DC Eliminates the Terminating Business Gain Exclusion for the UBT Effective January 1, 2021

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[co-authors: Sarah Kim, J. D, LL.M and Ken Meang, J.D]

The District of Columbia Budget Support Emergency Act of 2020 (the “Act”) eliminates the Terminating Business Gain Exclusion for Unincorporated Business Franchise Tax (the “exclusion”) effective January 1, 2021. The exclusion eliminates the franchise tax payable on a sale of assets in connection with the termination and liquidation of an unincorporated business subject to the tax. The current DC Unincorporated Business Franchise Tax rate is 8.25% of net income sourced to DC.

Specifically, the Act amends the definition of “taxable income” for unincorporated businesses, pursuant to DC Code Section 47.1808.02(1), to include “gain from the sale or other disposition of any assets, including tangible assets and intangible assets, including real property and interests in real property, in the District, even when such a sale or other disposition results in the termination of an unincorporated business.”

Note that the Act requires approval from the US Congress to become law. Congressional approval is likely to be granted in early December.

 

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