By Denis Del Bene, Checkpoint News
The District of Columbia has enacted emergency budget support legislation for Fiscal Year 2026. Among numerous provisions, the legislation: (1) delays a combined reporting income tax deduction; (2) retroactively repeals the D.C. child tax credit; (3) repeals an increase in the general sales and use tax rate previously scheduled for October 1, 2025; (4) extends the additional 1% transient accommodations tax until September 30, 2027; (5) legalizes commercial bingo in the District and imposes a 7.5% sales tax on charges collected to play commercial bingo; (6) amends the real property tax exemption for non-profit workforce housing; (7) amends the real property tax abatement for downtown housing; (8) preserves the real property tax exemption for nonprofit organization property used for solar energy generation/storage/management or electric vehicle charging; (9) repeals the D.C. Child Trust Fund program; (10) increases the maximum allowable annual increase in BID taxes permitted for the Downtown Business Improvement District; and (11) renames the ballpark fee as the sports facility fee and repeals the fee’s sunset. Other topics include community land trusts, the District’s clean hands certification requirements and various property tax exemptions/refunds/rebates. (L. 2025, B340 (Act 26-146), effective 09/03/2025 (expires 12/02/2025) and applicable 10/01/2025 unless otherwise provided.)
Combined reporting (FAS 109) tax deduction delayed
Under District law, if the enactment of combined reporting requirements for unitary businesses in the District results in an increase to a combined group’s net deferred tax liability, the combined group is entitled to an FAS 109 deduction. The FAS 109 deduction must be claimed annually over a 7-year period (i.e., one-seventh of the net increase is deducted each year), beginning with the 15th year of the combined filing. For a combined group that filed in 2011, the first year that combined filing were required, the 15th year would have been 2025. The budget support legislation provides that the deduction may be claimed for the “first 7 tax years beginning with tax years after December 31, 2029.” Consequently, the budget support legislation delays the first year of the deduction until tax year 2030.
D.C. child tax credit repealed
For tax years beginning after December 31, 2024, the Child Tax Credit Amendment Act of 2024 was to provide a refundable credit against individual income tax for each qualifying child of the taxpayer for which the taxpayer is allowed a deduction under IRC § 151. Retroactively effective as of October 1, 2024, the budget support legislation repeals the Child Tax Credit Amendment Act of 2024.
2025 increase in general sales and use tax rate repealed
Under current law, the general sales and use tax rate was scheduled to increase to 6.5% from 6% on October 1, 2025, then to 7% from 6.5% on October 1, 2026. The budget support legislation repeals the scheduled increase in the general rate to 6.5% from 6% on October 1, 2025. The general rate will increase to 7% from 6% on October 1, 2026.
Additional 1% tax on gross receipts for transient lodgings or accommodations extended
A separate and additional tax is imposed at the rate of 0.3% of the gross receipts from the charges for rooms, lodgings, or accommodations furnished to transients. Under current District law, for the period beginning April 1, 2023 through March, 2027, the rate of the additional transient accommodations tax was increased to 1.3% from 0.3%. The budget support legislation extends the 1% increase until September 30, 2027.
Also, beginning October 1, 2025, the budget support legislation ends the dedication of the revenue from the additional 1% tax to Destination DC for the purposes of marketing and promoting the District of Columbia as a destination. Instead, funds from the additional 1% will be deposited in local funds except for specific amounts set aside in Fiscal Years 2026 and 2027 for the Economic Development Special Account.
Sales tax imposed on charges collected to play commercial bingo
The budget support legislation legalizes commercial bingo in the District and imposes a 7.5% sales tax on gross receipts from the charges collected to play commercial bingo.
Exemption for non-profit workforce housing amended
Under District law, land and buildings used by a nonprofit owner to provide rental housing are exempted from real property taxation. The budget support legislation removes the requirement that no later than 12 months following the date of acquisition of a property, certain requirements for the exemption, including tenant household income and rent requirements, must be certified as having been met. The budget support legislation requires that these requirements be certified as having been met on an annual basis. The budget support legislation also provides that the effective date of the exemption will be October 1 of the year that the D.C. Office of Tax and Revenue (OTR) verifies the required certification submitted by an independent compliance monitor that the property is eligible for an exemption.
Tax abatement for downtown housing amended
The Mayor may, through a competitive process, approve property tax abatements for real property located in an “eligible area” that undergoes a change of use to provide at least 10 housing units. The budget support act reduces the amount of tax abatements that the Mayor may approve in fiscal year 2027 to $5 million from $6.8 million. The budget support act also amends the definition of an eligible area to mean the Central Washington Area as set forth in Volume 2 of the District of Columbia Office of Planning’s 2021 Comprehensive Plan and the Comprehensive Plan Amendment Act of 2021, the Georgetown BID, the Dupont Circle BID, and any other portion of the District with a concentration of commercial office property and high commercial vacancy rates, as designated by the Mayor.
Nonprofit organization property used for solar energy generation/storage/management or electric vehicle charging
Under District law, if a building or the grounds belonging to an exempt institution, organization, or other entity exempt from real property taxation are used to secure a rent or income for an activity other than the one exempted, the building or grounds will be assessed and taxed. The budget support legislation provides that this provision does not apply to buildings or grounds that are used for solar energy generation, energy storage, solar energy management activities that comply with Energy Star guidelines, or for electric vehicle charging.
Community land trusts
The budget support legislation provides tax benefits to community land trusts and to the individuals who acquire a home from a land trust through a land lease. For this purpose, a “community land trust” is defined as a nonprofit organization that: (1) acquires and holds land for the purpose of providing and maintaining affordable housing for low and moderate income families in perpetuity; and (2) employs land leases as a method to secure the affordability of housing. Among other benefits, the budget support legislation provides that: (1) property owned by a community land trust that is subject to a land lease to a qualifying lower income homeownership household will be exempt from real property tax; (2) transfers of property to a community land trust are exempted from the real estate transfer tax; (3) a deed conveying property to a community land trust will be exempt from the deed recordation tax; and (4) an individual who occupies real property pursuant to a land lease with a community land trust will be entitled to claim a homestead deduction for the property.
D.C. Child Trust Fund program repealed
Effective September 30, 2025, the Child Wealth Building Act of 2021 (Law 24-53, see State Tax Update, 02/24/2022), is repealed. This legislation established a Child Trust Fund Program for children born in the District to households earning less than 300% of the federal poverty level. An initial deposit of $500 was to be made for each eligible child, and an amount (from $600 to $1,000, based on the federal poverty level of the eligible child’s household) was to be deposited annually until the child turned 18. An eligible child was defined as a resident of the District born after October 1, 2021, whose birth was subject to medical coverage provided under Medicaid.
Ballpark fee renamed sports facility fee, sunset of fee repealed
The District of Columbia imposes a “ballpark fee” on the annual District gross receipts of feepayers through the fiscal year starting October 1, 2038, or the earlier or later date that obligations payable from or secured by the ballpark fee are repaid. The budget support legislation renames the fee the “sports facility fee” and repeals the sunset of the fee. The legislation provides that after all principal and interest on the bonds issued pursuant to the Ballpark Omnibus Financing and Revenue Act of 2004 (Law 15-320) has been paid, the revenues received by the District from the sports facilities fee will be deposited into the RFK Campus Infrastructure Fund.
Downtown Business Improvement District—maximum annual increase in BID taxes raised
The budget support legislation increases the maximum permissible annual increase in the Downtown Business Improvement District (BID) taxes to 5% (previously 3%) over the current year rates.
Clean hands certification requirement
Under current law, the District government will not issue or reissue a business license or permit if the applicant for the license or permit owes the District certain amounts, including more than $1,000 in past due taxes or more than $1,000 in outstanding fines, penalties, or interest, or has failed to file required District tax returns. The budget support legislation clarifies that this does not include amounts owed to the Department of Motor Vehicles.
Various property tax exemptions/refunds/rebates
Prince Hall Free & Accepted Mason and Order of the Eastern Star Charitable Educational Foundation property/recordation/transfer tax exemption and refund: Effective September 30, 2025, the budget support legislation provides a real property tax exemption and an exemption from deed recordation and transfer taxes for the property designated as Lots 37 and 828 in Square 333, so long as it is used in carrying on the purposes and activities of the Prince Hall Free & Accepted Mason and Order of the Eastern Star Charitable Educational Foundation. In fiscal year 2025, any unpaid recordation tax liability is forgiven. In fiscal year 2026, any remaining unpaid tax liability for tax years 2022 through 2025 is forgiven and any real property tax payments made for those tax years will be refunded, up to $1, 284,271.
Reservoir district tax exemption: Beginning October 1, 2029, the budget support legislation provides a 20-year property tax exemption for the property designated as Lots 814 and 815 in Square 3128, and Lots 809 and 810 in Square 3128 (i.e., Parcel 2 West and Parcel 4 within the Reservoir District). The exemption is subject to the property meeting certain conditions, including setting aside one-third of the units as affordable housing and contracting with certified business enterprises for a certain minimum percentage of the construction contracts.
Parkside development exemption: Beginning October 1, 2029, the budget support legislation provides a 30-year property tax abatement for the property designated as Lots 866 and 868 in Square 5056, of up to $300,000 per year. For each of the lots, a certificate of occupancy must be issued by September 30, 2029.
D.C. Central Kitchen rebate—annual limit removed: D.C. Central Kitchen, Inc. (DCCK) receives a rebate for real property taxes passed through to DCCK under its lease with the lessor that was paid, directly or indirectly, by DCCK with respect to Lot 0010, Square 0613, up to $208,000 in any given year. Effective as of May 1, 2025, the budget support legislation removes the $208,000 annual limit on the rebate.
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