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D.C. Municipal Regulations (Last Updated: September 13, 2017) |
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Title 9. TAXATION AND ASSESSMENTS |
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Chapter 9-1. INCOME AND FRANCHISE TAXES |
Section 9-170. COMBINED REPORTING: UNINCORPORATED BUSINESS ENTITIES/PARTNERSHIPS
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170.1 General rule. Notwithstanding any other provision of chapter 18 of title 47 of the D.C. Official Code or the combined reporting regulations, if the combined group includes or any member owns an unincorporated business (UB) that would be subject to the tax imposed under D.C. Official § 47-1808.03 (2005 Repl.), the income or loss of such UB shall be apportioned to the District using the apportionment factor of the UB, and the combined group member-partner’s distributive share of such income, including separately stated items, shall be added to the combined group member-partner’s “other income.” A combined group member-partner’s distributive share of that income that was actually taxed under D.C. Official Code § 47-1808.03 (2005 Repl.) shall be subtracted from the combined group member-partner as “other deductions” to prevent double taxation. The distributive share of the combined group member-partner shall be added to the numerator and denominator of the combined group member-partner’s sales factor using the apportionment factor of the UB.
170.2 Distributive share. Distributive share of income means the income reported on the Federal Schedule K-1 (K-1). If applicable, the distributive share of the UB income shall then be adjusted pro-ratably according to the amount attributable to the District.
170.3Untaxed income at the UB level. The income which is untaxed at the UB level under D.C. Official Code § 47-1808.03 (2005 Repl.), including, but not limited to, the reasonable allowance for salaries under D.C. Official Code § 47-1808.03(11) and (11)(b) (2005 Repl.), the exemption under D.C. Official Code § 47-1808.04 (2005 Repl.), or separately stated items such as guaranteed payments, shall be included in the combined group member-partner’s “other income” to the extent of the member-partner’s distributive share whether the UB is part of the combined group or not.
170.4Presumption of nexus. If a partner takes a deduction for salary allowance or other distribution for services rendered to the UB or if a combined group member is the general partner or managing member, the partner or member shall be deemed to be actively engaged in the conduct of the business which shall create nexus in the District.
170.5Nonbusiness income. If the income from the ownership interest in the partnership or UB is non-business income, then that income will be subject to allocation to the combined group member-partner.
170.6A UB that is part of the combined group. If the combined group includes a UB (i.e. meets unitary requirements) that would be subject to the tax imposed under D.C. Official Code § 47-1808.03 (2005 Repl.), the UB shall report all its income and apportionment factors on the combined report only and the combined group member-partner shall include in its sales apportionment factor, the numerator which shall include the combined group member-partner’s distributive share of District income from the K-1 using the UB’s apportionment factor and the denominator which shall include the combined group member-partner’s total distributive share of that income from the K-1. The combined group member-partner shall not include its share of the UB’s payroll, property, or sales in its apportionment factors.
170.7A UB that is not part of the combined group. If the combined group does not include a UB (i.e. does not meet unitary requirements) that would be subject to the tax imposed under D.C. Official Code § 47-1808.03 (2005 Repl.), the UB shall file its own stand-alone return using form D-30 (District unincorporated business franchise tax return) and be subject to the UB tax under D.C. Official Code § 47-1808.03 (2005 Repl.). However, the combined group member-partner shall include, in its sales apportionment factor, the numerator which shall include the combined group member-partner’s distributive share of District income from the K-1 using the UB’s apportionment factor and the denominator which shall include the combined group member-partner’s total distributive share of that income from the K-1. The combined group member-partner shall not include its share of the UB’s payroll, property, or sales in its apportionment factors.
170.8Partnership that is not a UB. Provided that a combined group member who has an interest in a partnership, that is not a UB as defined by D.C. Official Code § 47-1808.01 (2005 Repl.) and would therefore not be subject to the UB tax imposed under D.C. Official Code § 47-1808.03 (2005 Repl.), the partnership shall file its own stand-alone return using form D-65 (District partnership return). However, the combined group member-partner shall include, in its sales apportionment factor, the numerator which shall include the combined group member-partner’s distributive share of the partnership’s District income from the K-1 and the denominator which shall include the combined group member-partner’s total distributive share of partnership income from the K-1 which shall be added to the combined group member-partner’s “other income.” There shall be no subtraction of the income because the income was not taxed at the partnership level.
170.9Single Member Limited Liability Corporation (SMLLC). If a combined group member owns one hundred percent (100%) of a partnership or limited liability company (LLC), and the partnership or LLC is considered disregarded for federal income tax purposes, the combined group member-owner of the disregarded entity shall include in the combined group member-owner’s gross income and deductions of the disregarded entity on the combined report. The combined group member-owner shall include the payroll, property, and sales of the disregarded entity in both its numerator and denominator.