June 12, 2000
Discovery Contract: Am I Liable?
Initiative Examines Contractor and Rental Income for District Tax Compliance
Each year, the District loses millions of dollars in potential revenue because many individuals and businesses fail to file and pay District taxes or do not report all activities on a tax return. To help close this 'tax gap,' the Office of Tax and Revenue began implementing a contract in April 2000 with MBIA MuniServices. MBIA MuniServices is a company that assists municipal governments in identifying businesses and individuals who fail to fully comply with the local tax code. Operating under strict security and confidentiality requirements, the company will contact delinquent taxpayers and provide the necessary assistance and direction on how to file and pay their liabilities.
Who will be affected by the discovery program?
In 2000, the Office of Tax and Revenue will conduct five projects with MBIA MuniServices. These projects will examine construction contractors conducting business in the District; U.S. government contractors; individuals and businesses, both corporate and unincorporated, who may own and be deriving rental income from real estate located within the District; personal property leasing in the District; and business filers of one tax type who may be liable for other types of taxes.
Individuals are not always aware that the business activity they conduct in the District may be subject to taxation. Discovery projects target areas of activity that have larger degrees of noncompliance. In addition to collecting revenue owed the District, the discovery program seeks to inform and educate sections of the public about their tax obligations.
If I am a construction contractor, a U.S. government contractor, or provide rental real estate in the District, how do I know if I have a tax obligation?
A construction contractor or a U.S. government contractor must file a District business franchise tax return if they derive income from work done or services performed within the District. This includes income from any type of business activity in the District, other than sales of tangible personal property, or income received from District sources. These filing requirements are in force whether or not the business has an office or other place of business in the District.
Where the sale of tangible personal property is concerned, contractors are liable for District taxes on such sale income if the contractor has or maintains an office, warehouse, or other place of business in the District; has goods in the District in a warehouse or on consignment; or has an agent or other representative with an office or other place of business in the District.
In the case of real estate rental, rental income must be reported if the individual or business that provides real or personal property for lease or rent in the District has gross income of more than $12,000 for the taxable year. Gross income, in this case, includes revenues from all District sources before the deduction of costs of goods, expenses, and other deductions allowable in determining net income. If gross income exceeds $12,000, the individual or business must file whether or not the property is leased directly or through an agent, and whether or not the business or agent performs any services in connection with the property.
Example: If an individual leases their basement apartment to a tenant for $1,100 per month, the individual is collecting gross income of more than $12,000 in a year from their rental business. Therefore, they are required to file an unincorporated business franchise tax return (D-30) and report this rental income.
If you have further questions about these examples or about filing requirements in general, please call our customer service helpline at (202) 727-4TAX
Where can I obtain the District's business franchise tax return?
You can download tax forms and instructions from the Office of Tax and Revenue's Web site, located at www.dccfo.com under 'Taxpayer Services.' This information is also available in the forms center of our walk-in customer service center located on the first floor of 941 N. Capitol Street, N.E., in Washington, D.C. You can also call our forms center at (202) 442-6546 and have materials mailed to you.
What is the District's business franchise tax rate?
The District's unincorporated business franchise tax rate is 9.975%.
I believe I have not been in compliance with the franchise tax laws. Who should I contact to correct this situation?
If the Office of Tax and Revenue or its compliance contractors has not contacted you about your potential tax liability, you may call the Voluntary Disclosure Program. This program invites taxpayers who are not in full compliance with the District's tax laws to come forward on their own. If a taxpayer wants to participate in the Voluntary Disclosure Program, he or she must first contact Thomas Kerwin, assistant audit manager, by telephone at (202) 442-6578 or by facsimile at (202) 442-6883. The taxpayer must then file all delinquent returns and pay any taxes due, with interest. The Office of Tax and Revenue will waive civil penalties, which may be up to 25 percent of the amount of taxes owed.
If you have already been contacted about a potential liability, you may not make use of this program, and you should follow the instructions found on the notice.
The business franchise tax returns require a D.C. business tax registration number. Where can I obtain such a number for my business?
To obtain a business tax registration number, visit the Office of Tax and Revenue's walk-in customer service center on the first floor of 941 N. Capitol Street, N.E., in Washington, D.C. The service center's hours are Monday through Friday, 8:15 a.m. to 4:45 p.m.
In order to receive a D.C. Business Tax Registration Number (BTN), unincorporated businesses are required to complete Form FR-500, Combined Business Tax Registration Application.
- If the application is signed and fully completed, a number may be issued the same day for entities located outside of the District.
- If the application is fully completed and signed, and the entity is located within the District, the entity may obtain a BTN on the same day if they have completed the Department of Consumer and Regulatory Affairs (DCRA) process. (Note: DCRA has a list of the type of businesses that are required to obtain a license or permit.) Otherwise, the registration process could take up to ten days.
- For some entities (for example, partnerships, LLCs), a Federal Employer Identification Number (FEIN) may be required in lieu of a Social Security number.
D.C. CODE HISTORY AND CITATIONS:
Unincorporated Franchise Tax (instituted in 1947): D.C. Code §47-1808.1 (8); D.C. Code §47-1805.2 (6) Public Safety Fee (instituted in 1994, replaced in 1995 with the Arena Fee): D.C. Code §47-2751 Arena Fee (instituted in 1995): D.C. Code §47-2952 & 47-398.1
