Perspectives

D.C.'s qualified high technology program

An often-missed opportunity deserving a second look

The District of Columbia’s Qualified High Technology Company program was enacted more than 10 years ago to attract qualified high-tech companies to the district. The program’s benefits have not changed in the last decade, but changes in the way companies do business means that some formerly unqualified taxpayers may now meet the program’s definition of a “high-tech” company.

The "return on investment" debate that often accompanies these programs has become even more focused in the current economic environment where governments are faced with high budget deficits and high unemployment rates.

District of Columbia’s Qualified High Technology Company program

For years, as part of their economic policy, state and local governments have instituted programs to attract and retain businesses, including tax credits and other monetary incentives. The success of particular credit and incentive programs is often debated when compared to the direct and indirect cost of providing and administering these programs. The "return on investment" debate that often accompanies these programs has become even more focused in the current economic environment where governments are faced with high budget deficits and high unemployment rates.

Certain state and local governments are attempting to narrow their budget gaps by increasing taxes through the reduction of existing tax credits and by limiting or eliminating amounts expended on tax incentive programs. Alternatively, there are those governments that believe certain incentive programs may provide a competitive advantage that can result in attracting and retaining businesses and long term benefits that may be derived from capital investment and job retention or growth in their jurisdictions. The district has chosen the latter approach.

In December 2000, in an effort to boost economic development, the District of Columbia City Council unanimously approved a bill called ‘‘The New Economy Transformation Act of 2000’’ to encourage technology-based businesses to locate in the district by granting certain tax benefits to Qualified High Technology Companies. The Qualified High Technology Company (QHTC) program included in the bill was approved by the mayor and became effective April 3, 2001, after receiving the required approval by the U.S. Congress.Although a decade old, the QHTC program remains a competitive incentive intended to attract and retain business in the district.

The provisions and benefits of the QHTC program have remained relatively unchanged over the last decade, but during that time, technology has significantly transformed the way day-to-day business is conducted. Companies that may not have qualified for the benefits 10 years ago may qualify today—simply because they have changed the way they engage in business. A business should avoid a hasty conclusion that it is not a ‘‘technology company,’’ or run the risk of failing to obtain benefits otherwise available under the QHTC program.

In this article, authors Don Teichen, Scott Frishman, and Catherine Ford, of Deloitte Tax LLP, analyze the program’s eligibility requirements and discuss its potential tax benefits, including:

  • Corporate franchise tax rate reductions and exemptions
  • Unincorporated business tax exemptions
  • Job-related credits, and
  • Sales and use tax exemptions

1 D.C. Law 13-256, §403(b), 48 D.C. Reg. 730, April 3, 2001

By Don Teichen, Scott Frishman, and Catherine Ford of Deloitte Tax LLP | Originally published in Bloomberg BNA "Tax Management Multistate Tax Report" in March 2011
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