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On July 28, 2020, the D.C. Council approved the Fiscal Year 2021 Budget Support Act of 2020 (“BSA”), which establishes the budget’s tax provision changes. The prior week, the D.C. Council approved the Fiscal Year 2021 Local Budget Act of 2020, which sets the budget’s expenditures. This year’s most notable event was the advertising service tax near miss. But the budget still contains numerous less-discussed tax changes, including amendments to personal property tax exemptions, the sales tax base, and the Qualified High Technology Company program incentives. And beyond this year’s budget, taxpayers should expect further changes later this year to account for the ongoing COVID-19-sized revenue gap.
What’s In the Budget?
This year’s substantial tax changes include:
What’s Out of the Budget?
On July 28th, the D.C. Council formally eliminated the advertising service and personal information sales tax proposal. Since this tax expansion became public on July 6th and voted on for the first time on July 7th, it faced massive scrutiny from the business community. Ultimately, the D.C. Council opposed the tax because of its deleterious impact on small, local newspapers.
What’s Next for the Budget?
The BSA will next be sent to the Mayor for approval or veto. It will then be sent to Congress for a 60-day period of passive review. But the D.C. Council expects to revisit the budget in a couple of months after it understands the full impact of the COVID-19 pandemic. It is an open question which tax changes the D.C. Council might propose at that time. Given the strong opposition to the advertising services tax, it is unlikely that it would resurface for so long as it impacts local media. But there is a risk that the D.C. Council would pursue personal income tax rate increases (which Councilmember Allen had proposed as an amendment to the BSA on July 7th).
The Eversheds Sutherland SALT Team will continue to track the District of Columbia’s tax changes this year, as the D.C. Council may soon need to choose between tax increases, budget cuts, or both.