05.06.2014 District of Columbia Tax Revision Commission and Office of Tax and Revenue Comments BY: STEPHANIE LIPINSKI GALLAND  

On September 14, 2011, the District of Columbia (“District”) created the Tax Revision Commission with the purpose of “preparing comprehensive recommendations” to address the fairness of apportionment of taxes, broaden the tax base, make the District’s tax policy competitive with the surrounding jurisdictions, encourage business growth and “modernize, simplify, and increase transparency in the District’s tax code.”

After many meetings and input from a varied list of taxpayers and taxpayer groups, the Commission has finally issued its Final report in May 2014.  The Commission focused on the burden on individuals within the District and how the District compared to Maryland and Virginia.  Of import to businesses, the Commission looked at two areas – business tax and sales/use tax.  Below are the Commission’s recommendations:

Business tax
  • Lower the franchise tax rate to 8.25 percent from 9.975 percent
  • Exempt investment funds from the unincorporated business franchise tax
  • Apportion business income for purposes of taxation to the District on sales only
  • Levy a local services fee on non-government DC employers of $100.00 per employee per year
Sales/Use Taxes
  • Expand the sale/use tax to more services
  • Report use tax for online and mail order purchases on the individual income tax return
  • Raise the general rate from 5.75 per cent to 6 percent
  • Unify the taxation of tobacco products
On May 2, 2014, the Commission also released a memo to Jeffery DeWitt, District Chief Financial Officer, that contained some “suggestions” from the tax administration consultant, Linda Tanton, the current Deputy CFO/Office of Tax and Revenue, Steve Cordi, the Chair of the Real Property Tax Appeals Commission and members of the Commission, Council and public.  This memo can be found here.

The highlights of the “suggestions” include:
  • The purchase and implementation of a new computer system.  The hope is that the system will offer more “self-help” to D.C. taxpayers.  The system would also assist the collections section of OTR. 
  • A new telephone system.
  • An improved customer service experience.  This includes an ombudsman, strong “taxpayer outreach,” and committees to review and propose “revisions to forms.”
  • Additional collection personnel.
  • A new “third level of appeal for real property assessments to replace the existing third level of appeal – the D.C. Superior Court.”
  • A review and analysis of all tax incentives.  This includes a sunset for exemptions and review and analysis to ascertain if the incentives are actually working and achieving stated goals.
  • Equalization of the interest rate on both underpayments and overpayments.
  • Enactment of a “trust fund” provision on “responsible persons” for sales tax and restrictions on responsible persons, vis-à-vis opening new business while still owing outstanding trust fund monies. 
It should be noted that the recommendations also address some individual tax issues. 

Williams Mullen will track these recommendations and suggestions and update any new opportunities to respond to the District and the CFO’s office on these items.