On June 4, 2020, in recognition of the particularly difficult times small business owners are facing, the DC Office of Tax and Revenue (OTR) posted an informative reminder for hard-hit small businesses regarding relief potential available via the Small Retailer Property Tax Relief Credit (SR Credit).¹ Before getting into the details, the OTR summarized the relief as follows; DC law allows qualified corporations and unincorporated businesses engaged in the business of making sales at retail to claim a refundable franchise tax credit of up to $5,000 based on the amount of real property taxes or rent that is paid for a qualified retail location in the District.
First, the OTR explained that for taxable years beginning after December 31, 2017, qualified corporations and qualified unincorporated businesses (collectively, “qualified businesses”) may claim the SR Credit against their business franchise tax as either:
Next, the OTR clarified which businesses are qualified to receive the SR Credit. Whether a business is a corporation or is unincorporated, a qualified business:
The OTR further emphasized that a business is only engaged in the retail sales business if the sales are “retail sales” as the defined in D.C. Official Code §47-2001(n1). The OTR provided the following list of sales and charges included in that definition (noting this list is not exhaustive):
The OTR noted specific examples of businesses that are ineligible for the SR Credit since they are not engaged in the retail sales business, such as medical offices, law and accounting firms, engineering firms, and several others.
Finally, the OTR described a qualified retail location as a building or part of a building located in D.C. that is: (1) leased or owned by the business; (2) classified as a Class 2 property;⁴ (3) in possession of a Certificate of Occupancy for commercial use; and (4) the primary place of the retail business.⁵ Note that:
If the qualified retail location is rented by the qualified business, it also must be where the qualified business is engaged in selling tangible personal property or a service subject to District sales and use tax.⁶
The struggle is real for many small businesses these days. Now is the time to optimize tax savings and take advantage of any and all tax relief options. The SR Credit is one helpful option available to businesses in DC to help minimize tax burdens. We encourage you to contact a legal tax professional today to make sure you are taking advantage of all available options.