The District of Columbia occupies a unique position among subnational jurisdictions in the United States given its status as a nonstate, federal enclave. The District’s status allows it to impose individual income tax on only residents under the district clause of the US Constitution, the Home Rule Act of 1973, and implementing statutes that are subject to general congressional oversight. Unlike states, which may tax source income of nonresidents, the District cannot tax nonresident income, including wages earned in the District. This limitation affects the District’s tax structure in a few ways, including the imposition of the District’s entity-level tax on unincorporated businesses.

Because of the ambiguities in the District’s definition of statutory resident, the Office of Tax and Revenue’s interpretation has created concern among individuals who have connections to the District and their employers.

In this installment of A Pinch of SALT in Tax Notes State, Eversheds Sutherland attorneys Charlie Kearns and Charles Capouet describe the District of Columbia’s statutory residency law, its associated risks, and what individuals can do to mitigate those risks.

Read the full article here.