New Limitation to D.C. High Technology Tax Incentives (QHTC)

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The D.C. Council recently enacted legislation that will result in a number of D.C. taxpayers no longer qualifying for certain high technology tax incentives. On October 10, 2014, the  Council narrowed the definition of “Qualified High Technology Company” (QHTC) with an amendment to the District’s Fiscal Year 2015 Budget Support Congressional Review Emergency Act of 2014 (20-449). The amendment, which is expected to be made permanent by Congress, says that a company must lease or own an office in the district to qualify.

Under the old QHTC definition, a company could qualify for the incentives by either maintaining an office, headquarters, or base of operations in the District.  A taxpayer-friendly interpretation by a 2012 D.C. Court of Appeals decision held that a taxpayer has a “base of operations” in the District if it has a fixed D.C. location for a sufficiently extended period of time.  The holding clarified that, under the old rule, a QHTC did not need to have an office in the District.  It was sufficient for company to have employees performing qualifying high technology activities in facilities not controlled or maintained by the taxpayer (e.g., a federal government facility).    The amendment to the law, which applies to tax years beginning after December 31, 2014, effectively reverses the D.C. Court of Appeals decision and requires a taxpayer to own or lease an office in the District to qualify for QHTC benefits.

This amendment will directly impact D.C. taxpayers that are currently claiming the reduced franchise tax rate or the five-year franchise tax exemption afforded to QHTCs.  Government contractors currently claiming QHTC status that are based outside of the District, but have significant high technology services being performed at government facilities are likely to be the most impacted by the law change.

If you have any questions about D.C. QHTCs or other District tax issues, please contact your Aronson tax advisor or Michael L. Colavito, Jr. at 301.231.6200.

About Michael Colavito, Jr.

Michael Colavito, Jr. has written 55 post in this blog.

Michael L. Colavito, Jr. is a senior manager in Aronson LLC’s Tax Services Group, where he provides multi-state taxation services pertaining to income, franchise, sales and use, and property taxes. Michael’s experience also includes representing clients at all stages of tax controversy, from audit through appellate litigation, and advising them on restructurings, state tax refund and planning opportunities.

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