DC Franchise Tax Overview

The DC franchise tax, also known as the DC unincorporated business franchise tax, is a tax imposed on some businesses operating in the District of Columbia that have gross receipts of $12,000 or more. This tax applies to partnerships, S corps, LLCs (limited liability companies), and some individuals, yet despite this broad coverage, if you are looking to start or operate a business in D.C., it is recommended that you consult a D.C. franchise tax attorney to evaluate your tax situation and available options, especially if you are a non-D.C. resident. 

The Corporate Franchise Tax

Corporations that carry on or engage in a business or trade in D.C. or otherwise receive income from sources within D.C. must file Form D-20 with the D.C. Office of Tax and Revenue. The minimum payable tax is $250 if gross D.C. receipts are $1 million or less; $1,000 if they exceed $1 million. This tax must be filed within four months and 15 days of the end of the corporation’s tax year. 

Corporate Franchise Tax Extension

If you desire an extension to your corporate franchise tax, you may file for one for six months or seven months (if you file for Combined Reporting) through Form FR-120. To successfully make this application:

  • Mail your completed FR-120 to the Office of Tax Revenue.
  • Include any D-20 taxes owed.
  • Include your FEIN and tax year with any payment.
  • Include a DC Form QHTC-CERT if your business is considered a Qualified High Technology Company.

Payments greater than $5,000 for any period must be made electronically. If such funds will come from an account located outside the United States, such payment must be made by credit card or money order in U.S. dollars.

No extension time beyond the six- or seven-month extension will be granted unless the filer is not in the continental United States. If such is the case, an additional six-month extension may be granted. Extension requests must be made before the due date of the return.

The Unincorporated Business Franchise Tax

The unincorporated business franchise tax (Form D-30) must be filed by any D.C. business that is unincorporated, which includes partnerships, sole proprietorships, and joint ventures, so long as such a business derives rental income or any other income from D.C. sources in excess of $12,000 per year. The minimum payable tax is $250 if gross D.C. receipts range between $12,000 and $1 million.

Unincorporated Business Franchise Tax Extension

An extension to the unincorporated business franchise tax may be granted for six or seven months (if a Combined Reporting filer) if you fill out and submit Form FR-130 to the Office of Tax Revenue. To successfully make such a request:

  • Make sure to file your request on time (before the tax is due).
  • Pay the full amount of any taxes due on line 5 on the worksheet.
  • Include your FR-130, SSN or FEIN, and tax year with your payment.

For each return you make, a separate extension request must be filed–blanket requests are not acceptable. An additional extension may be made for the same length and reasons as for the corporate franchise tax. Likewise, no additional extension may be had after the second extension. The same electronic payment rules also apply.

Other Franchise Tax Considerations

Depending on one’s individual or corporate situation, there may be other considerations to be made when dealing with the franchise tax. For corporations, they must remember that in D.C., they are subject to franchise-tax-based market resource rules and a single sales factor. This is a recent change that was made in order to broaden the tax base as the franchise tax rate is lowered in the D.C.

For individuals, specifically consultants who are self-employed, they must remember that they are exempt from the franchise tax if 80% of their gross income comes from personal services given to members of the entity in question and capital is not a material factor of income production. Because of this, many individuals who are self-employed may escape the franchise tax in the same way that they might if they were being paid wages.

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