Eleven years ago, the District of Columbia announced the “New E-Conomy Transformation Act of 2000”, which set up tax benefits encouraging technological innovation. The Act became effective April 3, 2001.
“My vision for our city is to become the technology capital of the world…. We want to attract and retain leaders in the fields of e-government, e-commerce, e-business, and technology,” said then-mayor Anthony Williams.
New E-Conomy Transformation Act
The District’s final rulemaking for the Act, setting out terms of qualification for the Act’s various tax benefits to qualifying businesses, can be found here.
Among many other tax incentives, the Act granted tax benefits to “Qualified High Technology Companies” (QHTCs), those DC-based, for-profit organizations that make most of their revenue from the sale of products and services related to information technology. The category includes a large list of broadly defined “high technology activities”, for example (from the Act):
“Website design, maintenance, hosting, or operation; Internet-related training, consulting, advertising, or promotion services; the development, rental, lease, or sale of Internet-related applications, connectivity, or digital content; or products and services that may be considered e-commerce”.
Other qualifying activities include:
“Internet-related services”, “Information and communication technologies”, “operating and application software”, “Advanced materials and processing technologies”, and “Engineering, production, biotechnology and defense technologies that involve knowledge-based control systems and architectures”.
DC Tax Credits
QHTCs can claim tax benefits related to the “high technology” aspects of their businesses. Those aspects include employees, and specifically “disadvantaged” employees of these companies, defined by the Act as District of Columbia residents who currently receive or have recently received benefits under the District’s “Temporary Assistance for Needy Families” program or who were released from prison within 24 months before gaining employment at the company. Also included are employees who qualify for the District’s “Welfare to Work Tax Credit” or “Work Opportunity Tax Credit”, background on both of which can be found here.
QHTCs may claim tax credits for training programs completed by disadvantaged employees, including programs at accredited colleges and universities and programs conducted by nonprofit organizations. These credits are limited to $20,000 per qualifying employee during the first 18 months of employment.
QHTCs may also claim tax credits for relocation expenses provided for employees, not limited to disadvantaged employees. The amount of the credits varies from $5,000 to $7,500, depending on whether the employee relocates his or her residence to the District in addition to employment with the QHTC.
In addition, QHTCs may claim tax credits for up to 50% of wages paid to disadvantaged employees, capped at $15,000 per year per employee. Similar credits may be claimed by QHTCs for up to 10% of wages paid to non-“disadvantaged” employees, capped at $15,000 per year per employee. The credits are limited to the first 24 months of employment.
Most of the above credits apply only for employees working at least 35 hours per week, may be taken only after the relevant employee(s) have worked at least 6 months with the company, and require at least 2 employees for eligibility. In addition, the above credits are not available with respect to employees who are “key employees”, including owners of the business (or relatives) or members of a company’s board of directors.
Reduced Corporate and Franchise Taxes
Another benefit for QHTCs is a reduced DC corporate franchise tax rate of 6%, and complete exemption from the corporate franchise tax for the first 5 years of business for QHTCs located in certain defined geographic areas known as “High Technology Development Zones” (listed geographically in this DC Government publication). QHTCs that are LLCs and other non-corporations are exempted permanently from the District’s unincorporated franchise tax. QHTCs also need not include capital gains from sales of capital assets in gross income for purposes of DC’s corporate income tax.
Exemption from DC Sales Taxes
Lastly, QHTCs are exempt from most sales taxes, including most purchases of computer software and hardware of all kinds.
Additional Materials and Applying for Credits
Businesses that wish to qualify for QHTC status and applicable credits and reduced taxes should review and complete the information and forms available through the District’s Office of Tax and Revenue, particularly Publication 399, available here.
Kate Tummarello is a Research and Social Media Intern with Mirsky & Company and a reporter at Roll Call/Congressional Quarterly. Follow Kate on Twitter @ktummarello. Andrew Mirsky of Mirsky & Company contributed to this post.
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