Corporations, LLCs, and partnerships all pay franchise tax in Washington, D.C. Even if your headquarters is in another state, having business connections in DC puts this tax on your plate.
Although it’s called a “franchise tax”, it’s essentially a state income tax on businesses.
Recently, DC has been cutting its franchise tax rate to attract more businesses. As of 2024, the franchise tax rate is 8.25%—a rate that has held steady since 2018, after being reduced from higher rates in previous years. However, navigating DC's rules alongside obligations in other jurisdictions creates significant compliance challenges, especially as tax laws evolve yearly. 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 you pay for the privilege of doing business in the District. Franchise taxes are due regardless of whether you're making money or not. So it’s best to treat the franchise tax as a fixed cost of doing business in DC.
The legal basis for the DC franchise tax lives in Title 47, Chapter 18 of the DC Code. This section spells out the tax rates, filing requirements, and other rules you must follow. The Office of Tax and Revenue (OTR) runs the show and guides taxpayers through the process.
DC's corporate franchise tax rate is 8.25% of taxable income, with a minimum tax based on your gross receipts:
Your DC taxable income starts with your federal taxable income, with some DC-specific adjustments. 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.
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.
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.
You must pay this tax if your unincorporated business has gross receipts over $12,000 per year from DC sources. Some exemptions apply, including:
To handle your unincorporated business franchise tax 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.
With automated filing services and franchise tax support across 51 jurisdictions, Discern ensures you meet Washington, DC’s regulations efficiently and accurately. Setup takes just minutes, allowing you to manage multi-state compliance and filings simultaneously and affordably while focusing on growing your business.
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