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DC’s Small Retailer Property Tax Relief Credit – Who Is Eligible and When?

CHAMPS

The Small Retailer Property Tax Relief Credit, which was announced by Councilmembers Allen and Mendelson in May, passed the Council and will go into effect this October. CHAMPS reached out to Councilmember Allen’s office for details on the tax credit, including how and when it will be implemented. DC’s Office of Tax and Revenue is also working on guidance and forms for the credit, and we will let CHAMPS members know when that guidance comes out.

The credit is calculated as equal to 10% of the rent paid during the taxable year OR equal to the Class 2 property taxes paid, up to a maximum credit of $5,000.

 

So when does it go into effect?

The tax credit is retroactive to January 1, 2018. So eligible retailers should be able to claim this credit on 2018 returns.

 

Who is eligible to receive this credit?

From my reading of the legislative language, a lot of businesses! Businesses that provide services but also have a retail component may be able to take advantage of this credit. Check with your accountant and we will keep you posted as guidance is forthcoming from OTR. The language of the credit and the DC Code definitions that it references are below.

Here are the qualifying features as we understand them:

  • Be a business that “makes sales at retail …. Including sale of tangible personal property and certain selected services subject to the DC sales tax,” [§ 47-2001(m)]
  • File a sales tax return and have a sales tax account with OTR (and be current on filings and payments!), and have a C of O for commercial use from DCRA
  • Have less than $2.5 million in sales
  • Be in a space classified as Class 2 property

AND

  • And be the primary place of business.

 

What specific provisions of the DC Code can I read if I want more info, or want help falling asleep?

Looking at § 47-2002(a) and the “certain selected services subject to the DC sales tax,” here are a few types of retail and services it includes:

(A)(i) Sales of food or drink prepared for immediate consumption as defined in subsection (g-1) of this section; and

(B) Any production, fabrication, or printing of tangible personal property on special order for a consideration;

(J) The sale of or charges for copying, photocopying, reproducing, duplicating, addressing, and mailing services and for public stenographic services;

(Y)(i) The sale of or charge for health-club services or a tanning studio;

 

Here’s the link to the definition of “Retail sale” and “sale at retail” [scroll to (n)(1)] if you have made it this far in the blog and STILL are thirsting for more DC code.

 

Interested in the definition of “retail establishment” under § 47-2001(m)?  Per DC Code: “Retail establishment” means any premises in which the business of selling tangible personal property is conducted or in or from which any retail sales are made.

 

AND finally, the text of the small retailer provision:

 

SUBTITLE Y. SMALL RETAILER PROPERTY TAX RELIEF

Sec. 7261. Short title.

This subtitle may be cited as the “Small Retailer Property Tax Relief Amendment Act of 2018”.

Sec. 7262. Chapter 18 of Title 47 of the District of Columbia Official Code is amended as follows:

(a) The table of contents is amended by adding a new section designation to read as follows:

“47-1807.14. Retailer property tax relief credit.

(b) A new section 47-1807.14 is added to read as follows:

Ҥ 47-1807.14. Retailer property tax relief credit.

“(a) For the purposes of this section, the term:

“(1) “Qualified corporation” means a corporation that:

“(A) Is engaged in the business of making sales at retail and files a sales tax return pursuant to Chapter 20 of this title reflecting those sales;

“(B) Has less than $2,500,000 in federal gross receipts or sales; and

“(C) Is current on all District tax filings and payments.

“(2) “Qualified retail rental location” means a building or part of a building in the District that during the taxable year is:

“(A) A retail establishment as defined in § 47-2001(m);

“(B) The primary place of the retail business of the qualified corporation;

“(C) Leased by the qualified corporation; and

“(D) Classified, in whole or in part, as Class 2 Property, as defined in § 47-813 and has obtained a Certificate of Occupancy for commercial use.

“(3) “Qualified retail owned location” means a building or part of a building in the District that during the taxable year is:

“(A) The primary place of the retail business of the qualified corporation;

“(B) Owned by the qualified corporation; and

“(C) Classified, in whole or in part, as Class 2 Property, as defined in § 47-813 and has obtained a Certificate of Occupancy for commercial use.

“(b) For taxable years beginning after December 31, 2017, a qualified corporation may claim a credit against the tax imposed by this chapter as follows:

“(1) A tax credit equal to 10% of the total rent paid by the corporation for a qualified rental retail location during the taxable year not to exceed $5,000; or

“(2) A tax credit equal to the total Class 2 real property taxes, pursuant to § 47-811, paid by the qualified corporation for a qualified retail owned location during the taxable year not to exceed the lesser of the real property tax paid during the taxable year or $5,000.

“(c) The credit claimed under this section in any one taxable year may exceed the qualified corporation’s tax liability, including any minimum tax due under § 47-1807.02(b), under this chapter for that taxable year and shall be refundable to the corporation claiming the credit.

“(d) This section shall not apply if the qualified corporation is exempt from or receives any tax credits towards its real property tax or the qualified rental retail location or qualified owned retail location is otherwise exempt from real property tax.

(c) The table of contents is amended by adding a new section designation to read as follows:

“47-1808.14. Retailer property tax relief credit.

(d) A new section 47-1808.14 is added to read as follows:

“47-1808.14. Retailer property tax relief credit.”.

“(a) For the purposes of this section, the term:

“(1) “Qualified retail owned location” means a building or part of a building in the District that during the taxable year is:

“(A) The primary place of the retail business of the qualified unincorporated business;

“(B) Owned by the qualified unincorporated business; and

“(C) Classified, in whole or in part, as Class 2 Property, as defined in § 47-813 and has obtained a Certificate of Occupancy for commercial use.

“(2) “Qualified retail rental location” means a building or part of a building in the District that during the taxable year is:

“(A) A retail establishment as defined in § 47-2001(m);

“(B) The primary place of the retail business of the qualified unincorporated business;

“(C) Leased by the qualified unincorporated business; and

“(D) Classified, in whole or in part, as Class 2 Property, as defined in § 47-813 and has obtained a Certificate of Occupancy for commercial use.

“(3) “Qualified unincorporated business” means a business that:

“(A) Is engaged in making sales at retail and files a sales tax return pursuant to Chapter 20 of this title reflecting those sales;

“(B) Has less than $2.5 million in federal gross receipts or sales; and

“(C) Is current on all District tax filings and payments.

“(b) For taxable years beginning after December 31, 2017, a qualified unincorporated business may claim a credit against the tax imposed by this chapter as follows:

“(1) A tax credit equal to 10% of the total rent paid by the qualified unincorporated business for a qualified rental retail location during the taxable year not to exceed $5,000; or

“(2) A tax credit equal to the total Class 2 real property taxes, pursuant to § 47-811, paid by the qualified unincorporated business for a qualified retail owned location during the taxable year not to exceed the lesser of the real property tax paid during the taxable year or $5,000.

“(c) The credit claimed under this section in any one taxable year may exceed the qualified unincorporated business’s tax liability, including any minimum tax due under § 47-1807.02(b), under this chapter for that taxable year and shall be refundable to the qualified unincorporated business claiming the credit.

“(d) This section shall not apply if the qualified unincorporated business is exempt from or receives any tax credits towards its real property tax or the qualified rental retail location or qualified owned retail location is otherwise exempt from real property tax.”.

 

The DC Council on May 15 voted to pass the DC budget, and included a $5,000 tax credit for qualified small businesses. Called the Small Retailer Property Tax Credit, it is estimated to allow 4,400 small retail business to lower or eliminate their minimum franchise tax bill or receive a tax rebate.

How it works:

  • Business will receive a refundable credit on business tax liability that is worth EITHER the small retailer’s property tax bill, or 10 percent of the annual lease cost, up to $5,000 per year.
  • To be eligible, businesses must have active business operations in DC have less than $2,500,000 in gross revenue. Any revenue that a business earns outside of the District would be included in this gross revenue total.
  • Retail businesses can qualify for the credit regardless of whether they are property owners, renters or parties to a triple-net lease.

The Small Retailer Property Tax Credit is an effort to provide relief to small retail businesses, as the budget does propose to increase property and other taxes to help pay for Metro and other programs. The budget eliminates the tiered property tax rate for buildings with an assessed value of $3 million or greater. Instead, buildings up to $5 million will be assessed at what had previously been the lower tier – $1.65/$100 (for the entire assessed value). Buildings with an assessed value of more than $5 million will see a property tax rate increase to $1.89/$100 for the entire assessed value of the building (an increase from the previous top tier of $1.85). So building owners with buildings valued at $3 mil or less should not see a change; building owners with buildings valued between $3 mil and $4 mil should see a decrease in property tax; and buildings at $5 mil or greater will see an increase.

Other tax decisions in the budget that could affect small businesses and their customers:

  • raising the general sales tax rates from 5.75% to 6%;
  • raising the rate of general sales tax for car rental or leasing from 9% to 10.25%;
  • raising the rate of general sales tax for liquor, beers, and wine sold for off-premises consumption from 9% to 10.25%;
  • raising the hotel sales tax and corresponding use tax rates from 10.05% to 10.20%;
  • raising the gross receipts tax on for-hire vehicles, which does not include taxis, from 1% to 6%.

 

How will this tax credit work for you? Share your thoughts at champs@capitolhill.org.  Information for this post came from the DC Council Local Budget Act report, which you can read here.