(a) It is the purpose of this chapter to impose:
(1) An income tax upon the entire net income of every resident and every resident estate and trust; and
(2) A franchise tax upon every corporation, financial institution, and unincorporated business for the privilege of carrying on or engaging in any trade or business within the District and of receiving such other income as is derived from sources within the District; provided, however, that, in the case of any corporation, the amount received as dividends from a corporation which is subject to taxation under this chapter or under Chapter 26 of this title, and, in the case of a corporation not engaged in carrying on any trade or business within the District, interest received by it from a corporation which is subject to taxation under this chapter or under Chapter 26 of this title shall not be considered as income from sources within the District for purposes of this chapter; and in the case of any corporation organized as a bank holding company under the provisions of the Bank Holding Company Act of 1956 and the Bank Holding Company Act Amendments of 1970, the amount received as dividends from a corporation which is subject to taxation under this chapter or under the provisions of § 47-2501, and in the case of any such bank holding company not engaged in carrying on any trade or business within the District, interest received by it from a corporation which is subject to taxation under such sections, shall not be considered as income from sources within the District for purposes of this chapter. Provided further, that income derived from the sale of tangible personal property by a corporation, financial institution, or unincorporated business not carrying on or engaging in trade or business within the District as defined in §§ 47-1801.01 to 47-1801.04 shall not be considered as income from sources within the District for purposes of this chapter, with the exception of income from sale to the United States not excluded from gross income as provided in § 47-1803.02(a)(2)(I); provided, further, that dividends received from subsidiary corporations for whom the taxpayer provides services are deemed to be business income subject to apportionment.
(b) Notwithstanding the provisions of this section, all interest received and all dividends (except dividends of corporations subject to the District of Columbia franchise tax or interest and dividends attributable to any IBF time deposit or IBF loan) received by financial institutions shall be deemed to be business income.
(July 16, 1947, 61 Stat. 349, ch. 258, art. I, title X, § 1; May 3, 1948, 62 Stat. 207, ch. 246, § 2; Apr. 17, 1974, 88 Stat. 85, Pub. L. 93-268, § 1; Sept. 13, 1980, D.C. Law 3-95, § 106(a), 27 DCR 3509; July 24, 1982, D.C. Law 4-131, § 102, 29 DCR 2418; Sept. 17, 1982, D.C. Law 4-150, § 105, 29 DCR 3377; Oct. 8, 1983, D.C. Laws 5-32, § 7, 30 DCR 4013; Oct. 1, 1987, D.C. Law 7-29, § 2(j), 34 DCR 5097; enacted, Apr. 9, 1997, D.C. Law 11-254, § 2, 44 DCR 1575.)
HISTORICAL AND STATUTORY NOTES
Prior Codifications
1981 Ed., § 47-1810.1.
1973 Ed., § 47-1580.
Legislative History of Laws
For legislative history of D.C. Law 3-95, see Historical and Statutory Notes following § 47-1801.04.
For legislative history of D.C. Law 4-131, see Historical and Statutory Notes following § 47-1801.04.
For legislative history of D.C. Law 4-150, see Historical and Statutory Notes following § 47-1801.04.
For legislative history of D.C. Law 5-32, see Historical and Statutory Notes following § 47-1816.03.
For legislative history of D.C. Law 7-29, see Historical and Statutory Notes following § 47-1801.01a.
References in Text
The Bank Holding Company Act of 1956, referred to in the proviso in the first sentence in paragraph (2) of subsection (a) of this section, is 70 Stat. 133, ch. 240, approved May 9, 1956.
The Bank Holding Company Act Amendments of 1970, referred to in the same proviso, is 84 Stat. 1760, Pub. L. 91-607, approved December 31, 1970.
Miscellaneous Notes
Mayor authorized to issue regulations: Section 401 of D.C. Law 4-150 and § 9 of D.C. Law 5-32 provided that the Mayor shall issue regulations necessary to carry out the provisions of these acts.
(a) Allocation and apportionment. -- The entire net income of any corporation, financial institution, or unincorporated business, or the unrelated business income of an exempt organization, derived from any trade or business carried on or engaged wholly within the District shall, for the purposes of this chapter, be deemed to be from sources within the District and shall, along with other income from sources within the District, be allocated to the District. If the net income of a corporation, financial institution, or unincorporated business, or the unrelated business income of an exempt organization, is derived from sources within and without the District, the taxpayer shall apportion business income and allocate non-business income as provided in this section.
(b) Taxation by another state. -- For purposes of allocation and apportionment of income under this section, a taxpayer is taxable in another state if:
(1) In that state the taxpayer is subject to a net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business, or a corporate stock tax; or
(2) That state has jurisdiction to subject the taxpayer to a net income tax regardless of whether, in fact, the state does or does not.
(c) Allocation of nonbusiness income. --
(1) Rents and royalties from real or tangible personal property, capital gains, interest, dividends, or patent or copyright royalties, to the extent that they constitute non-business income, shall be allocated as provided in paragraphs (2), (3), (4), and (5) of this subsection.
(2)(A) Net rents and royalties from real property located in the District are allocable to the District.
(B) Net rents and royalties from tangible personal property are allocable to the District:
(i) If and to the extent that the property is utilized in the District; or
(ii) In their entirety if the taxpayer's commercial domicile is in the District and the taxpayer is not organized under the laws of or taxable in the state in which the property is utilized.
(C) The extent of utilization of tangible personal property in a state is determined by multiplying the rents and royalties by a fraction, the numerator of which is the number of days of physical location of the property in the state during the rental or royalty period in the taxable year and the denominator of which is the number of days of physical location of the property everywhere during all rental or royalty periods in the taxable year. If the physical location of the property during the rental or royalty period is unknown or unascertainable by the taxpayer, the tangible personal property is utilized in the state in which the property was located at the time the rental or royalty payer obtained possession.
(3)(A) Capital gains and losses from sales of real property located in the District are allocable to the District.
(B) Capital gains and losses from sales of tangible personal property are allocable to the District if:
(i) The property had a situs in the District at the time of the sale; or
(ii) The taxpayer's commercial domicile is in the District and the taxpayer is not taxable in the state in which the property had a situs.
(C) Capital gains and losses from the sales of intangible personal property are allocable to the District if the taxpayer's commercial domicile is in the District.
(4) Interest and dividends from District sources are allocable to the District unless the interest and dividends are excluded under § 47-1810.01.
(5)(A) Patent and copyright royalties are allocable to the District:
(i) If and to the extent that the patent or copyright is utilized by the payer in the District; or
(ii) If and to the extent that the patent or copyright is utilized by the taxpayer in a state in which the taxpayer is not taxable and the taxpayer's commercial domicile is in the District.
(B) A patent is utilized in a state to the extent that it is employed in production, fabrication, manufacturing, or other processing in the state to the extent that a patented product is produced in the state. If the basis of receipts from patent royalties does not permit allocation to states or if the accounting procedures do not reflect states of utilization, the patent is utilized in the state in which the taxpayer's commercial domicile is located.
(C) A copyright is utilized in a state to the extent that printing or other publication originates in the state. If the basis of receipts from copyright royalties does not permit allocation to states or if the accounting procedures do not reflect states of utilization, the copyright is utilized in the state in which the taxpayer's commercial domicile is located.
(d) Apportionment of business income. -- Except as provided in subsection (d-1), all business income shall be apportioned to the District by multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus the sales factor, and the denominator of which is 3.
(d-1)(1) Apportionment of business income. --All business income shall be apportioned to the District by multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus the sales factor twice, and the denominator of which is 4.
(2) This subsection shall be applicable for the tax years beginning after December 31, 2010.
(e) Property factor. --
(1) The property factor is a fraction, the numerator of which is the average value of the taxpayer's real and tangible personal property owned or rented and used in the District during the tax period and the denominator of which is the average value of all the taxpayer's real and tangible personal property owned or rented and used during the tax period.
(2) Property owned by the taxpayer is valued at its original cost. Property rented by the taxpayer is valued at 8 times the net annual rental rate. Net annual rental rate is the annual rental rate paid by the taxpayer less any annual rental rate received by the taxpayer from sub-rentals.
(3) The average value of property shall be determined by averaging the values at the beginning and ending of the tax period, but the Mayor may require the averaging of monthly values during the tax period if reasonably required to reflect properly the average value of the taxpayer's property.
(f) Payroll factor. --
(1) The payroll factor is a fraction, the numerator of which is the total amount paid in the District during the tax period by the taxpayer for compensation, and the denominator of which is the total compensation paid everywhere during the tax period.
(2) Compensation is paid in the District if:
(A) The individual's service is performed entirely within the District;
(B) The individual's service is performed both within and without the District, but the service performed without the District is incidental to the individual's service within the District; or
(C) Some of the service is performed in the District and:
(i) The base of operations or, if there is no base of operations, the place from which the service is directed or controlled is in the District; or
(ii) The base of operations or the place from which the service is directed or controlled is not in any state in which some part of the service is performed, but the individual's residence is in the District.
(g) Sales factor. --
(1) The sales factor is a fraction, the numerator of which is the total sales of the taxpayer in the District during the tax period, and the denominator of which is the total sales of the taxpayer everywhere during the tax period.
(2) Sales of tangible personal property are in the District if:
(A) The property is delivered or shipped to a purchaser within the District regardless of the f.o.b. point or other conditions of the sale; or
(B) The property is shipped from an office, store, warehouse, factory, or other place of storage in the District and
(i) the purchaser is the United States government, or
(ii) the taxpayer is not taxable in the state of the purchaser.
(3) Sales, other than sales of tangible personal property, are in the District if:
(A) The income-producing activity is performed in the District; or
(B) The income-producing activity is performed both in and outside the District and a greater proportion of the income-producing activity is performed in the District than in any other state, based on costs of performance.
(h) Alternative methods. -- If the allocation and apportionment provisions of this section do not fairly represent the extent of the taxpayer's business activity in the District, the taxpayer may petition for or the Mayor may require, in respect to all or any part of the taxpayer's business activity, if reasonable:
(1) Separate accounting;
(2) The exclusion of any 1 or more of the factors;
(3) The inclusion of 1 or more additional factors that will fairly represent the taxpayer's business activity in the District; or
(4) The employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer's income.
(i) Definitions.--For the purposes of this section, the term:
(1) "State" shall include the District of Columbia.
(2) "Business income" means all income which is apportionable under the Constitution of the United States.
(j) Construction. -- This section shall be so construed as to effectuate its general purpose to make uniform the law of those states that enact it.
(July 16, 1947, 61 Stat. 349, ch. 258, art. I, title X, § 2; Mar. 6, 1979, D.C. Law 2-158, § 4, 25 DCR 7002; Sept. 13, 1980, D.C. Law 3-95, § 106(b), 27 DCR 3509; July 24, 1982, D.C. Law 4-131, §§ 103, 108(a), (b), 29 DCR 2418; Feb. 28, 1987, D.C. Law 6-207, § 3, 34 DCR 677; enacted, Apr. 9, 1997, D.C. Law 11-254, § 2, 44 DCR 1575; June 9, 2001, D.C. Law 13-305, § 202(e), 48 DCR 334; Dec. 7, 2004, D.C. Law 15-205, § 1062(b), 51 DCR 8441; Sept. 14, 2011, D.C. Law 19-21, § 8022, 58 DCR 6226.)
HISTORICAL AND STATUTORY NOTES
Prior Codifications
1981 Ed., § 47-1810.2.
1973 Ed., § 47-1580a.
Effect of Amendments
D.C. Law 13-305 rewrote subsec. (a) which had read:
"(a) Allocation and apportionment. -- The entire net income of any corporation, financial institution, or unincorporated business derived from any trade or business carried on or engaged in wholly within the District shall, for the purposes of this chapter, be deemed to be from sources within the District and shall, along with other income from sources within the District, be allocated to the District. When the net income of a corporation, financial institution, or unincorporated business is derived from sources within and without the District, the taxpayer shall apportion business income and allocate nonbusiness income as provided in this section."
D.C. Law 15-205 rewrote subsec. (i) which had read as follows:
"(i) Definition. -- For purposes of this section, the term 'state' shall include the District of Columbia."
D.C. Law 19-21, in subsec. (d), substituted "Except as provided in subsection (d-1), all business" for "All business"; and added subsec. (d-1).
Emergency Act Amendments
For temporary (90 day) amendment of section, see § 1062(b) of Fiscal Year 2005 Budget Support Emergency Act of 2004 (D.C. Act 15-486, August 2, 2004, 51 DCR 8236).
For temporary (90 day) amendment of section, see § 1062(b) of Fiscal Year 2005 Budget Support Congressional Review Emergency Act of 2004 (D.C. Act 15-594, October 26, 2004, 51 DCR 11725).
For temporary (90 day) addition, see § 7231 of Fiscal Year 2010 Budget Support Second Emergency Act of 2009 (D.C. Act 18-207, October 15, 2009, 56 DCR 8234).
For temporary (90 day) amendment of section, see § 7231 of Fiscal Year Budget Support Congressional Review Emergency Amendment Act of 2009 (D.C. Act 18-260, January 4, 2010, 57 DCR 345).
Legislative History of Laws
For legislative history of D.C. Law 2-158, see Historical and Statutory Notes following § 47-1801.04.
For legislative history of D.C. Law 3-95, see Historical and Statutory Notes following § 47-1801.04.
For legislative history of D.C. Law 4-131, see Historical and Statutory Notes following § 47-1801.04.
Law 6-207, the "D.C. Income and Franchise, and Sales Taxes Amendment Act of 1986," was introduced in Council and assigned Bill No. 6-95, which was referred to the Committee on Finance and Revenue. The Bill was adopted on first and second readings on November 25, 1986 and December 16, 1986, respectively. Signed by the Mayor on January 8, 1987, it was assigned Act No. 6-267 and transmitted to both Houses of Congress for its review.
For Law 13-305, see notes under § 47-901.
For Law 15-205, see notes following § 47-903.
For history of Law 19-21, see notes under § 47-305.02.
Miscellaneous Notes
Section 203(a) of D.C. Law 13-305 provides:
"(a) Section 202(a) through (e) shall apply for all tax years beginning after December 31, 2000."
Short title: Section 7230 of D.C. Law 18-111 provided that subtitle U of title VII of the act may be cited as the "Combined Reporting Reform Authorization Act of 2009".
Section 7231 of D.C. Law 18-111 provides:
"Sec. 7231. Implementation of combined reporting reform.
"The Council shall pass legislation to require, for tax years beginning after December 31, 2010, that all corporations taxable in the District of Columbia shall determine the income apportionable or allocable to the District of Columbia by reference to the income and apportionment factors of all commonly controlled corporations organized within the United States with which they are engaged in a unitary business."
Short title: Section 8021 of D.C. Law 19-21 provided that subtitle C of title VIII of the act may be cited as "Apportionment of Business Income Act of 2011".
In any of 2 or more organizations, trades, or businesses (whether or not incorporated, whether or not organized in the District, and whether or not affiliated) owned or controlled directly or indirectly by the same interests, the Mayor is authorized to distribute, apportion, or allocate gross income or deductions between or among such organizations, trades, or businesses, whenever in his opinion such distribution, apportionment, or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any of such organizations, trades, or businesses. The provisions of this section shall apply, but shall not be limited in application, to any case of a common carrier by railroad subject to the Interstate Commerce Act and jointly owned or controlled directly or indirectly by 2 or more common carriers by railroad subject to said Act.
(July 16, 1947, 61 Stat. 349, ch. 258, art. I, title X, § 3; Mar. 6, 1979, D.C. Law 2-158, § 4, 25 DCR 7002; enacted, Apr. 9, 1997, D.C. Law 11-254, § 2, 44 DCR 1575.)
HISTORICAL AND STATUTORY NOTES
Prior Codifications
1981 Ed., § 47-1810.3.
1973 Ed., § 47-1580b.
Legislative History of Laws
For legislative history of D.C. Law 2-158, see Historical and Statutory Notes following § 47-1801.04.
References in Text
The Interstate Commerce Act, referred to in the second sentence in this section, is 24 Stat. 379, ch. 104, approved February 4, 1887, which was repealed by 92 Stat. 1337, Pub. L. 95-473, approved October 17, 1978. This latter Act also enacted the Revised Interstate Commerce Act, which is classified to 49 U.S.C. § 10102 et seq.
(a) The use of a combined report does not disregard the separate identities of the taxpayer members of the combined group. Each taxpayer member is responsible for tax based on its taxable income or loss apportioned or allocated to the District, which shall include, in addition to other types of income, the taxpayer member's apportioned share of business income of the combined group, where business income of the combined group is calculated as a summation of the individual net business incomes of all members of the combined group. A member's net business income is determined by removing all but business income, expense, and loss from that member's total income, as provided in this section and § 47-1810.05.
(b)(1) Each taxpayer member is responsible for tax based on its taxable income or loss apportioned or allocated to the District, which shall include its:
(A) Share of any business income apportionable to the District of each of the combined groups of which it is a member, as determined under subsection (c) of this section;
(B) Share of any business income apportionable to the District of a distinct business activity conducted within and outside the District wholly by the taxpayer member, as determined under the provisions for apportionment of business income set forth in this chapter;
(C) Income from a business conducted wholly by the taxpayer member entirely within the District;
(D) Income sourced to the District from the sale or exchange of capital or assets, and from involuntary conversions, as determined under § 47- 1810.05(b)(8);
(E) Nonbusiness income or loss allocable to the District as determined under the provisions for allocation of nonbusiness income set forth in this chapter;
(F) Income or loss allocated or apportioned in an earlier year required to be taken into account as District source income during the income year, other than a net operating loss; and
(G) Net operating loss carryover.
(2) If the taxable income computed pursuant to this section and § 47-1810.05 results in a loss for a taxpayer member of the combined group, that taxpayer member has a District net operating loss, subject to the net operating loss limitations and carryover provisions of this chapter. The District net operating loss shall be applied as a deduction in a prior or subsequent year only if that taxpayer has District source positive net income, whether or not the taxpayer is or was a member of a combined reporting group in the prior or subsequent year.
(3) Except where otherwise provided, no tax credit or post-apportionment deduction earned by one member of the group, but not fully used by or allowed to that member, may be used, in whole or in part, by another member of the group or applied, in whole or in part, against the total income of the combined group. A post-apportionment deduction carried over into a subsequent year as to the member that incurred it, and available as a deduction to that member in a subsequent year, will be considered in the computation of the income of that member in the subsequent year regardless of the composition of that income as apportioned, allocated, or wholly within the District.
(c)(1) The taxpayer's share of the business income apportionable to the District of each combined group of which it is a member shall be the product of the:
(A) Business income of the combined group, determined under § 47-1810.05; and
(B) Taxpayer member's apportionment percentage, determined in accordance with this chapter, including in the property, payroll, and sales factor numerators of the taxpayer's property, payroll, and sales, respectively, associated with the combined group's unitary business in the District and including in the denominator the property, payroll, and sales of all members of the combined group, including the taxpayer, which property, payroll, and sales are associated with the combined group's unitary business wherever located.
(2) The property, payroll, and sales of a partnership shall be included in the determination of the partner's apportionment percentage in proportion to a ratio the numerator of which is the amount of the partner's distributive share of partnership's unitary income included in the income of the combined group in accordance with § 47-1810.05 and the denominator of which is the amount of the partnership's total unitary income.
(Sept. 14, 2011, D.C. Law 19-21, § 8002(d), 58 DCR 6226; Sept. 26, 2012, D.C. Law 19-171, § 114(h), 59 DCR 6190.)
HISTORICAL AND STATUTORY NOTES
Effect of Amendments
D.C. Law 19-171, in subsec. (b)(2), validated a previously made technical correction.
Emergency Act Amendments
For temporary (90 day) amendment of section, see § 302(d) of Fiscal Year 2013 Budget Support Technical Clarification Emergency Amendment Act of 2012 (D.C. Act 19-482, October 10, 2012, 59 DCR 12478).
For temporary (90 day) addition of applicability provision, see § 303 of Fiscal Year 2013 Budget Support Technical Clarification Emergency Amendment Act of 2012 (D.C. Act 19-482, October 10, 2012, 59 DCR 12478).
Legislative History of Laws
For history of Law 19-21, see notes under § 47-305.02.
For history of Law 19-171, see notes under § 47-369.01.
Miscellaneous Notes
Section 8004 of D.C. Law 19-21 provides:
"Sec. 8004. Applicability.
"This subtitle shall apply for taxable years beginning after December 31, 2010."
(a) The business income of a combined group is determined as follows:
(1) From the total income of the combined group as determined under paragraph (2) of this subsection and subsection (b) of this section, subtract any income and add any expense or loss, other than the business income, expense, or loss of the combined group.
(2) Except as otherwise provided, the total income of the combined group is the sum of the income of each member of the combined group determined under federal income tax laws, as adjusted for District purposes, as if the member were not consolidated for federal purposes.
(3) Notwithstanding any other provision of this chapter, if the combined group includes or owns an unincorporated business that would be subject to the tax imposed under § 47-1808.03, the income or loss of such unincorporated business shall be apportioned to the District using apportionment factors of the unincorporated business, and the combined group member's distributive share of such post-apportionment income shall be added to the combined group member's District taxable income, which shall be computed without regard to any income or loss or apportionment factors of an unincorporated business subject to this section. A combined group member's distributive share of an unincorporated business's pre-apportionment income or loss shall be exempt from the tax imposed under § 47-1808.03.
(b) The income of each member of the combined group shall be determined:
(1) For any member incorporated in the United States, or included in a consolidated federal corporate income tax return, the income to be included in the total income of the combined group shall be the taxable income for the corporation after making appropriate adjustments under this chapter.
(2) For any member not included in paragraph (1) of this subsection, the income to be included in the total income of the combined group shall be determined:
(A) A profit and loss statement shall be prepared for each foreign branch or corporation in the currency in which the books of account of the branch or corporation are regularly maintained.
(B) Adjustments shall be made to the profit and loss statement to conform it to the accounting principles generally accepted in the United States for the preparation of such statements, except as modified by regulation.
(C) Adjustments shall be made to the profit and loss statement to conform it to the tax accounting standards required by this chapter.
(D) Except as otherwise provided by regulation, the profit and loss statement of each member of the combined group, and the apportionment factors related thereto, whether United States or foreign, shall be translated into the currency in which the parent company maintains its books and records.
(E) Income apportioned to the District shall be expressed in United States dollars.
(3)(A) In lieu of the procedures set forth in paragraph (2) of this subsection, and subject to the determination of the Mayor that it reasonably approximates income as determined under this chapter, any member not subject to paragraph (1) of this subsection may determine its income on the basis of the consolidated profit and loss statement that includes the member and that is prepared for filing with the Securities and Exchange Commission by related corporations.
(B) If the member is not required to file with the Securities and Exchange Commission, the Mayor may allow the use of the consolidated profit and loss statement prepared for reporting to shareholders and subject to review by an independent auditor.
(C) If the statements described in subparagraphs (A) or (B) of this paragraph do not reasonably approximate income as determined under this chapter, the Mayor may accept those statements with appropriate adjustments to approximate that income.
(4) If a unitary business includes income from a partnership, the income to be included in the total income of the combined group shall be the member of the combined group's direct and indirect distributive share of the partnership's unitary business income.
(5)(A) All dividends paid by one to another of the members of the combined group shall, to the extent those dividends are paid out of the earnings and profits of the unitary business included in the combined report, in the current or an earlier year, be eliminated from the income of the recipient.
(B) Except as otherwise provided, this paragraph shall not apply to dividends received from members of the unitary business that are not a part of the combined group. Except when specifically required by the Mayor to be included, all dividends paid by an insurance company directly or indirectly to a corporation that is part of a unitary business with the insurance company shall be deducted or eliminated from the income of the recipient of the dividend.
(6)(A) Except as otherwise provided by regulation, business income from an inter-company transaction between members of the same combined group shall be deferred in a manner similar to 26 C. F. R. § 1.1502-13.
(B) Upon the occurrence of any of the following events, deferred business income resulting from an inter-company transaction between members of a combined group shall be restored to the income of the seller and shall be apportioned as business income earned immediately before the event:
(i) The object of a deferred inter-company transaction is:
(I) Resold by the buyer to an entity that is not a member of the combined group;
(II) Resold by the buyer to an entity that is a member of the combined group for use outside the unitary business in which the buyer and seller are engaged; or
(III) Converted by the buyer to a use outside the unitary business in which the buyer and seller are engaged; or
(ii) The buyer and seller are no longer members of the same combined group, regardless of whether the members remain unitary.
(7)(A) A charitable expense incurred by a member of a combined group shall, to the extent allowable as a deduction pursuant to section 170 of the Internal Revenue Code of 1986, be subtracted first from the business income of the combined group, subject to the income limitations of that section applied to the entire business income of the group and any remaining amount shall then be treated as a nonbusiness expense allocable to the member that incurred the expense, subject to the income limitations of that section applied to the nonbusiness income of that specific member.
(B) Any charitable deduction disallowed under subparagraph (A) of this paragraph, but allowed as a carryover deduction in a subsequent year, shall be treated as originally incurred in the subsequent year by the same member and as set forth in this section shall apply in the subsequent year in determining the allowable deduction in that year.
(8) Gain or loss from the sale or exchange of capital assets, property described by section 1231(a)(3) of the Internal Revenue Code of 1986, and property subject to an involuntary conversion shall be removed from the total separate net income of each member of a combined group and shall be apportioned and allocated:
(A) For each class of gain or loss (short-term capital, long-term capital, section 1231 of the Internal Revenue Code of 1986, and involuntary conversions) all members' business gain and loss for the class shall be combined without netting between classes and each class of net business gain or loss separately apportioned to each member using the member's apportionment percentage determined under § 47-1810.04.
(B) Each taxpayer member shall then net its apportioned business gain or loss for all classes, including any such apportioned business gain and loss from other combined groups, against the taxpayer member's nonbusiness gain and loss for all classes allocated to the District, using the rules of sections 1222 and 1231 of the Internal Revenue Code of 1986, without regard to any of the taxpayer member's gains or losses from the sale or exchange of capital assets, section 1231 of the Internal Revenue Code of 1986 property, and involuntary conversions that are nonbusiness items allocated to another state.
(C) Any resulting District source income or loss, if the loss is not subject to the limitations of section 1211 of the Internal Revenue Code of 1986, of a taxpayer member produced by the application of the preceding subparagraphs shall then be applied to all other District source income or loss of that member.
(D) Any resulting District source loss of a member that is subject to the limitations of section 1211 of the Internal Revenue Code of 1986 shall be carried over by that member and shall be treated as District source short-term capital loss incurred by that member for the year for which the carryover applies.
(9) Any expense of one member of the unitary group that is directly or indirectly attributable to the nonbusiness or exempt income of another member of the unitary group shall be allocated to that other member as corresponding nonbusiness or exempt expense, as appropriate.
(Sept. 14, 2011, D.C. Law 19-21, § 8002(d), 58 DCR 6226.)
HISTORICAL AND STATUTORY NOTES
Emergency Act Amendments
For temporary (90 day) amendment of section, see § 302(d) of Fiscal Year 2013 Budget Support Technical Clarification Emergency Amendment Act of 2012 (D.C. Act 19-482, October 10, 2012, 59 DCR 12478).
For temporary (90 day) addition of applicability provision, see § 303 of Fiscal Year 2013 Budget Support Technical Clarification Emergency Amendment Act of 2012 (D.C. Act 19-482, October 10, 2012, 59 DCR 12478).
Legislative History of Laws
For history of Law 19-21, see notes under § 47-305.02.
Miscellaneous Notes
Section 8004 of D.C. Law 19-21 provides:
"Sec. 8004. Applicability.
"This subtitle shall apply for taxable years beginning after December 31, 2010."
As a filing convenience, and without changing the respective liability of group members, members of a combined reporting group may annually elect to designate one taxpayer member of the combined group to file a single return, in the form and manner prescribed by the department, in lieu of filing their own respective returns; provided, that the taxpayer designated to file the single return consents to act as surety with respect to the tax liability of all other taxpayers properly included in the combined report and agrees to act as agent on behalf of those taxpayers for the year of the election for tax matters relating to the combined report for that year. If for any reason the surety is unwilling or unable to perform its responsibilities, tax liability may be assessed against the taxpayer members.
(Sept. 14, 2011, D.C. Law 19-21, § 8002(d), 58 DCR 6226.)
HISTORICAL AND STATUTORY NOTES
Emergency Act Amendments
For temporary (90 day) amendment of section, see § 302(d) of Fiscal Year 2013 Budget Support Technical Clarification Emergency Amendment Act of 2012 (D.C. Act 19-482, October 10, 2012, 59 DCR 12478).
For temporary (90 day) addition of applicability provision, see § 303 of Fiscal Year 2013 Budget Support Technical Clarification Emergency Amendment Act of 2012 (D.C. Act 19-482, October 10, 2012, 59 DCR 12478).
Legislative History of Laws
For history of Law 19-21, see notes under § 47-305.02.
Miscellaneous Notes
Section 8004 of D.C. Law 19-21 provides:
"Sec. 8004. Applicability.
"This subtitle shall apply for taxable years beginning after December 31, 2010."
(a)(1) Absent an election under subsection (b) of this section to report based upon a worldwide unitary combined reporting basis, taxpayer members of a unitary group shall determine each of their apportioned shares of the net business income or loss of the combined group on a water's-edge unitary combined reporting basis.
(2) In determining tax under this chapter on a water's-edge unitary combined reporting basis, taxpayer members shall take into account all or a portion of the income and apportionment factors of only the following members otherwise included in the combined group pursuant to § 47-1805.02a:
(A) The entire income and apportionment factors of any member incorporated in the United States or formed under the laws of any state, the District, or any territory or possession of the United States;
(B) The entire income and apportionment factors of any member, regardless of the place incorporated or formed, if the average of its property, payroll, and sales factors within the United States is 20% or more;
(C) The entire income and apportionment factors of any member that is a domestic international sales corporation, as described in sections 991 through 994 of the Internal Revenue Code of 1986, inclusive, a foreign sales corporation, as described in sections 921 through 927 of the Internal Revenue Code of 1986, inclusive, or any member that is an export trade corporation, as described in sections 970 through 971 of the Internal Revenue Code of 1986, inclusive;
(D) Any member not described in subparagraphs (A), (B), or (C) of this paragraph shall include its business income that is effectively connected, or treated as effectively connected under the provisions of the Internal Revenue Code of 1986, with the conduct of a trade or business within the United States and, for that reason, subject to federal income tax;
(E) Any member that is a controlled foreign corporation, as defined in section 957 of the Internal Revenue Code of 1986, to the extent of the income of that member that is defined in section 952 of Subpart F of the Internal Revenue Code of 1986 not excluding lower-tier subsidiaries' distributions of such income that were previously taxed, determined without regard to federal treaties, and the apportionment factors related to that income; any item of income received by a controlled foreign corporation shall be excluded if such income was subject to an effective rate of income tax imposed by a foreign country greater than 90% of the maximum rate of tax specified in section 11 of the Internal Revenue Code of 1986;
(F) Any member that is a resident of a country that does not have a comprehensive income tax treaty with the United States and earns more than 20% of its income, directly or indirectly, from intangible property or service-related activities that are deductible against the business income of other members of the water's-edge group, to the extent of that income and the apportionment factors related thereto; and
(G)(i) The entire income and apportionment factors of any member that is doing business in a tax haven defined as being engaged in activity sufficient for that tax haven jurisdiction to impose a tax under United States constitutional standards.
(ii) If the member's business activity within a tax haven is entirely outside the scope of the laws, provisions, and practices that cause the jurisdiction to meet the criteria of a tax haven, as that term is defined in § 47- 1801.04(49), the activity of the member shall be treated as not having been conducted in a tax haven.
(b) An election to report District tax based on worldwide unitary combined reporting is effective only if made on a timely filed original return for a tax year by every member of the unitary business subject to tax under this chapter.
(c) At the discretion of the Mayor:
(1) A worldwide unitary combined reporting election may be disregarded, in part or in whole, and the income and apportionment factors of any member of the taxpayer's unitary group may be included in or excluded from the combined report without regard to the provisions of this section, if any member of the unitary group fails to comply with any provision of this chapter; and
(2) Worldwide unitary combined reporting may be mandated, in part or in whole, and the income and apportionment factors of any member of the taxpayer's unitary group may be included in or excluded from the combined report without regard to the provisions of this section, if any member of the unitary group fails to comply with any provision of this chapter, or if a person otherwise not included in the water's-edge combined group was availed of with a substantial objective of avoiding state income tax.
(d)(1) A worldwide unitary combined reporting election is binding for and applicable to the tax year it is made and all tax years thereafter for a period of 10 years. It may be withdrawn or reinstituted after withdrawal, prior to the expiration of the 10-year period, only upon written request for reasonable cause based on extraordinary hardship due to unforeseen changes in state tax statutes, law, or policy, and only with the written authorization of the Mayor.
(2) An election shall constitute consent to the reasonable production of documents and taking of depositions in accordance with District law.
(3) If the Mayor grants a withdrawal of election pursuant to paragraph (1) of this subsection, he or she shall impose reasonable conditions necessary to prevent the evasion of tax or to clearly reflect income for the election period prior to or after the withdrawal.
(4) Upon the expiration of the 10-year period, a taxpayer may withdraw from the worldwide unitary combined reporting election. Withdrawal must be made in writing within one year of the expiration of the election and is binding for a period of 10 years, subject to the same conditions as applied to the original election. If no withdrawal is properly made, the worldwide unitary combined reporting election shall be in place for an additional 10-year period, subject to the same conditions as applied to the original election.
(e) The Mayor shall develop rules governing the impact, if any, on the scope or application of a worldwide unitary combined reporting election, including termination or deemed election, resulting from a change in the composition of the unitary group, the combined group, the taxpayer members and any other similar change.
(Sept. 14, 2011, D.C. Law 19-21, § 8002(d), 58 DCR 6226.)
HISTORICAL AND STATUTORY NOTES
Emergency Act Amendments
For temporary (90 day) amendment of section, see § 302(d) of Fiscal Year 2013 Budget Support Technical Clarification Emergency Amendment Act of 2012 (D.C. Act 19-482, October 10, 2012, 59 DCR 12478).
For temporary (90 day) addition of applicability provision, see § 303 of Fiscal Year 2013 Budget Support Technical Clarification Emergency Amendment Act of 2012 (D.C. Act 19-482, October 10, 2012, 59 DCR 12478).
Legislative History of Laws
For history of Law 19-21, see notes under § 47-305.02.
Miscellaneous Notes
Section 8004 of D.C. Law 19-21 provides:
"Sec. 8004. Applicability.
"This subtitle shall apply for taxable years beginning after December 31, 2010."
(a) If the enactment of combined reporting requirements for unitary businesses results in an increase to a combined group's net deferred tax liability, the combined group shall be entitled to a deduction to the extent determined under subsection (b) of this section. Only publicly traded companies, including affiliated corporations participating in the filing of a publicly traded company's financial statements prepared in accordance with either generally accepted accounting principles or international financial reporting standards, as of [September 14, 2011], shall be eligible for this deduction. To the extent the deduction would produce a net operating loss in any tax year, the unused deduction may be carried forward to each succeeding tax year indefinitely by the combined group and deducted without regard to any limitation.
(b) For the 7-year period beginning with the 5th year of the combined filing, a combined group shall be entitled to a deduction equal to 1/7 th of the net increase in the taxable temporary differences that caused the increase in the net deferred tax liability, as computed at the time of enactment in accordance with either generally accepted accounting principles or international financial reporting standards, that would result from the imposition of the combined reporting requirements but for the deduction provided under this section. The amount of the deduction shall in no case exceed the amount necessary to offset any increase in net deferred tax liability, as computed in accordance with either generally accepted accounting principles or international financial reporting standards, that would result from the imposition of all of the provisions of this chapter but for the deduction provided under this section.
(c) For the purposes of this section, the term "net deferred tax liability" shall mean the net increase, if any, in deferred tax liabilities minus the net increase, if any, in deferred tax assets of the combined group, as computed in accordance with either generally accepted accounting principles or international financial reporting standards.
(Sept. 14, 2011, D.C. Law 19-21, § 8002(d), 58 DCR 6226; Sept. 26, 2012, D.C. Law 19-171, § 114(i), 59 DCR 6190.)
HISTORICAL AND STATUTORY NOTES
Effect of Amendments
D.C. Law 19-171, in subsec. (b), substituted "this chapter" for "this act".
Emergency Act Amendments
For temporary (90 day) amendment of section, see § 302(d) of Fiscal Year 2013 Budget Support Technical Clarification Emergency Amendment Act of 2012 (D.C. Act 19-482, October 10, 2012, 59 DCR 12478).
For temporary (90 day) addition of applicability provision, see § 303 of Fiscal Year 2013 Budget Support Technical Clarification Emergency Amendment Act of 2012 (D.C. Act 19-482, October 10, 2012, 59 DCR 12478).
Legislative History of Laws
For history of Law 19-21, see notes under § 47-305.02.
For history of Law 19-171, see notes under § 47-369.01.
Miscellaneous Notes
Section 8004 of D.C. Law 19-21 provides:
"Sec. 8004. Applicability.
"This subtitle shall apply for taxable years beginning after December 31, 2010."
