D.C. Updates QHTC Regulations

May 18, 2020

Effective May 1, 2020, the District of Columbia amended its regulations pertaining to Qualified High Technology Companies (QHTCs). The amendments will impact certain taxpayers’ continued eligibility to file District tax returns claiming QHTC benefits.

The District will now more strictly interpret the requirements needed to meet the definition of a QHTC. In order to be a QHTC, the District’s tax laws provide that a taxpayer must: (1) Derive at least 51% of its District source gross receipts from one of the QHTC permitted activities; (2) Own or lease an office in the District; and (3) Have two or more employees in the District. Under the regulatory amendments, employees that work in the District are now required to actually work from the District office. The amendments also reflect that businesses with a part-year lease in the District will not be considered a QHTC. Finally, the regulations now clarify that an agreement to use shared office space will not be considered a lease.

Key sections of the amended regulation include:

  • “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).
  • “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.

Aronson fully expects that the District will at the very least utilize this interpretation for the entire 2020 tax year. The regulatory amendments come soon after last year’s curtailment of certain QHTC benefits by the District of Columbia Council. Additional details regarding those changes can be found here. For more information or to discuss how these development may impact your business, contact Michael Colavito at 301.231.6298.