United States: District Of Columbia Qualified High Technology Company Eligibility Status Addressed

Two recent decisions regarding the District of Columbia Qualified High Technology Company (QHTC) designation shed light on what types of activities will enable companies to claim QHTC tax benefits. On October 19, the District of Columbia Office of Tax and Revenue (OTR) issued a declaratory order and found that revenue derived from specific ecommerce activities qualified under the QHTC requirements.1 Three days later, the D.C. Court of Appeals held that a television station was not eligible for QHTC benefits because its sale of advertising via technology-enabled television programming was not considered a qualifying QHTC activity.2

Overview of QHTC Certification and Tax Benefits

The QHTC certification was enacted by the New E-Conomy Transformation Act of 20003 to attract technology-focused businesses to the District. This certification allows qualified taxpayers to utilize certain District tax credits and benefits. To obtain QHTC benefits, taxpayers must complete and attach the Form QHTC-CERT to their District tax return.

In order to be considered a QHTC, a company must certify that it:

  • Is an individual or entity organized for profit;
  • Leases or owns an office;
  • Has 2 or more qualified employees in D.C;
  • Derives at least 51 percent of its D.C. gross revenue from one or more of certain "permitted" activities;
  • Does not derive 51 percent or more of its D.C. gross revenue from operating a retail store or electronic equipment facility in D.C.; and
  • Is registered with the D.C. Government as a business in D.C.4

Once QHTC status has been established, an eligible company is entitled to the following tax benefits and credits:

  • Temporary corporate franchise tax exemption,5
  • Temporary personal property tax exemption,6
  • Business asset deduction,7
  • Unincorporated business franchise tax exemption,8
  • Rollover of capital gain from qualified stock,9
  • Exclusion from combined group reporting,10
  • Retraining costs for qualified disadvantaged employees,11
  • Wages of qualified disadvantaged employees,12
  • Wages of qualified employees,13 and
  • Relocation costs.14

Declaratory Order Addresses QHTC Eligibility of E-Commerce Company

Declaratory Order 2015-2, issued by the OTR, addresses whether a for-profit e-commerce company was eligible for QHTC tax benefits. The company requesting the Order employed an online platform to provide promotion and marketing services to customers that sell admittance to various events, which the Order classified as "licenses." In addition, the company sold tangible personal property and credit card swipers to its customers, and provided consultants to customers for various services. The majority of the company's revenue was derived from two sources:

  1. A service fee earned when customers sold licenses through the company's online platform, representing a percentage of the selling price for these licenses; and
  2. A credit card processing fee charged for all transactions via the online platform that used credit cards.

When applying for the Order, the company had one employee in the District working from a home office, and indicated that it was planning to hire additional employees who might work from home offices in the District, and potentially acquire a District office location.

Based on these facts, the OTR first ruled that the company had proposed an employee presence in the District necessary to meet the criteria under D.C. Code Ann. Sec. 47-1817.01(5)(A)(i) and (ii). The OTR then addressed whether the company derived at least 51 percent of its District gross revenue from the following specified e-commerce activities

Internet-related services and sales, including website design, maintenance, hosting, or operation; Internet-related training, consulting, advertising, or promotion services; the development, rental, lease, or sale of Internetrelated applications, connectivity, or digital content; or products and services that may be considered e-commerce.15

In determining that the company was eligible for QHTC designation because a majority of its gross revenues were derived through e-commerce, the OTR first examined the term "derive." The OTR defined the term "derive" as "to take, receive, or obtain from a specified source."16 Given this definition, the OTR clarified that internet-related services and sales like website design, maintenance, hosting, and operation are performed with regard to the internet, and do not simply constitute transactions that occur over the internet. However the company's gross revenue from credit card service and license fees generated from sales via the internet was e-commerce eligible for QHTC qualification and a permitted activity for purposes of meeting the District gross revenue requirement.17

District Court of Appeals Concludes Television Station is Ineligible for QHTC Status

In NBC Subsidiary WRC-TV, LLC v. D.C. Office of Tax and Rev.,18 the District of Columbia

Court of Appeals affirmed an Administrative Law Judge's ruling sustaining a $78,784.84 sales and use tax assessment, finding that WRC-TV, LLC (WRC) did not qualify for QHTC status.

At issue was WRC's claim that it derived at least 51 percent of its revenue from the following high technology activities, specified in the QHTC statute:

Information and communication technologies, equipment and systems that involve advanced computer software and hardware, data processing, visualization technologies, or human interface technologies, whether deployed on the Internet or other electronic or digital media, including operating and applications software; Internet-related services, including design, strategic planning, deployment, and management services and artificial intelligence; computer modeling and simulation; high-level software languages; neural networks; processor architecture; animation and full-motion video; graphics hardware and software; speech and optical character recognition; high-volume information storage and retrieval; data compression; and multiplexing, digital signal processing, and spectrum technologies; . . .19

WRC argued that this definition was relevant to its own activities since WRC used advanced technology to create and transmit television programming and sales of advertising. Essentially, WRC claimed that it generated receipts from information and communication technologies. The OTR argued that if WRC's sale of advertising was found to be a high technology activity, then accounting, brokerage or law firms would also qualify for QHTC treatment as they could argue the provision of technology-intensive services for fees (in lieu of advertising) qualified as high technology revenues.

The Court of Appeals agreed with the OTR, holding that the qualifying activities described in the QHTC statute had to have a closer connection to the QHTC's revenues than the mere purchase and use of high technology equipment and systems. Looking at legislative intent, the Court of Appeals determined that the New E-Conomy Transformation Act of 2000, which created the QHTC designation, was not intended to give benefits to those who simply purchased and used high technology. The Court noted that data on which the District relied to develop a revenue estimate for this legislation only accounted for high technology businesses, not general businesses that merely used high technology to facilitate their businesses. Finally, the Court noted that the OTR had substantial latitude to interpret the definition of high technology as such term evolved over time.


The District historically has not published much guidance on local tax matters, so the issuance of the Order, followed closely in time by a Court of Appeals opinion on a subject as highly specific as the QHTC designation, is notable. The Order and the Court's opinion focus on different aspects of the QHTC qualifying activity list, as the Order addressed ecommerce activities and the Court examined the extent of high technology activities. But the Order and Court's opinion are clearly interrelated, in that the Order specifically relied on the District Office of Administrative Hearings' earlier decision in WRC to clarify and limit the definition of "derived" under the gross revenues test to prevent mere users of high technology from claiming the QHTC designation. The Court's decision endorses the guidance released by the OTR in the Order, even though the company that requested the Order ultimately received QHTC status due to its substantial e-commerce activities.

One can surmise that the OTR is taking a closer look at QHTC self-certifications to confirm (or in some cases reject) that the self-certifying company is in fact a QHTC. Given the vast expansion of high technology products and businesses since the original adoption of the QHTC statute, and the significant benefits that a qualifying company may accrue, scrutiny by the OTR on these issues is likely to continue.

The Order and the Court of Appeals' decision indicate that the definition of a high technology company for purposes of QHTC classification is not confined by common interpretations of the term, and that the OTR's interpretation of such term carries significant weight. While these developments may make it more difficult for companies that marginally use high technology in their general businesses to obtain the QHTC certification, companies should continue to evaluate their revenue streams to determine whether their e-commerce, high technology or other operations could qualify as high technology under the definitions and rulings prescribed by the District.


1 District of Columbia Office of Tax and Revenue, DO 2015-2 (Oct. 19, 2015).

2 NBC Subsidiary WRC-TV, LLC v. D.C. Office of Tax and Rev., No. 14-AA-174 (D.C. Ct. App. Oct. 22, 2015).

3 D.C. Law 13-256 § 403(b); 48 D.C. Reg. 730.

4 D.C. CODE ANN. § 47-1817.01(5); 2014 Publication FR-399, Qualified High Technology Companies, D.C. Office of Tax and Revenue.

5 D.C. CODE ANN. § 47-1817.06(a)(2).

6 D.C. CODE ANN. § 47-1508(a)(10). Pursuant to personal property as defined by D.C. CODE ANN. § 47-1521(4) and qualified technological equipment as defined by D.C. CODE ANN. § 47-1523(b).

7 D.C. CODE ANN. § 47-1803.03(18).

8 2014 Publication FR-399, Qualified High Technology Companies, D.C. Office of Tax and Revenue.

9 D.C. CODE ANN. § 47-1817.07.

10 D.C. CODE ANN. § 47-1801.04(39); D.C. MUN. REGS. tit. 9, § 157.3.

11 D.C. CODE ANN. § 47-1817.04.

12 D.C. CODE ANN. § 47-1817.05.

13 D.C. CODE ANN. § 47-1817.03.

14 D.C. CODE ANN. § 47-1817.02.

15 D.C. CODE ANN. § 47-1817.01(5)(A)(iii)(I).

16 NBC Subsidiary WRC-TV, LLC v. D.C. Office of Tax and Rev., OAH Case No. 2013-OTR-00017 (D.C. O.A.H. Jan. 17, 2014).

17 The OTR also held that the company did not operate an online retail store and was not precluded from qualifying as a QHTC on that basis. D.C. CODE ANN. § 47-1817.01(5)(B).

18 No. 14-AA-174 (D.C. Ct. App. Oct. 22, 2015).

19 D.C. CODE ANN. § 47-1817.01(5)(A)(iii)(II).

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