DC restaurants, bars, and nightclubs with less than $2.5m in sales can receive a $5k tax credit annually. This is a dollar-for-dollar refundable tax credit, not just a tax deduction. So even if you don’t have an income tax liability due to not being profitable, you can receive $5k from the DC government. After factoring in the minimum gross receipts tax or franchise tax, you could receive at least $4,750 ($5k minus the $250 minimum gross receipts tax) from DC by claiming the credit on your annual franchise tax returns (form D-20 and D-30). In this article, we’ll summarize how to qualify and claim the small retailer property tax relief credit (SR Credit) for restaurants, bars, and nightclubs in DC.
How to qualify for the SR Credit
Any Washington, DC-based restaurant, bar, or nightclub with less than $2.5m in sales that is registered with the DC Office of Tax and Revenue (OTR) as a corporation or unincorporated business is eligible for the credit if it is current on all DC tax filings and payments for all tax types.
You must operate your establishment from a qualified retail location that you own or rent to qualify. A qualified retail location is a Class 2 property with a certificate of occupancy intended for commercial use and is not exempt from DC real property tax. You can search the assessment database maintained by DC OTR to see if your restaurant, bar, or nightclub is in a Class 2 property.
How is the small retailer property tax relief credit determined?
The amount of the SR Credit is the lesser of $5,000 or (a) the real property taxes paid by the qualified business or (b) 10% of the rent paid by the qualified business.
If the amount of the SR Credit exceeds your franchise tax liability for the year, you will receive a refund for the difference. For example, suppose your restaurant’s minimum franchise tax liability is $250, and you are entitled to a $5k SR Credit. In that case, you will receive a $4,750 refund even if you haven’t made any estimated payments for the year.
Applying for the SR Credit
You must claim the SR Credit by completing the Small Retailer Property Tax Relief Credit (Schedule SR) and filing it with your Corporation Business Franchise Tax Return (D-20) or Unincorporated Business Franchise Tax Return (D-30). It cannot be filed as a stand-alone return. The entity claiming the SR credit must have a DC sales tax account. You will also need to have the following information available to complete the Schedule SR:
If you’re an owner:
- the amount of Class 2 real property taxes paid on the qualified retail-owned location for the applicable year
- the Square number, Suffix number, and Lot number for the property as it appears on your real property tax bill or assessment
If you’re a tenant:
- the amount of rent paid on the qualified retail rental location in the applicable year
- landlord’s name, address and telephone number
Restaurant Groups and Consolidated Groups
If you’re filing a combined/unitary or consolidated DC tax return, you must file a separate Schedule SR and Schedule UB for the entity that qualifies using their respective sales tax account number and attach it to the combined return. Even if multiple locations qualify, you can claim the credit for only one property owned or leased. To qualify, the combined federal gross receipts for all the combined group members cannot exceed $2.5 million per year.
Conclusion
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