DC Franchise Tax – Is my Business subject to it?

The District of Columbia imposes a franchise tax on certain businesses that operate within DC.  The 2015 rate is a flat 9.4% of net income. The first question every business potentially subject to the tax must determine is whether they are engaging in a business activity within DC.

States and the District can only tax business activity that occurs within their borders, the tax term is nexus i.e. some sort of physical presence. Consequently DC cannot tax a hot dog stand in Kansas or an Arlington VA law firm even if it provides services to DC clients. But it can tax a law firm with a DC office, as well as all the hot dog vending trucks that operate around the National Mall even if they have Virginia license plates – they have literally crossed the line and are operating within DC.

A retailer or wholesaler not located in DC who sells personal property to DC customers is not taxed if it has no DC based sales reps as the sale is considered made outside of DC. A Maryland plumbing contractor doing contract work in DC would be considered taxable as it has established a physical presence and is rendering services within DC. Nexus issues are often clear cut,  but many times they are not

Unincorporated DC businesses are not subject to franchise tax if annual revenue is $12,000 or less – this exemption does not apply to corporations.