December 14, 2020

DC Small Retailer Property Tax Relief Credit

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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.

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The SR Credit Basics

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:

  1. a tax credit equal to 10% of the total rent paid by qualified business not to exceed $5,000, or
  2. a tax credit equal to the real property taxes paid by the qualified business for a qualified retail owned location not to exceed $5,000.

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:

  1. cannot have federal gross receipts exceeding $2.5 million per year;
  2. must be engaged in making retail sales;
  3. must have an OTR sales tax account;
  4. must file District sales tax returns reporting its retail sales; and
  5. must be current on all District tax filings and payment obligations pertaining to all types of taxes.²

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):

  •    All tangible personal property.
  •    Food, drink and alcoholic beverages.
  •    Digital goods.
  •    Hotel room or any other transient lodgings or accommodations.
  •    Admission to public events (except live performances of ballet, dance, or choral performances, concerts (instrumental and vocal), plays (with and without music), operas and readings and exhibitions of paintings, sculpture, photography, graphic and craft arts).
  •    Parking and motor vehicle storage services.
  •    Real property maintenance services.
  •    Landscaping services.
  •    Health club services.
  •    Tanning studio services.
  •    Data processing and information services.
  •    Newspapers or publications.
  •    Job seeking services.
  •    Armored car, private investigation, and security services.
  •    Bottled water delivery services.
  •    The storage of household goods.
  •    Carpet and upholstery cleaning services.
  •    Car washing services.
  •    Bowling alley or billiard parlor services.³

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

Conclusion

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.

If you have questions or concerns about the DC Small Retailer Property Tax Relief Credit, call us at (410) 862-2890 or fill out our online form.

Footnotes

  1. Reminder: Small Businesses May Qualify for A Small Retailer Property Tax Relief Credit, MyTax.DC.gov. (June 4, 2020), https://mytaxdc.wordpress.com/2020/06/04/reminder-small-businesses-may-qualify-for-a-small-retailer-property-tax-relief-credit/.
  2. Later in the post, in a Q&A format, the OTR reiterated that if a business’ gross receipts are not subject to DC sales tax, then that business is ineligible to claim the SR Credit.
  3. Id.
  4. Note that for these purposes, “Class 2 property” refers to such property as defined in D.C. Official Code §47-813.
  5. Reminder: Small Businesses May Qualify for A Small Retailer Property Tax Relief Credit, MyTax.DC.gov. (June 4, 2020), https://mytaxdc.wordpress.com/2020/06/04/reminder-small-businesses-may-qualify-for-a-small-retailer-property-tax-relief-credit/.
  6. Id.
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