Tax And Business Climate In Washington D.C.

Monika Miles On sales tax in washington D.C.

We were in the intermountain west last month, but let’s now take a journey to our nation’s capital. Founded after the American Revolution as the seat of government of the newly independent county, Washington D.C. was named after George Washington, the first president of the United States and a founding father of our nation. As the seat of the United States federal government and several international organizations, Washington is an important world political capital. The city, located on the Potomac River, bordering Maryland and Virginia, is one of the most visited cities in the world, with more than 20 million tourists annually.

For statistical purposes, the District of Columbia is treated as a state-equivalent (and a county-equivalent) by the U.S. Census Bureau. Hence, the District has enacted many laws that are similar to other states. As you’ll see below, it has its own income tax and sales tax rules as well.

Business Climate

Tourism is a leading industry in the District. Aside from many historical landmarks and museums, the District also hosts nearly 200 foreign embassies and international organizations such as the World Bank, the International Monetary Fund (IMF), the Organization of American States, the Inter-American Development Bank, and the Pan American Health Organization.

The District has growing industries not directly related to government, especially in the areas of education, finance, public policy, and scientific research. Georgetown University, George Washington University, Washington Hospital Center, Children’s National Medical Center and Howard University are the top five non-government-related employers in the city. According to the 2017 Global Financial Centres Index, D.C. was ranked as being the 12th most competitive financial center in the world, and fifth most competitive in the United States (after New York City, San Francisco, Chicago, and Boston).

Tax Climate

The top individual income tax rate is 8.95% and the top corporate income tax rate is 8.25%.

Apportionment: Washington D.C. uses a single sales factor formula for the apportionment of corporate income taxes.

Washington D.C. uses the market-based method for the sourcing of services and intangible property. Receipts from services and intangibles are based on the location of the taxpayer’s market.

Sales Tax Structure

The state sales tax rate is 6%, which ranks 16th in the nation.

Washington D.C. has enacted economic nexus legislation. Remote sellers are required to collect the District’s sales tax if the company’s gross sales total more than $100,000 or it makes more than 200 separate transactions into the District in the previous calendar year. This legislation became effective on Jan. 1, 2019.

Effective April 1, 2019, marketplace facilitators must collect and remit sales and use taxes to the District on sales made on their marketplaces. The law further provides that a marketplace facilitator’s obligation to collect and remit on behalf of those using their platform, applies regardless of the amount of sales that are made. To learn more about the District’s marketplace facilitator law, click here.

Washington D.C. is aggressive in its approach to the taxation of technology products for sales tax purposes. All digital products are taxable. Prewritten computer software that is electronically downloaded is taxable and custom computer software that is electronically downloaded is taxable. Lastly, all cloud services are taxable. How products are produced, sold and delivered is critical to determining their tax status.

Many states have annual sales tax holidays, during which certain items the state wants to promote the purchase of (like school supplies, emergency preparedness supplies, or energy efficient appliances) can be purchased sales tax free. The District of Columbia, however, does not currently have any scheduled sales tax holidays.

Random Facts

-Presidents Herbert Hoover and John Quincy Adams had pet alligators in the White House.
-Washington D.C. uses letters for streets traveling east to west. The “I” and “J” were very similar in older English; quite often they were interchangeable. The city is missing “J” street.
-The Washington Redskins football team was originally based in Boston.
-George Washington never lived in the White House; it was built after he died. John Adams was the first president to live there.
-The White House has a staggering 132 rooms, 35 bathrooms, 412 doors, 147 windows, 28 fireplaces, 8 staircases and 3 elevators.
-Woodrow Wilson is the only U.S. president buried in Washington D.C.
-The library of Congress is the largest library in the world with more than 160,000 objects in its collection.
-There was a typo in the original etching of the Lincoln Memorial. The Letter “E” was accidentally chiseled into the beginning of the word “Future” on the north wall of the memorial.

Have a question? Contact Monika Miles.

Monika founded Miles Consulting Group which focuses on multi-state tax consulting, helping clients navigate state tax issues such as sales tax and income tax in interstate commerce, including e-commerce.

Prior to forming the firm, Monika worked for 12 years combined in Big 4 Public Accounting and private industry. Monika has provided such services as federal and state income/franchise tax compliance and consulting, sales/use tax consulting, audit support, and credits and incentives reviews. She has served clients in a variety of industries including manufacturing, technology, telecommunications, construction, utility, retail and financial institutions.

Monika graduated from the University of Texas at El Paso (UTEP) with a BBA in Accounting/Finance and has a Masters in Taxation from San Jose State University.

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