Refundable Tax Credit For D.C. Retail Businesses

Blog
February 4, 2020

Businesses in the District of Columbia should not overlook the Small Retailer Property Tax Relief Credit. The term “small retailer” implies a narrow scope of eligible businesses, but the credit applies to more business activities than the program’s name suggests. Plus, the credit is easy to claim and refundable. 

For tax years beginning on or after January 1, 2018, the District allows certain retail businesses to claim the Small Retailer Property Tax Relief Credit. This is a refundable franchise tax credit claimed against corporate or unincorporated business franchise tax liabilities. The credit is available to businesses that own or lease their District business location. For retailers that lease their business location, the credit is equal to the lesser of 10% of the total rent paid or $5,000. For retailers that own the primary place where they conduct their business, the credit is equal to the lesser of the real property taxes paid or $5,000.

To be eligible for the credit, a qualified business must:

  • Be engaged in the business of make sales at retail
  • File and pay sales tax to the District
  • Have less than $2.5 million in federal gross receipts or sales
  • Be current on all District taxes

In addition to the criteria above, the business must be located in a qualified retail location. The location must be:

  • A building or part of a building in the District that’s owned or leased by the qualified business
  • Classified as Class 2 Property
  • Property for which business has obtained a Certificate of Occupancy
  • The primary place of the retail business

The Small Retailer Property Tax Relief Credit is clearly advantageous for merchandise stores, restaurants, and bars. However, the credit applies to any business that makes sales subject to the District’s sales and use tax. This makes the credit rather broad, as the District’s sales and use tax applies to a large number of services. For example, landscapers, health clubs, parking garages, real property cleaning services, and even sellers of digital goods and software products are eligible for the credit. For a more exhaustive list of businesses that can take advantage of the credit, refer to the District’s Frequently Asked Questions publication regarding the credit. 

Finally, eligible businesses should certainly be claiming this credit on their 2019 District franchise tax returns, but should consider amending their 2018 D.C. franchise tax return if the credit was not claimed. There is no application that needs to be timely filed to claim the Small Retailer Property Tax Relief Credit. Taxpayers are simply required to attach Schedule SR to their District Franchise Tax returns. Thus, there is nothing preventing amending a 2018 franchise tax return to claim the credit, so long as the amended return is filed within the statute of limitations. 

Businesses should consult with a tax professional to determine if their business qualifies for the retail tax credit, as well as to discuss the specific information that would need to be disclosed on their tax return. Our tax specialists are available for consultation on this and other business management topics for restaurants, hotels, food distributors, or other retail owners. Please contact Aaron Boker or one of our hospitality tax advisors at 301.231.6200 for more information.