The District of Columbia to Revise QHTC Certification Requirements

November 26, 2018

Effective January 1, 2019, the District of Columbia’s Office of Tax and Revenue (OTR) will implement new certification requirements for a business seeking to be treated as a Qualified High Technology Company (QHTC). The new certification process will be administered entirely online through OTR’s platform. The new certification process applies to both taxpayers that will be seeking QHTC incentives for the first time, as well as taxpayers certified as QHTCs in prior years.

The District has yet to release details as to when the new online certification will be available for submission. However, taxpayers need to be aware of this new requirement and ensure that a certification is obtained prior to filing any District tax return, on which QHTC benefits are being claimed during calendar year 2019. Under the new rules, any tax return filed on or after January 1, 2019 must include a QHTC Certificate of Benefits, which will be issued electronically upon completing the new online certification.

The District’s QHTC program can afford a taxpayer very lucrative tax incentives. Information pertaining to the types of business activities eligible for QHTC benefits can be found here. The main tax incentives offered to QHTCs include:

  1. A five-year tax exemption for corporate franchise taxpayers with a reduced 6% rate thereafter (as compared to the 8.25% reg. rate);
  2. An indefinite franchise tax exemption for a business that would otherwise be subject to the District’s unincorporated business franchise tax;
  3. Various franchise tax wage credits generally available to corporate franchise taxpayers;
  4. Sales and use tax exemptions;
  5. A 10-year personal property tax exemptions; and
  6. Reduced 3% tax rate on capital gain from the sale of an investment in a QHTC.

Last year, the District began requiring all QHTC sales tax exemptions to be applied for online, and now, the Office of Tax and Revenue (OTR) has taken steps that will require all businesses seeking QHTC certification to submit a similar online certification for all tax types. In prior years, a business self-certified by attaching to the applicable tax return the “QHTC-Cert,” attesting to meeting the criteria of being a QHTC. The revised certification procedure is still a self-certification process, in that a taxpayer should be able to immediately obtain the certificate without waiting for OTR to review the submission.  However, if the QHTC sales tax exemption certificate procedure that has been in place for the last year is indicative of what taxpayers can expect, taxpayers will likely need to provide additional information to complete the new certification. Such information may include (1) proof of DC office location (proof of ownership or current lease agreement); (2) proof of two or more employees working in the District by providing recently filed unemployment tax returns filed with the District; (3) a more detailed explanation of the taxpayer’s business activities; and (4) QHTC job creation counts.

Once the certification is complete, taxpayers should be able to immediately obtain their QHTC certificate of benefits, which OTR has indicated will reflect all the returns to be filed in the calendar year, on which the taxpayer is potentially eligible for QHTC incentives. The new certificate of benefits essentially is replacing the “QHTC-Cert” and will be required to be attached to any return, on which QHTC incentives are claimed. Taxpayers will be required to recertify each year.

Taxpayers that have claimed QHTC incentives in the past or intend to do so on any District tax return filed in calendar year 2019 will need to submit their online certification prior to filing any such returns.  Taxpayers need to have a account to submit the QHTC certification. If your business does not yet have a account, Aronson urges you to set up your account now. Aronson is monitoring when the new online QHTC certification will be available, and we will notify you at such time.

If you have any questions regarding the new certification process, how to set up a account, or if your business is eligible for QHTC incentives, please contact your Aronson tax advisor or Michael L. Colavito, Jr. at 301.231.6200.