District of Columbia — Corporate Income / Franchise Tax

The District of Columbia levies a franchise tax "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" on every corporation, whether domestic or foreign. For taxable years beginning after December 31, 2017, the tax rate is 8.25% of the corporation's taxable income.

A minimum tax also applies: $250 if District gross receipts are $1 million or less, and $1,000 if District gross receipts exceed $1 million. Corporations and financial institutions are not exempt from the minimum tax even if their business or source income is otherwise exempt under other provisions of the tax code.

Source: D.C. Code § 47-1807.02

For tax years beginning after December 31, 2022, and through at least September 25, 2026, the District of Columbia defines "taxable income" for corporate franchise tax purposes in conformity with the Internal Revenue Code (IRC) as currently in effect for federal purposes, subject to specific modifications outlined in District law.

Federal conformity — Emergency and temporary law The most recent updates to D.C. Code § 47-1806.01 reflect a continuing policy of federal conformity, initially implemented by emergency act (D.C. Act 26-214, effective December 3, 2025, expired March 3, 2026) and extended via the "D.C. Income and Franchise Tax Conformity and Revision Temporary Amendment Act of 2025" (D.C. Act 26-217, codified as D.C. Law 26-89, effective February 12, 2026, through September 25, 2026). These acts direct that, for the relevant period, taxable income is determined as it would be under the federal IRC, with adjustments such as the District’s decoupling from certain federal provisions (e.g., bonus depreciation under IRC § 168(k)). Authority for these conformity periods and exceptions is detailed in the cited statute and public law.

Adjustments and exceptions Modifications to federal taxable income may be made by D.C. statute, particularly where the District explicitly decouples from or modifies the effects of certain federal deductions, exclusions, or credits. The statutory language should always be consulted for current-year-specific adjustments or decouplings.

Expiration and further extension As of June 2026, the temporary conformity legislation (D.C. Law 26-89 / Act 26-217) remains in force and maintains federal conformity through September 25, 2026, unless further legislation is enacted. Taxpayers should check for further extensions or amendments affecting years after that date.

Source: D.C. Code § 47-1806.01 Source: D.C. Law 26-89 (Act 26-217)

A corporation has franchise tax nexus with the District if it is engaged in business activity within the District that is not protected by Public Law 86-272, or if it has physical presence in the District. Physical presence includes maintaining an office, warehouse, or other place of business in the District, having employees present in the District, or owning or leasing property in the District. Business activity unprotected by P.L. 86-272 includes services performed in the District and activities beyond mere solicitation of sales of tangible personal property.

Source: D.C. Code § 47-1801.04(6)(A); OTR Guidance on Nexus

For tax years beginning after December 31, 2014, the District apportions all business income of multistate corporations using a single-sales-factor formula. A corporation multiplies its business income by the sales factor—the ratio of the corporation's sales in the District during the tax period to the corporation's total sales everywhere during the tax period—to determine District taxable income.

Source: D.C. Code § 47-1810.02(d-2)

Corporate franchise tax returns (Form D-20) are due on or before the 15th day of the fourth month following the close of the taxable year. For calendar-year filers, this means the return is due April 15. If the due date falls on a weekend or legal holiday, the return is due the next business day. The Chief Financial Officer may grant an extension of up to six months to file upon request.

Source: D.C. Code § 47-1805.03

The District of Columbia requires combined reporting for corporations and unincorporated businesses engaged in a unitary business with one or more related entities. This requirement applies to tax years beginning after December 31, 2010, and replaced the prior consolidated-return election regime. A taxpayer engaged in a unitary business with related parties must file a combined report that includes the income and apportionment factors of all unitary group members, whether or not those members have District nexus.

Unitary business test

A "unitary business" is defined as a single economic enterprise made up of separate parts of a single business entity or a commonly owned or controlled group of business entities that are sufficiently interdependent, integrated, and interrelated through their activities to provide synergy and mutual benefit that produces a sharing or exchange of value among them and a significant flow of value to the separate parts. The test requires both (1) common ownership or control (more than 50% of voting power or ownership interest) and (2) functional integration producing mutual benefit.

Water's-edge default rule

Absent a worldwide election, combined reporting is calculated on a water's-edge basis. Under water's-edge combined reporting, the combined group includes only:

• Members incorporated in the United States or formed under the laws of any U.S. state, the District, or any U.S. territory or possession;
• Members (regardless of place of incorporation) whose average property, payroll, and sales factors within the United States is 20% or more;
• Domestic international sales corporations (DISCs) and foreign sales corporations (FSCs) described in I.R.C. §§ 991–994 and §§ 921–927; and
• Other members specified in D.C. Code § 47-1810.07(a)(2).

Worldwide election

A combined group may elect worldwide unitary combined reporting, which includes all members of the unitary business regardless of where located. The election must be made on a timely filed original return by every member of the unitary business subject to District tax. Once made, the election is binding for 10 years. Withdrawal or reinstatement before the 10-year period expires requires written request for reasonable cause based on extraordinary hardship due to unforeseen changes in District tax law or policy, and only with written authorization from the Chief Financial Officer. Upon expiration of the 10-year period, a taxpayer may withdraw from the election by written notice within one year of expiration; the withdrawal is then binding for another 10-year period.

Combined group composition

The combined group includes all persons whose income and apportionment factors are subject to combination—specifically, persons "of the kind that are subject to tax or would be subject to tax if doing business in the District" under D.C. Code Chapter 18, Title 47, even if those persons do not have nexus with the District. This encompasses corporations, unincorporated businesses, financial institutions, utility companies, and transportation companies engaged in the unitary business, excluding certain entities such as insurance companies unless otherwise required.

Designated agent

One member of the combined group must serve as the designated agent responsible for filing the combined report on behalf of all taxpayer members. The combined report aggregates income and apportionment factors at the combined-group level, then apportions the combined income to the District using a single-sales-factor formula, and allocates shares to each taxpayer member with District nexus.

Effect on prior consolidated returns

Any taxpayer election to file consolidated returns under former D.C. Code § 47-1805.02(5)(C) and 9 DCMR § 109 was automatically revoked for tax years beginning after December 31, 2010. Federal consolidated return elections are not recognized for District purposes; combined reporting is the exclusive method for unitary businesses.

Source: D.C. Code § 47-1805.02a; D.C. Code § 47-1810.07; D.C. Code § 47-1801.04(55); 9 DCMR § 156

Prior law: Joyce method (tax years beginning through December 31, 2025)

For tax years beginning on or before December 31, 2025, the District follows the Joyce method of apportionment for combined reporting groups. Under the Joyce method, each member of a combined group is treated as a separate taxpayer for purposes of determining whether sales are included in the District sales factor numerator. Sales to District customers by a combined group member that lacks District nexus are excluded from the District sales factor numerator, even if another member of the same combined group has District nexus.

This means that only sales made by nexus members are sourced to the District for purposes of calculating the combined group's apportionment percentage. A non-nexus member's District sales do not appear in the numerator of the sales factor, regardless of the unitary relationship.

New law: Finnigan method (tax years beginning after December 31, 2025)

For tax years beginning after December 31, 2025, the District transitions to the Finnigan method. D.C. Code § 47-1805.02b provides: "a combined group of entities will be treated as one taxpayer for purposes of sourcing unitary receipts, as required by this chapter, and the apportionment factor attributes in the numerator, as required by this chapter, will be derived from all the members of the combined group, regardless of whether a member has nexus with the District of Columbia."

The Finnigan method treats the entire combined group as a single taxpayer for apportionment purposes. If any member of the combined group has District nexus, then all members' District sales are included in the District sales factor numerator, even if the selling member itself lacks sufficient District contacts to establish nexus independently. This aggregation applies only to the calculation of the apportionment factor; a member without nexus does not become subject to District tax solely because another group member has nexus.

Enactment and congressional review

The Finnigan mandate was enacted on September 18, 2024, as section 7002(b) of the Fiscal Year 2025 Budget Support Act of 2024 (D.C. Law 25-217), permanent legislation that survived congressional review.

In February 2026, Congress passed and the President signed H.J. Res. 142 (Pub. L. No. 119-78), a joint resolution of disapproval that nullified the "D.C. Income and Franchise Tax Conformity and Revision Temporary Amendment Act of 2025" (D.C. Act 26-217 / D.C. Law 26-89). That temporary legislation — a different law enacted in December 2025 — addressed federal conformity provisions (standard deduction, personal exemptions, child tax credit, depreciation, and similar items) and did not contain or affect the Finnigan provision. D.C. Act 26-217 and D.C. Law 25-217 are distinct enactments with similar numbering; the congressional disapproval targeted only the former.

As of June 2026, D.C. Code § 47-1805.02b remains in effect, and the District applies the Finnigan method to all combined groups for tax years beginning after December 31, 2025.

Source: D.C. Code § 47-1805.02b Source: D.C. Law 25-217, § 7002(b) Source: H.J. Res. 142, Pub. L. No. 119-78 Source: D.C. Law 26-89

Corporations, financial institutions, and unincorporated businesses required to file a District franchise tax return must make quarterly estimated tax payments if the franchise tax for the taxable year can reasonably be expected to exceed $1,000. The estimated tax obligation is governed by D.C. Code § 47-1812.14 and implemented through regulations at 9 DCMR § 149.

Threshold for required estimated payments

Interest on underpayment of estimated tax is not imposed for a taxable year if (1) the tax shown on the return (or, if no return is filed, the tax), reduced by applicable credits and timely estimated payments, is less than $1,000, or (2) the preceding taxable year was a taxable year of 12 months and the entity did not have any liability for tax for that preceding year. This $1,000 de minimis threshold is set forth in D.C. Code § 47-4204(e).

Due dates for installment payments

If estimated franchise taxes are paid in installments, corporations and unincorporated businesses must pay four installments during the taxable year. The installments are due on the 15th day of the 4th, 6th, 9th, and 12th months of the taxable year. For a calendar-year taxpayer, the installment due dates are April 15, June 15, September 15, and December 15. If a due date falls on a weekend or legal holiday, the payment is due the next business day.

Required installment amounts

Each required installment is generally equal to 25% of the required annual payment. The required annual payment is the lower of (1) 100% of the tax shown on the return for the current year, or (2) 100% of the tax shown on the return for the preceding year (if the preceding year was a 12-month year and a return showing a liability was filed). D.C. Code § 47-4204(b) sets out the calculation methodology, which follows the federal estimated tax rules under I.R.C. § 6655. Corporations may reduce later installments if an amended declaration is filed to reflect changed circumstances; if any amendment is made after the 15th day of the 9th month of the taxable year, any increase in estimated tax must be paid at the time of making the amendment.

Penalty for underpayment

Interest is added to any underpayment of estimated tax at the rate specified in D.C. Code § 47-4201. The underpayment for each installment is the excess of the required installment over the amount paid on or before the due date. The period of underpayment runs from the installment due date to the earlier of (1) the 15th day of the 3rd month following the close of the taxable year (March 15 for calendar-year filers), or (2) the date the underpayment is paid. For most taxpayers, the annual franchise tax return is due on the 15th day of the 4th month following the close of the taxable year, so the interest period for underpayments ends one month before the return due date.

Form and filing

Corporations and unincorporated businesses file declarations of estimated tax and make payments using Form D-20ES (for corporations) or Form D-30ES (for unincorporated businesses). The declaration must be filed in accordance with 9 DCMR § 149.5, and payments may be made electronically through the MyTax.DC.gov portal or by check. Overpayments of estimated tax may be credited against the next succeeding taxable year's estimated tax or applied to prior-year deficiencies. D.C. Code § 47-1812.14 provides that no refund of estimated tax is made unless a complete return is filed.

Source: D.C. Code § 47-1812.14 Source: D.C. Code § 47-4204 Source: 9 DCMR § 149

The District of Columbia applies market-based sourcing rules to determine which sales are included in the District sales factor numerator for purposes of the single-sales-factor apportionment formula. The sourcing rules differ based on whether the sale involves tangible personal property or other types of sales.

Tangible personal property — Destination sourcing

Sales of tangible personal property are sourced to the District if the property is delivered or shipped to a purchaser within the District, regardless of the f.o.b. point or other conditions of the sale. Alternatively, sales are sourced to the District if the property is shipped from an office, store, warehouse, factory, or other place of storage in the District and either (1) the purchaser is the United States government, or (2) the taxpayer is not taxable in the state of the purchaser.

Sales other than tangible personal property — Market-based sourcing

For tax years beginning after December 31, 2014, the District applies market-based sourcing to sales other than sales of tangible personal property. Under this standard, sales other than sales of tangible personal property are in the District if the taxpayer's market for the sales is in the District. This represents a departure from cost-of-performance sourcing, which the District used prior to 2015.

The taxpayer's market for sales is in the District under the following circumstances:

Real property transactions For the sale, rental, lease, or license of real property, the market is in the District if and to the extent the property is located in the District.

Tangible personal property rental, lease, or license For the rental, lease, or license (not sale) of tangible personal property, the market is in the District if and to the extent the property is located in the District.

Services For the sale of a service, the market is in the District if and to the extent the service is delivered to a location in the District. The statute does not further define "delivered to a location" or provide a hierarchy of delivery-location rules for services with multiple possible delivery locations.

Intangible property For intangible property that is rented, leased, or licensed, the market is in the District if and to the extent the property is used in the District. The statute contains a special rule for intangible property utilized in marketing a good or service to a consumer: such intangible property is deemed used in the District if that good or service is purchased by a consumer who is in the District.

For intangible property that is sold (rather than rented, leased, or licensed), the statute treats the transaction differently depending on the type. Capital gains and losses from sales of intangible personal property are allocated (not apportioned) to the District if the taxpayer's commercial domicile is in the District. Sales of intangible property other than capital assets are governed by the general "all other receipts" exclusion rule: such receipts are excluded from both the numerator and denominator of the sales factor.

Reasonable approximation and throwout rule

If the state or states of assignment cannot be determined under the primary sourcing rules, the state or states of assignment must be reasonably approximated. If the taxpayer is not taxable in the state to which a sale is assigned (or if the state of assignment cannot be determined or reasonably approximated), the sale is excluded from the denominator of the sales factor. This is commonly known as a "throwout" rule.

Authority for implementing rules

The Chief Financial Officer is authorized to issue rules to implement the sales sourcing provisions, though no comprehensive regulations had been published as of the knowledge cutoff date.

Source: D.C. Code § 47-1810.02(g)

For tax years beginning on or after January 1, 2026, the District of Columbia continues to define "taxable income" for corporate franchise tax purposes by reference to the federal Internal Revenue Code (IRC), as adopted by the District on a rolling conformity basis, with specified statutory exceptions and adjustments.

Federal conformity — Code section and as-of date As of June 2026, the governing provision is D.C. Code § 47-1806.01. The District generally adopts the IRC "as amended and in effect for the taxable year," subject to explicit exceptions and decoupling provisions enumerated in the District’s code. Any updates to the IRC enacted by Congress are automatically incorporated unless District law provides otherwise. D.C. Code § 47-1806.01(b-1) empowers the Council to enact temporary, emergency, or permanent legislation to decouple from or delay any federal change if it would affect District revenue or policy goals. As of the date of this writing, the District conforms to the IRC as in effect for the taxpayer's taxable year beginning in 2026, except as otherwise provided by District statute.

Major statutory additions, subtractions, and decoupling The District maintains several significant adjustments to federal taxable income for franchise tax purposes:

• Bonus depreciation decoupling: The District does not conform to IRC § 168(k) bonus depreciation. Instead, taxpayers must add back any federal deduction claimed for additional first-year depreciation and recover the disallowed amount according to District depreciation schedules (see D.C. Code § 47-1803.03(b-1)(B)).
• Section 179 expensing: The District conforms to the IRC’s section 179 expense deduction limits for the relevant tax year.
• Net operating losses: NOL carryforwards are permitted for up to 20 years, subject to District-specific rules, and are limited to post-2000 losses (see D.C. Code § 47-1803.03(a)(20)). The District does not permit NOL carrybacks.
• Other additions/subtractions: The District provides adjustments for interest and dividends from non-D.C. obligations (addition), certain federal and state income tax refunds (subtraction), and disallows the deduction for District franchise tax paid.

Periodic decoupling and fact-checking Practitioners must consult current-year District legislation for any updates or emergency acts addressing conformity with new federal legislation, as the District has historically enacted temporary measures when IRC changes have fiscal impact. The standing decoupling from IRC § 168(k) (bonus depreciation) is one of the most material differences affecting corporate taxpayers.

Source: D.C. Code § 47-1806.01 Source: D.C. Code § 47-1803.03

Direct answer: The District of Columbia does not impose an economic nexus threshold—such as a sales, receipts, or transaction threshold—specifically for corporate franchise tax purposes. Instead, a corporation has nexus if it (1) is engaged in any trade or business within the District, or (2) receives income from District sources. No statutory receipts or transaction threshold applies to establish corporate franchise tax liability, and the D.C. Office of Tax and Revenue (OTR) has not adopted an economic nexus standard similar to that imposed for sales and use tax.

Why: Under D.C. Code § 47-1807.02 and § 47-1801.04(6), the franchise tax is imposed on corporations "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 statute does not require a minimum amount or threshold of sales, receipts, or transactions for corporations. D.C. nexus may arise through physical presence, unprotected business activities beyond solicitation, or the mere earning of income sourced to the District. Economic nexus standards—such as explicit gross receipts thresholds—apply to other taxes (e.g., sales & use tax, unincorporated business franchise tax), but not to corporate franchise tax.

The OTR's published guidance, including official FAQs and the "Nexus for Business Taxes" publication, does not state or imply any economic nexus or receipts threshold for the corporate franchise tax. Instead, it confirms that any in-state business activity or DC-source income for corporate entities establishes nexus, regardless of magnitude. The only minimum-dollar rule for corporations is the minimum tax obligation ($250 or $1,000), not a nexus threshold, and that amount is owed even if there is very little activity or income.

Source support:

• D.C. Code § 47-1807.02 and § 47-1801.04(6) (defining tax imposition and nexus).
• D.C. OTR, Nexus for Business Taxes guidance (April 2024) (explicitly outlining activities creating franchise tax nexus for corporations without mention of an economic threshold).

Caution / review status: Not yet human confirmed. The DC Code and OTR guidance reviewed as of 2026-06-16 do not indicate any economic nexus threshold for corporate franchise tax; if OTR issues post–Wayfair guidance adopting such a standard in the future, this section should be updated.

Source: D.C. Code § 47-1807.02 Source: D.C. Code § 47-1801.04 Source: OTR Nexus Guidance (April 2024)

All corporations—regardless of industry—use the standard apportionment formulas set forth in the District of Columbia Code; the District does not prescribe any special apportionment formulas or factor-weighting regimes for particular industries such as financial institutions, utilities, or transportation companies under the corporate franchise tax as of June 2026.

Single-sales-factor apportionment (current and recent years): For tax years beginning after December 31, 2014, the District of Columbia uses a single-sales-factor formula: apportionable business income is multiplied by the ratio of District sales to everywhere sales, per D.C. Code § 47-1810.02(d-2). This rule applies to all apportionable taxpayers, including financial institutions and public utilities. No additional industry carve-outs are provided by statute.

Four-factor (double-weighted sales) apportionment (2011–2014): For tax years beginning after December 31, 2010, and before January 1, 2015, the apportionment formula was property factor plus payroll factor plus two times the sales factor, divided by four, per D.C. Code § 47-1810.02(d-1). Again, the law did not set out special formulas by industry.

Petition for alternate method: Any taxpayer (regardless of industry) may petition for use of an alternate method if the statutory formula does not fairly represent its business activity in the District. This is an individualized administrative process, not an industry-wide standard. See D.C. Code § 47-1810.02(h).

Treatment of financial institutions: D.C. Code § 47-1810.01(b) specifies that interest and dividends of financial institutions are treated as business income, but does not supply a different apportionment formula. Financial institutions, utilities, transportation companies, and all other corporate franchise taxpayers follow the same statutory apportionment rule unless granted a taxpayer-specific alternative upon petition.

Direct answer: All corporations subject to the District of Columbia corporate franchise tax use the single-sales-factor apportionment formula for years after 2014 (and double-weighted four-factor for 2011–2014); no industry-specific formulas are imposed by statute or regulation. Alternate apportionment is available only by taxpayer petition and is not a default for any industry group.

Source: D.C. Code § 47-1810.02 Source: D.C. Code § 47-1810.01(b)

Not yet human confirmed — based on review of D.C. Code statutory text as of 2026-06-16. If OTR issues regulations or bulletins setting out exceptions in the future, this section should be updated.

The District of Columbia does not publish a single, annually consolidated statutory table of all permanent and current-year-specific additions and subtractions (modifications or "decoupling" adjustments) to federal taxable income for corporate franchise tax purposes. Instead, practitioners must consult multiple authority layers each year:

1. Governing statutory provisions Additions and subtractions required by District law are enumerated principally in D.C. Code § 47-1803.03. This section sets out modifications to federal taxable income, including mandatory add-backs (e.g., disallowed bonus depreciation under IRC § 168(k)), subtractions (such as certain tax-exempt interest or non-D.C. obligation income), net operating loss limitations, and other specific differences from federal computation. Practitioners must also review temporary and emergency legislation each year for any changes adopted in response to federal tax law updates or District budgetary policy.

2. Office of Tax and Revenue (OTR) — Form D-20 instructions Because the statutory list can be subject to annual modification or emergency decoupling, the most consolidated source available publicly is OTR’s annual D-20 Corporation Franchise Tax Return instructions. These instructions (including Schedules A and I) provide detailed line-by-line guidance for each addition or subtraction, including both standing and current-year-specific adjustments. The instructions reference underlying statutory provisions and reflect the most current conformity position and administrative practice as of publication. The instructions do not fully substitute for the statute in novel situations but are indispensable for cross-checking the application of routine adjustments.

3. Practitioner best practices Best practice is to consult the current-year D-20 instructions as the working checklist and cross-check with the latest text of D.C. Code § 47-1803.03 for developments (including acts of temporary or emergency legislation not yet codified in form instructions). The practitioner should also review any OTR Notices or Tax Bulletins published on the OTR website for interim or emergency updates.

No one-stop public table As of June 2026, the District does not publish a single official, continuously updated table or matrix of all required additions and subtractions outside of the composite reference formed by the D.C. Code and current D-20 instructions. Both sources must be used in tandem to ensure compliance.

Source: D.C. Code § 47-1803.03 Source: OTR Corporate Franchise Forms — D-20 Instructions

The District of Columbia follows the federal income tax classification of disregarded entities—including single-member LLCs (SMLLCs) and, by inference, Qualified Subchapter S Subsidiaries (QSubs)—for combined reporting under the corporate franchise tax, with key rules set out in OTR publications and regulatory examples.

Wholly owned disregarded entities: When a member of a combined group wholly owns a disregarded entity (such as a SMLLC), the income, deductions, and apportionment factors (property, payroll, sales) attributable to that entity must be included with those of the parent in the combined report and factored into the group’s apportionment. The owner, not the disregarded entity, is the reporting and taxable entity. This requirement is set out in OTR’s official guidance on combined reporting (see OTR, "Combined Reporting Guidance to Date," Example 4 on p. 9) and is echoed by the regulatory discussion in the D.C. Register.

Partial ownership (more than 50% but less than 100%): Where ownership of an LLC or partnership is greater than 50% but not 100%, the entity itself (not its owner) must file its own District unincorporated business franchise tax return. The District member includes its distributive share of income (from Schedule K-1) in the combined report's income, and includes the sales proportionate to its ownership in the sales factor, but the payroll and property of that entity are not factored into the owner’s apportionment ratios (see D.C. Register, June 1, 2012, "Combined Reporting Regulatory Examples").

QSubs (Qualified Subchapter S Subsidiaries): OTR’s published guidance does not explicitly mention QSubs in the context of combined reporting. Because QSubs are federally disregarded entities, and because D.C. franchise tax returns (Forms D-20/D-30) require listing disregarded entities whose income is reported by the parent, the reporting practice for SMLLCs is applied by analogy. Practitioners should note that, as of June 2026, the D-20 Schedule K requires listing all disregarded entities for which the income, deductions, or apportionment factors are included in the return, but QSub treatment is not spelled out in an OTR publication or regulation—the reporting requirement is a matter of consistent practice inferred from the analogous SMLLC rules. The parent must consolidate the QSub’s results and provide entity details on Schedule K.

Caution / review status: Not yet human confirmed. OTR and regulatory sources directly address SMLLCs and disregarded LLCs; QSub treatment is inferred by analogy due to lack of specific OTR commentary. If OTR issues targeted guidance on QSubs in the future, this section should be updated.

Source: OTR Guidance on Combined Reporting, p. 9 (Example 4) Source: D.C. Register – Combined Reporting Regulatory Examples Source: D-20 Instructions and Schedule K

As of June 2026, the District of Columbia applies market-based sourcing rules to corporate franchise tax sales factor apportionment for all sales other than tangible personal property, including digital goods, SaaS, and services delivered to multiple locations. Under D.C. Code § 47-1810.02(g), receipts from services are sourced to the District if and to the extent the service is delivered to a location in the District. Receipts from intangible property are sourced based on use in the District. The statute does not supply special rules for digital products, SaaS, or cloud computing transactions, but these receipts are generally treated as falling within the service or intangible property categories, depending on their legal character.

No administrative guidance or practical examples as of June 2026 The Office of Tax and Revenue (OTR) has not published administrative guidance, tax bulletins, or illustrative examples addressing how to assign receipts from digital products, SaaS, or multi-jurisdictional cloud services for sales factor purposes. The statutory language provides no separate or supplementary sourcing hierarchies for these categories, and neither regulations nor official FAQs clarify how to handle receipts from services delivered simultaneously in and out of the District, or those delivered via cloud infrastructure without a clear end-user location in statutory terms.

Practical challenges without explicit guidance Because the statute is silent on digital transactions and multi-location delivery, practitioners must rely on a fact-intensive application of the statutory "location delivered" or "use" tests. For SaaS and other digital services, this means:

• Identifying, based on available factual records, the customer location(s) where the service is actually received or used in the District (e.g., contractual service addresses, user IP address data, or billing address proxies if no better information exists).
• If a transaction covers multiple customer locations (in DC and elsewhere), allocating receipts to the District to the extent of in-District delivery or use. The statute authorizes "reasonable approximation" if precise locations cannot be determined; no further guidance exists on methodology, so DC makes no representation as to the acceptability of particular allocation methods. Detailed taxpayer documentation of the approach taken is recommended for audit defense.

Summary The only binding sourcing rule for digital goods, SaaS, and cloud-delivered services under the corporate franchise tax is the statutory market-based test in D.C. Code § 47-1810.02(g). As of June 2026, no administrative guidance or official practical examples exist. Any best practices employed beyond the statute (e.g., proportional allocation by user, using proxy records) are practitioner-driven and not sanctioned or specifically recognized by DC statutory authority. Practitioners should clearly document their allocation methods under reasonable approximation if actual in-District delivery or use cannot be directly determined.

Source: D.C. Code § 47-1810.02(g)

Direct answer A fiscal-year taxpayer whose taxable year begins in 2025 and ends in 2026 must apply the Joyce method, not the Finnigan method, because the statutory transition to Finnigan applies only to taxable years beginning after December 31, 2025.

Why D.C. Code § 47-1805.02b expressly states that the Finnigan method is effective "for tax years beginning after December 31, 2025." Taxable years beginning before January 1, 2026, are therefore required to use the prior Joyce method for all apportionment purposes for the entire tax year—including those fiscal years that end in 2026. There is no provision in the statute for pro-rata, partial-year, or blended application of Joyce and Finnigan within a single taxable year. The dividing line is strictly the starting date of the taxable year. This approach is consistent with prevailing state practice for apportionment method transitions unless the legislature specifically directs allocation by parts of the year, which D.C. does not.

Source support

• Authority: D.C. Code § 47-1805.02b (the transition rule is based on the first day of the taxable year)

Caution / review status Not yet human confirmed. No explicit OTR administrative or regulatory guidance addresses fiscal-year-straddle application as of June 2026. If D.C. OTR later issues regulations for transitional apportionment, this section should be reassessed.

Source: D.C. Code § 47-1805.02b