A law was enacted in 2000, The New E-Conomy Transformation Act of 2000, that allowed Qualified High Technology Companies (QHTC) to have certain tax benefits. In 2020, the QHTC Tax Incentives Modification Amendment Act of 2020 eliminated, imposed or changed limits on tax benefits that QHTCs previously enjoyed. For example, to be qualified for QHTC tax benefits, a QHTC had to have at least 2 qualified employees. The recent amendment now requires 10 qualified employees.
The following will focus on how companies may be able to qualify for QHTC status and what the new Office of Tax and Revenue (OTR) publication FR-399 revisions entail.
When is a business qualified for QHTC tax benefits?
Any business which qualifies can take advantage of the QHTC tax benefits. The business must complete an online self-certification application annually to receive the tax benefits. Yes, it is self-certification under the honor system. However, the OTR can conduct an audit to ensure that the business complies with the definition of a QHTC.
To comply with the definition of a QHTC, the business must:
- Be a for-profit company
- Lease or own an office in the District of Columbia
- Have 10 or more qualified employees in D.C.
- Register with the D.C. Government as a business in D.C.
- Earn 51% of its gross revenues in D.C. from permitted business activities outlined in DC Code §47-1817.01(5)(A)(iii)
2020 FR-399 depicts the changes, either the elimination or reduction of benefits, that have applied since after December 31, 2019.
- Effective July 1, 2021, personal property tax exemptions
- 6% tax rate and the 15 million dollar franchise tax exemption
- Employment relocation costs tax credit
- Wages to qualified disadvantaged employees carry forward provision
- Retraining costs for qualified disadvantaged employees carry forward credits
- Depreciation deduction of up to $40,000
- Rollover of capital gain from one qualified QHTC stock to another
- The waiver of corporate income tax on a Qualified Social Commerce Company for 5 years from the date of starting a business
- A QHTC cannot hold a sports wagering license
QHTC tax benefit reductions
- The reduced tax on capital gains from the sale or exchange of a QHTC investment is suspended for tax years 2020-2024.
- The tax credit for retraining costs for qualified disadvantaged employees is now limited to $10,000 for each employee during the first 18 months of employment.
- Depreciation deduction is limited to $25,000 or the actual cost of the property, whichever is less.