State Tax Day - Current, S.4, District of Columbia—Multiple Taxes: Sales Tax Increase Delayed, Decoupling Provision Readopted, (Sep 24, 2026)

Recent District of Columbia budget legislation, both temporary and permanent, makes several tax changes:

• delaying a sales tax increase from 6% to 7% from October 1, 2026 to October 1, 2027;

• decoupling from One Big Beautiful Bill Act provisions (IRC Sec. 174A, IRC Sec. 163, and IRC Sec. 168(n)) as previously done in temporary and emergency legislation;

• increasing the tax rate on rental cars and utility trailers from 9.25% to 11% beginning on October 1, 2026;

• making the increased hotel tax rate permanent;

• continues the previous changes to the standard deduction made in previous temporary and emergency legislation;

• for amounts invested in a Qualified Opportunity Fund after December 31, 2026, the reduction of capital gains tax liability through a 10% step-up basis, if invested in a QOF for 5 year, under IRC Sec. 1400-Z-2(b), is realized only if the taxpayer invests in a QOF that meets certain criteria;

• after 2025, taxpayers must add back the taxpayer's distributive or pro rata share of any tax imposed on and paid by a pass-through entity to another state, territory or possession of the United States to the extent the tax was deducted from the pass-through entity's gross income in determining the pass-through entity's federal taxable income;

• for unincorporated business franchise taxpayers (partnership, sole proprietorship, and S Corporations) the law repeals exclusions that allow residents to exclude certain business income from computation of adjusted District gross income; and

• the law includes a provision directing the Chief Financial Officer to study the implementation of a Business Activity Tax.

Act 26-418 (D.C.B. 26-661), Laws 2026, approved August 14, 2026, effective after a 30-day congressional review period; Act 26-416 (D.C.B. 26-724), Laws 2026, effective August 13, 2026, for a 90-day period that expires November 11, 2026