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Stephen M. Cordi Deputy Chief Financial Officer January 11, 2012

District of Columbia Office of the Chief Financial Officer Office of Tax and Revenue Washington DC Economic Partnership. Stephen M. Cordi Deputy Chief Financial Officer January 11, 2012. 2012 Tax Changes.

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Stephen M. Cordi Deputy Chief Financial Officer January 11, 2012

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  1. District of ColumbiaOffice of the Chief Financial OfficerOffice of Tax and RevenueWashington DC Economic Partnership Stephen M. Cordi Deputy Chief Financial Officer January 11, 2012

  2. 2012 Tax Changes • During the last year, the Mayor and Council made a number of major changes in DC taxes as an important part of balancing the 2012 budget • These generally appear in the 2011 Budget Support Act for FY 2012

  3. Combined Reporting • By far the most important DC tax change has been the enactment of combined reporting beginning with the current tax year • DC has been an easy target for intangible holding companies, transfer pricing schemes and the like • Legislation is effective for tax year 2011

  4. Combined Reporting -2 • The legislation is largely based on the MTC model statute as modified by West Virginia • The legislation was the subject of some last-minute taxpayer–friendly amendments • We are currently in the process of publishing guidance to implement combined reporting and revising our franchise tax returns

  5. Double-Weighted Sales Factor • For business franchise taxes, apportionment is changed to property, payroll and double-weighted sales • Previous law provided for equal-weighted 3-factor formula • Effective for tax year 2011

  6. Minimum Franchise Tax Increase • Effective for tax year 2011, the minimum franchise tax has been increased from $100 to $250 • For taxpayers with DC adjusted gross income of $1,000,000, the minimum tax has increased to $1,000 • Applies to both corporate in unincorporated business franchise taxes

  7. Individual Rate Increase • Beginning with tax year 2012, an additional income tax bracket of 8.95% for taxpayers with DC taxable income over $350,000 has been added • Applies to estates and trusts as well

  8. Out of State Bonds • DC has repealed its exemption for the interest on out of state tax exempt bonds • Effective for bonds acquired after December 31, 2011, including bonds held indirectly through mutual funds • By its terms , it does not include bonds issued by the Washington Metropolitan Airport Authority • OTR has a notice out on this one - 2011-6

  9. Limitation on Itemized Deductions • New limitation applies to itemized deductions for DC taxable income of $200,000 • Itemized deductions are to be reduced by 5% of the amount over $200,000 • Doesn’t include medical, investment interest or casualty losses • Effective for tax year 2011

  10. Withholding on Retirement Account Distributions • Legislation will require withholding of DC income taxes at the highest marginal rate from distributions from retirement accounts to DC residents if there is an IRS withholding requirement • Effective beginning January 1, 2012 • Clarifying legislation not enacted until December 22nd • Notice 2011-9 issued – telling providers to use their best efforts

  11. Increased Withholding • Effective January 1, 2012, employers are to remove the standard deduction from the withholding calculation • DC standard deduction is $4,000, so the additional w/h for each job ranges up to $340 for a taxpayer with DC income up to $40,000 • Intended to produce one-time windfall of $41 million and ongoing collection benefits

  12. Sales Tax on Cigarettes at Wholesale • DC has exempted sales of cigarettes at retail effective October 1, 2011 • At the same time, we’ve increased the stamp tax by 36 cents • This new “sales tax” portion of the cigarette stamp tax is adjustable annually on the basis of changes in the retail price of cigarettes • The object is to reduce tax leakage at the retail level & the amount of tax handled by small merchants

  13. Sales Tax on Security Services • The sales tax has been extended to armored car, private detective and security services • Modeled on Maryland law in effect since 1992 • Effective October 1, 2011 • Notice 2011-3

  14. Sales Tax Rate Increases • Sales tax on sales of alcohol for off-premise use increased from 9% to 10%, effective July 1, 2011 • Sales tax on charges for parking and storage of vehicles increased from 12% to 18%, effective October 1, 2011 • Existing general 6% rate, set to revert to 5.75% effective October 1, 2012, has been made permanent

  15. Contact Information • Tax Practitioner Hotline (202) 727-1435 • Main Call Center (202) 727-4TAX (4829) • Problem Resolution (202) 442-6348 • Collections Division (202) 724-5045

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