District of Columbia enacts 2017 budget supporting legislation
Implements various tax changes
TAX ALERT |
On July 20, 2016, District of Columbia Mayor Muriel Bowser signed the Fiscal Year 2017 Budget Support Emergency Act of 2016, implementing the provisions of the District’s FY2017 budget. The supporting legislation addresses various areas of District tax law including tax havens, combined reporting and franchise taxes, among others.
A summary of those changes follows below:
- Tax havens: The supporting legislation mirrors emergency legislation restoring the prior statutory definition of ‘tax haven’ and the removal of a list of 39 jurisdictions that were considered to be tax havens. The tax haven provisions were originally amended effective in October 2015 and repealed by the District just over a week later through emergency legislation.
- Combined reporting: In 2011, the District enacted mandatory combined reporting requirements. Also enacted was a deferred tax liability deduction. If the combined reporting requirements for a business resulted in an increase to the combined group’s net deferred tax liability, the group was entitled to the deduction. For a seven-year period starting with the fifth year of the combined filing, a combined group was able to deduct an equal one-seventh of the net increase in the taxable difference that caused the increase in net deferred tax liability. The 2017 budget support legislation revises that deduction to be taken the tenth year of the combined filing, instead of the fifth. Interest on any underpayment of estimated tax for the 2015 tax year as a result of the deduction will be waived.
- Franchise tax: For tax years beginning after Dec. 31, 2015, franchise tax returns must be filed on or before April 15, except those made on a fiscal year basis, which must be filed on or before the fifteenth day of the fourth month after the end of the fiscal year.
- Miscellaneous changes: The supporting legislation also provides for: 1) a reduction in the personal exemption for adjusted gross income exceeding $150,000; 2) adjustments to property tax credits and rebates; and 3) other miscellaneous local tax changes.
This is the first budget enacted in the District under the Budget Autonomy Act, which provides for the city to spend locally-raised funds without first obtaining Congressional approval. The act was originally approved by ballot measure in 2013, but was stalled due to various legal challenges. In March, a District of Columbia Superior Court Judge upheld the legality of the act under the city’s home rule charter. While the District’s budget still requires federal review, the locally-raised funds would be treated like other legislation enacted in the District, i.e., sent to Congress for a 30-day passive review period where Congress must enact a congressional joint resolution disapproving the legislation or it becomes law at the end of the review period. The portion of the budget related to the allocation of federal funds would be required to be included as part of congressional appropriations, as in years past. Congress is currently considering legislation to repeal the act.