Most corporations, LLCs, and partnerships doing business in Washington, DC are subject to franchise tax. Even if your headquarters is in another state, having business connections in DC can put this tax on your plate, though statutory exemptions apply to certain entity types and business activities.
Although it is called a "franchise tax," it is essentially a state income tax on businesses.
DC has kept its franchise tax rate steady to remain competitive with neighboring jurisdictions. As of 2025, the franchise tax rate is 8.25%, a rate that has held since 2018, according to the DC OTR business tax rates page. However, navigating DC's rules alongside obligations in other jurisdictions creates significant compliance challenges. Here's what you need to know if you operate a business in our nation's capital.
The Washington, DC franchise tax is a fee businesses pay for the privilege of operating in the District. Under DC Code § 47-1810.01, this tax is levied "for the privilege of carrying on or engaging in any trade or business within the District and of receiving income from sources within the District." The tax is based on taxable income, but a minimum tax applies even in low-income years, meaning there is at least some franchise tax cost regardless of profitability.
The legal basis for the DC franchise tax lives in Title 47, Chapter 18 of the DC Code. This chapter spells out tax rates, filing requirements, and other rules you must follow. The Office of Tax and Revenue (OTR) administers the tax and guides taxpayers through the process.
DC's corporate franchise tax rate is 8.25% of taxable income per DC Code § 47-1807.02, with a minimum tax based on DC gross receipts:
The minimum tax applies even if your business income is otherwise exempt under other provisions of the chapter.
Your DC taxable income starts with your federal taxable income, adjusted for DC-specific items. You must report all DC-source income (business revenue, rents, capital gains) using Form D-20 by the 15th day of the fourth month after your taxable year ends (generally April 15 for calendar-year filers, though this deadline tracks the federal schedule and should be confirmed against current OTR instructions each year).
Organizations with complex income structures, such as tech companies with multiple revenue streams or healthcare providers with various service lines, must carefully categorize income sources. Remember to include income from intangible property and services performed in DC, even if your main office is elsewhere. DC uses a single sales factor apportionment formula under DC Code § 47-1810.02, meaning your DC taxable income is based on DC sales divided by total sales. This can significantly affect liability for multi-state businesses with heavy DC-customer-facing revenue.
DC's franchise tax calculation for 2025 is subject to a live legal dispute that directly affects corporations and unincorporated businesses with R&D expenditures or significant capital investments. The core issue involves whether DC is decoupled from federal tax provisions related to R&D amortization and bonus depreciation for the 2025 tax year.
DC enacted legislation in late 2025 seeking to decouple its franchise tax from certain federal provisions, and Congress subsequently passed a disapproval resolution that was signed into law in early 2026. The DC Attorney General's office has issued a legal position contesting the validity of that congressional disapproval under the Home Rule Act, leaving the applicable rules for 2025 DC returns actively disputed between DC and federal authorities. Law firm commentary, including analysis from ArentFox Schiff, has described the dispute as affecting a substantial number of DC corporate filers. Corporations and partnerships with R&D activity or capital investments should monitor DC OTR directly for administrative guidance and consult DC tax counsel before filing 2025 returns.
To stay compliant and potentially reduce your tax burden:
If you manage multiple portfolio companies, automation can save considerable time by centralizing data collection and automating filings. Consider tax compliance software that handles multiple states, since many DC businesses also operate in neighboring jurisdictions.
The unincorporated business franchise tax in Washington, DC, covers partnerships, most LLCs, some sole proprietorships, and trusts doing business in DC, subject to the statutory exemptions described below. The tax rate matches the corporate rate at 8.25% on net taxable income per DC Code § 47-1808.03.
You must pay this tax if your unincorporated business has DC gross income over $12,000 per year from DC sources, per DC Code § 47-1805.02 and OTR guidance. Before computing tax, unincorporated businesses deduct a $5,000 statutory exemption from taxable income under DC Code § 47-1808.04.
Some exemptions from the "unincorporated business" definition apply under DC Code § 47-1808.01, including:
Unincorporated businesses face three core filing requirements in Washington, DC.
A key difference to note: while partnerships and LLCs don't pay federal taxes at the entity level, they do pay unincorporated business franchise tax in Washington, DC, a discrepancy that trips up many businesses. Partners and members face joint and several liability for the tax under DC Code § 47-1808.05, and the tax can be assessed in the name of the business or the individuals conducting it.
OTR requires certain businesses to submit their federal tax returns electronically and to remit franchise tax payments above specified thresholds electronically. Check the current year's D-30 booklet at otr.cfo.dc.gov for the applicable thresholds, as these figures are published annually and should be confirmed against the instructions for the specific tax year you are filing.
The 2025 compliance uncertainty described in the corporate section above applies equally to unincorporated businesses. Partnerships and LLCs with R&D activity or significant capital investments should monitor DC OTR guidance before filing their 2025 returns.
DC's franchise tax rules are complex enough on their own. Layered across multiple jurisdictions, with different filing schedules and registered agent requirements in every state, the administrative burden compounds quickly. Discern doesn't file DC franchise taxes, but handles your DC annual report filings, maintains your DC registered agent service, and coordinates compliance deadlines across DC and every other jurisdiction where you operate. With automated filing, registered agent coverage across 51+ jurisdictions, and a single dashboard for all entity management, you can eliminate the manual tracking that comes with maintaining entities across multiple states.
For firms managing complex entity structures, such as PE portfolios with 200+ state registrations or VC fund structures spanning multiple jurisdictions, Discern's platform centralizes entity data and automates SOS-layer filings so your team stays focused on strategic work instead of administrative compliance.
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