Tax Credits and Incentives for Businesses in Virginia and D.C.

Tax Credits and Incentives for Businesses in Virginia and D.C.

A recent court case may give brick- and- mortar retailers a chance against their online rivals. Many companies do business in more than one state. With the recent Supreme Court ruling in the South Dakota v. Wayfair case, the court ruled in a 5-4 decision in favor of South Dakota. This basically means that those engaged in multistate businesses have new rules to follow when it comes to state and local taxes. The Physical Presence Rule has been overturned, but it is not clear how the court’s holding will be applied in every other state. Many states have already moved to an Economic Nexus Rule where sales and use tax will have a threshold of revenues or transactions that create nexus and therefore a filing requirement in that state. Some states may react through administrative guidance, while other states may adopt legislation quickly. Change will be occurring quickly as a result of this decision.

Along with sales and use taxes, there are many tax credits and incentives that are available to businesses that are in multiple states. CST Group recently worked with their technology clients on Research and Development Credits at the Federal level. These are great credits if you qualify. As CST began to research further, we took a deeper look into the state and local tax credits and incentives. Here is an example of CST’s work with a local government contracting client implementing technology related services in both Virginia and DC.

This client is based out of Arlington County and also has an office DC. For this client, CST calculated the Federal R&D credits. CST decided to look back three years to receive significant R&D tax credits on the federal level. Due to the portion of the client’s business being in both Virginia and DC, CST decided to take it a step further. CST prepared the Virginia application for Research and Development Expense Tax Credit at the state level. While continuing to find Virginia technology incentives, CST also looked locally and found that the county of Arlington has an application to be considered a “Qualified Technology Business”. This tax incentive reduces the taxpayer’s BPOL (gross receipts tax) by 50%. In conclusion, there are many tax credits and incentives to utilize that are not on the federal level.

With the same client, CST implemented their services for DC. The client is an S Corporation with one shareholder who is a VA resident. Many may know that DC does not recognize pass-through entities and imposes a franchise tax on the business earnings allocated to DC at 9.2%. This is important for the Virginia owner because Virginia will not allow a tax credit for tax paid to the district. Due to this being a franchise tax v. an income tax, the client would be in a situation where they would be taxed by both Virginia and DC on the same taxable income. CST continued to try and minimize the double taxation impact by using the DC Qualified High Technology Companies (QHTC) tax credits. This reduces the tax rate for QHTC’s from 9.2% to 6%. While this may seem comparable, CST was not finished yet! The client’s business received credit for retraining costs, relocation costs, wages paid to qualified disadvantaged employees, and wages paid to qualified employees. Furthermore, QHTCs can also take an additional section 179 deduction and get reduced property tax rates in DC. CST’s Virginia based client received more benefits and tax credits than its DC tax liabilities. CST not only handled the double taxation issue, but received valuable credits that will carry forward for 10 years.

This is one of many examples of what looking into tax credits and incentives, not only on the federal level but on the state and local levels, can do for a business. CST Group welcomes the opportunity to put their tax professionals to work for individuals and businesses. If you need assistance handling your tax credits and incentives for multiple states, consider CST Group, CPAs, PC as your next step.