, NE, north on Montana Avenue, NE, to W Street, NE, west on W Street, NE, to 13th Street, NE, northwest on 13th Street, NE, to Brentwood Road, NE, southwest on Brentwood Road, NE, to 9th Street, NE; and south on 9th Street, NE, to New York Avenue, NE;
(c) The Capital City Market Area which shall consist of land within the boundary descriptions beginning at the intersection of Florida Avenue, NE, and North Capitol Street; southeast on Florida Avenue, NE, to 12th Street, NE, south on 12th Street, NE, to H Street, N.E., west on H street, NE, to 9th Street, NE, and north on 9th Street, NE, to Florida Avenue, N.E.;
(d) Any area designated as Development Zone Areas pursuant to Chapter 14 of Title 5, including, but not limited to, Alabama Avenue, D.C. Village, and Anacostia;
(e) Any housing opportunity area, development opportunity area, or new or upgraded commercial center designated on the District of Columbia Generalized Land Use Policies Map that is part of the Comprehensive Plan;
(f) The Transit Impact Area which shall consist of any area located within 1500 feet of a Metrorail station in any of the areas set forth in paragraphs (1) through (12) of this subsection, or within 1500 feet of a Metrorail station at a designated Metrorail Station Development Opportunity Area, as defined in the District Elements of the Comprehensive Plan of the District of Columbia; and
(g) The Minnesota Avenue area which shall consist of land within the boundary descriptions beginning from East Capitol Street, NE, to Nannie Helen Burroughs Avenue, NE, the Dix Street area which shall consist of land within the boundary descriptions beginning from 58th Street, NE, to Eastern Avenue, NE, the Nannie Helen Burroughs area which shall consist of land within the boundary descriptions beginning from Eastern Avenue, NE, to 49th Street, NE, the Pennsylvania Avenue area which shall consist of land within the boundary descriptions beginning from Branch Avenue, SE, to Carpenter Street, SE, the Benning Road area which shall consist of land within the boundary descriptions beginning from East Capitol Street, SE, to 44th Street, N.E., from Hanna Place, SE, to Hillside Road, SE, and from 39th Street, SE, to 36th Street, SE, and the Division Avenue area from Eads Street, NE, to Hayes Street, NE.
(a) Is a member of the board of directors of the QHTC;
(b) Directly or indirectly owns a majority of its stock; or
(c) Is related to a member of the board of directors or a majority stockholder as a spouse or a relative listed in the definition of "dependent" in IRC § 152, without regards to source of income.
(a) Tangible personal property, as defined in IRC § 179(d)(2) purchased by the taxpayer after December 31, 2000, where the original use of the property commences with the taxpayer, and at least 80% or more of the use of the property was in a QHTC; or
(b) Real property which is substantially improved by the taxpayer during any 24-month period beginning after December 31, 2000, if:
(1) Additions to basis with respect to the property in the hands of the taxpayer exceed the greater of:
(A) an amount equal to the adjusted basis of the property at the beginning of the 24-month period in the hands of the taxpayer, or
(B) five thousand dollars ($5,000).
(2) At least fifty one percent (51%) of the cost of the additions to basis represents improvements, which facilitate the conduct of a QHTC on the premises; and
(3) The improvements are completed before January 1, 2003.

The following are examples of the application of the definition of Qualified Business Property:

(1) Company B, a QHTC on January 1, 2001, purchased $10,000 of computer equipment to be used by Company B for developing software. Company B located its base of operation in an abandoned five-story warehouse purchased on January 1, 2001, for $25,000.00. Over a twenty-four month period, Company B completely renovated the building and repaved the parking area at a cost of $100,000.00. Company B used two floors for an electronic equipment facility. The balance of the building and parking area are used by Company B to conduct qualifying high technology activities. The computer equipment, building and parking lot are qualified business property. The abandoned warehouse is substantially improved since the cost of the improvements of $100,000 exceeds the greater of:
(a) The adjusted basis of the abandoned property which was $25,000; or
(b) $5,000, and more than 51% of the additional improvements facilitate the conduct of a QHTC. Therefore, the requirements of § 1199 are met.
(2) Assume the same facts as in Example 1, except that Company B leases four floors and 80% of the parking area to a separate QHTC. The building is still substantially improved and is qualified business property since at least 51% of the additional improvements facilitate the conduct of a QHTC. Company B is not required to use the real property to meet the requirements of § 1199, since the Code only requires that the real property be used by a QHTC.
(3) Assume the same facts as in Example 1, except that Company B leases four floors and 80% of the parking area to a company that is not a QHTC. Since 51% of the substantially improved building does not facilitate the conduct of a QHTC, the improvements do not meet the requirements of § 1199.
(a) Treated as ordinary income under IRC §§ 1245 or 1250 if IRC § 1250 applied to all depreciation rather than additional depreciation;
(b) Attributable to real property or an intangible asset which is not an integral part of a QHTC's business operations in the District; or
(c) Attributable, directly or indirectly, in whole or in part, to a transaction with a related person.
(a) Is a recipient of Temporary Assistance for Needy Families (TANF);
(b) Was a recipient of TANF in the period immediately preceding employment;
(c) Was released from incarceration within twenty four (24) months before the date of employment by a QHTC; or
(d) Is an employee hired, or relocated to the District, after December 31, 2000, and for which a QHTC also is eligible to claim the Welfare to Work Tax Credit or the Work Opportunity Tax Credit under the IRC § 51.
(e) The term "qualified disadvantaged employee" shall not mean or include:
(1) An employee who was employed as the result of:
(i) The displacement of another employee;
(ii) A strike or lockout;
(iii) A layoff in which other employees are awaiting recall; or
(iv) A reduction of the regular wages, benefits, or rights of other employees in similar jobs,
(a) Maintains an office, headquarters, or base of operations in the District of Columbia;
(b) Has 2 or more employees;
(c) Derives at least 51% of its gross revenue from one or more of the activities listed in D.C. Official Code § 47-1817.1(5)(A)(iii);
(d) Does not receive 51% or more of its gross revenue from operating a retail store or electronic equipment facility, as defined in D.C. Official Code § 47-1817.1(5)(B)(ii), in the District; and
(e) Is appropriately registered as a business with a District agency that requires registration, such as DCRA and Office of Tax and Revenue, and is current in all District filing requirements and payment obligations.

The following are examples of the application of the definition of a QHTC:

(1) Company A, a calendar year taxpayer, was incorporated in the District in year one. Company A is organized for profit and maintains its base of operation in the District. Company A has 10 employees. Company A's gross revenue is $100,000 of which $60,000 is derived from qualifying high technology activities, as specified in D.C. Official Code § 47-1817.1(5)(A)(iii). Company A does not operate a retail store or electronic equipment facility. Therefore, Company A qualifies as a QHTC within the meaning of § 1199. Company A must attach to its applicable tax returns an original affidavit certifying that it is a QHTC.
(2) Assume the same facts as in example 1, except that Company A is a local retailer of computers and software whose base of operation is exclusively in the District. Company A's gross revenue is $1 million. Company A also is engaged in a permitted activity, which generates $100,000 of gross revenue. Since 51% of Company A's gross revenue is not from a permitted activity, Company A does not meet the § 1199 gross revenue test and is not a QHTC.
(a) The interest is acquired by the taxpayer from the partnership solely in exchange for cash;
(b) On the date of acquisition, the partnership is a QHTC (or, in the case of a new partnership, the partnership is organized for purposes which qualify it as a QHTC); and
(c) During 80% or more of the taxpayer's holding period of the interest, the partnership qualifies as a QHTC.
(a) The stock is originally issued to the taxpayer, directly or through an underwriter, solely in exchange for cash;
(b) On the date of issuance, the corporation is a QHTC (or, in the case of a new corporation, the corporation is being organized for purposes which qualify it as a QHTC); and
(c) During 80% or more of the taxpayer's holding period for the stock, the corporation qualifies as a QHTC.
(a) Moving expenses as defined in IRC § 217(b)(1); or
(b) Financial assistance in the purchasing of a residence, or in procuring a one-year lease for a residence.

Rent Commencement Date - First day of the first tax year following the tax year in which the Certificate of Occupancy is issued.

Taxable Transitional Assessed Value - the value in the base year preceding the first year that the benefits under D.C. Official Code § 47-811.03 commence, excluding any supplemental assessments assessed in that year. It should be noted that the assessed value may change in a half-year levy that precedes the first year of the abatement under D.C. Official Code § 47-811.3 in the event that the timing of the increase in the value of the building or renovations is picked up in the Taxable Transitional Year.

Taxable year - the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the taxable income is computed pursuant to D.C. Official Code § 47 -1800. "Taxable year" means, in the case of a return made for a fractional part of a year pursuant to D.C. Official Code § 47 -1800 or under the regulations prescribed by the Mayor, the period for which such return is made.

Tenant - for real property tax abatement purposes, is a QHTC that executes a lease under which it occupies and uses eligible premises. The term tenant shall include a subtenant if the subtenant is a QHTC.

1199.2

For purposes of DC. Official Code § 47-1817.01(5)(A), the following terms and phrases shall have the meaning ascribed:

(a) "Deriving at least 51% of its gross revenues earned in the District' shall require the taxpayer to receive its gross revenues as payment for directly performing or producing one or more of the QHTC services or products enumerated in D.C. Official Code § 47-1817.01(5)(A)(iii), not from mere use of technology in its business.
(b) "Having 2 or more qualified employees in the District' shall require that the qualified employees spend the majority of their time working in an office owned or leased by the taxpayer in the District of Columbia and directly engaging in one or more of the activities enumerated in D.C. Official Code § 47-1817.01(5)(A)(iii).
(c) "Leasing an office in the District of Columbia" shall require a written contract conveying real property for a specified term and for a specified rent where the lessee has continuous use of the premises during business and non-business hours. 'Leasing an office in the District of Columbia" shall not include maintaining a virtual office, contracting for use of a co-working office space or a licensing arrangement A lease must be maintained for the entirety of the period for which QHTC status is sought.
(d) "Office" shall mean a building, room, or series of rooms in which the affairs of the taxpayer are carried on, but will not include warehouses, garages, studios, trailers, temporary structures, outdoor space, equipment storage facilities, equipment rooms, home offices, or other similar locations.
(e) "Owning an office in the District of Columbia" shall require the taxpayer to own real property in fee simple for the entirety of the tax year for which QHTC status is sought.

D.C. Mun. Regs. tit. 9, r. 9-1199

Final Rulemaking published at 49 DCR 2142 (March 8, 2002); amended by Final Rulemaking published at 67 DCR 4773 (5/1/2020)