Washington, D.C. Business Taxes at a Glance
The District of Columbia is not a state, but it runs its own tax system through the Office of Tax and Revenue (OTR). Several of its rules are unique. The District cannot tax most of the people who work there but live elsewhere. It taxes partnerships and LLCs as businesses. It charges a ballpark fee on larger businesses. And employers fund paid leave entirely themselves. BOMCAS helps individuals and businesses in the District work through these rules.
Individual Income Tax and Residency
The District taxes residents' income at graduated rates. Under federal law, it cannot tax the wages of nonresidents who work in the District, so a commuter from Maryland or Virginia pays income tax to their home state, not the District. This is often called the absence of a commuter tax.
Residency therefore decides whether the District can tax someone at all. A person is a District resident if they are domiciled there, or if they keep a place of abode in the District for a total of 183 days or more in the year. Members of Congress, presidential appointees, and certain other officials may be exempt from residency under special rules. People who move between the District, Maryland, and Virginia need part-year returns and clear records of their moving dates.
We prepare District returns, part-year filings, and the Maryland or Virginia returns that go with them.
The Unincorporated Business Franchise Tax
The District taxes unincorporated businesses, such as partnerships, LLCs, and sole proprietorships, through the Unincorporated Business Franchise Tax (UBFT) when their gross receipts exceed a threshold. The tax is paid by the business, not passed through to owners as in most states. There is an exemption for trades and professions in which more than a set share of gross income comes from the owners' personal services and capital is not a material factor, which covers many but not all professional practices.
Since this is an entity-level tax, owners of District partnerships and LLCs who live in Maryland or Virginia should not assume the commuter rule protects business income. We determine whether the UBFT applies, prepare the return, and calculate the allowable salary deduction for owners.
Corporation Franchise Tax
Corporations doing business in the District pay the corporation franchise tax on apportioned income, with a minimum tax based on gross receipts. The District uses combined reporting for unitary groups. S corporations are treated as corporations for this tax, so they pay it at the entity level too. We prepare franchise tax returns and track District-specific adjustments.
Sales and Use Tax
The District's sales and use tax has a general rate and higher rates for specific categories, including restaurant meals, prepared food, alcohol for consumption on premises, rental cars, parking, and hotel stays. A restaurant, hotel, or parking operator may need to apply several rates. Businesses register with OTR and file regularly. We set up the categories in point-of-sale systems and reconcile tax collected.
The Ballpark Fee
Businesses with District gross receipts above a threshold pay an annual ballpark fee, which helped finance the baseball stadium. The fee is a fixed amount by gross receipts tier. It applies regardless of profit and is separate from the franchise taxes. We include it in the annual compliance calendar.
Personal Property Tax
Businesses with tangible personal property in the District, such as furniture, equipment, and computers, file an annual personal property tax return, with a portion of value excluded. We maintain fixed asset records by location to prepare it.
Licenses and Clean Hands
Most District businesses need a Basic Business License from the Department of Licensing and Consumer Protection. To get or renew licenses and permits, the District generally requires Clean Hands certification, meaning the business and owners do not owe the District more than a small amount in taxes, fees, or fines. A missed tax return can therefore block a license renewal. We keep filings current so Clean Hands is not a problem.
Payroll and Universal Paid Leave
District employers withhold District income tax for employees who are District residents. Employees who live in Maryland or Virginia have their home state's tax withheld instead. Employers also report unemployment insurance to the Department of Employment Services.
The District's paid family leave program is funded entirely by employers through a payroll contribution, with nothing withheld from employees. Employers with workers in the District report wages and pay contributions quarterly. We set up payroll for each employee's state of residence and file the reports.
Organizations We Serve in D.C.
- Professional services, consulting, and law-adjacent firms: UBFT, the professional services exemption, and owner compensation
- Associations and nonprofit-related businesses: taxable affiliates, sales tax on events, and payroll
- Government contractors: cost accounting and staff across D.C., Maryland, and Virginia
- Restaurants and hospitality: category-based sales tax rates and tip reporting
Bookkeeping for District Requirements
District books should track District gross receipts for the UBFT, franchise tax minimum, and ballpark fee; sales by tax category; and employees' states of residence. We design the chart of accounts and the month-end close so these numbers are ready when returns are due.
Contact BOMCAS About the District
Partnerships and LLCs unsure about the UBFT, residents moving between the District and Maryland or Virginia, and employers setting up paid leave contributions can contact BOMCAS for a remote review. City and service pages for the District of Columbia will be added under this section. Visit the BOMCAS home page or our United States services for more about the firm. This page summarizes District rules in general terms only.
Talk to BOMCAS About Your Washington, D.C. Taxes
Have a question about your Washington, D.C. filings, payroll or bookkeeping? Contact BOMCAS or use the contact form below, and we will get back to you as soon as possible. You can also browse all United States services.