(Washington, DC) On March 14, in Bender v. District of Columbia, a DC Superior Court judge held that the District could not collect an unincorporated business franchise tax on the net profits of real estate partnerships conducting business here to the extent that those profits belonged to partners who were nonresidents of the District. The judge concluded that the tax in this circumstance was a tax on the personal income of nonresidents and, therefore, barred by the Home Rule Charter.
The District strongly believes that this decision is incorrect and has filed an appeal with the DC Court of Appeals.
In the interim, unincorporated businesses should continue to file DC unincorporated franchise tax returns, including returns due for the 2005 taxable year, and pay this tax on the business’s entire net income from District sources. Failure to file these returns and pay this tax will result in the assessment of penalties and interest.
The Office of Tax and Revenue (OTR) will not act on any claims for refunds until a decision has been made by the Court of Appeals.
For more information, please contact OTR’s customer service representatives at (202) 727-4TAX (4829).