Shades of Gray: District of Columbia Combined Reporting Unveiled


On April 1 (fittingly), the District of Columbia’s new Mayor, Vincent G. Gray, unveiled his proposed budget, B19-0203 “Fiscal Year 2012 Budget Support Act of 2011” (Budget Bill), which includes the long-awaited/feared combined reporting provisions.1 In a twist unique to the District, D.C. Act 18-255 “Fiscal Year 2010 Budget Support Act of 2009” instructed the Council of the District of Columbia to enact – but did not actually enact – mandatory unitary combined reporting for purposes of calculating the District’s franchise tax. The combined reporting legislation contemplated by D.C. Act 18-255 was to be effective for tax years beginning after December 31, 2010, but the Council did not consider substantive combined reporting legislation until it was included in the Budget Bill. If the Budget Bill passes as-is, the District will formally adopt a combined reporting regime effective retroactively to tax years beginning after December 31, 2010.

Discussed below are the issues raised by the proposed combined reporting regime, including questions raised by the unique tax aspects of the District, such as its net income tax on unincorporated businesses.

Issues Raised by the Budget Bill’s Provisions

Most but not all of the District’s proposed combined reporting provisions are adopted from the Multistate Tax Commission’s (MTC) Model Statute for Combined Reporting.

Definition of Unitary

The Budget Bill’s definition of “unitary business” is taken directly from the definition found in the MTC’s Model Statute.2 This definition is an abridged version because the MTC intended a more robust definition to be included in an adopting state’s regulations. Significantly, the District’s proposed definition lacks any type of ownership requirement for inclusion in the unitary group.

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