Combined Reporting Amendment Act of 2026

GOVERNMENT OF THE DISTRICT OF COLUMBIA
OFFICE OF THE CHIEF FINANCIAL OFFICER
John A. Wilson Building * 1350 Pennsylvania Avenue, NW * Suite 203 * Washington, DC 20004
Phone: (202) 727-2476 * Fax: (202) 727-1643 * www.cfo.dc.gov
J
une 23, 2026
T
he Honorable Phil Mendelson
Chairman
Council of the District of Columbia
1350 Pennsylvania Avenue, NW, Suite 504
Washington, D.C. 20004
R
e: Combined Reporting Amendment Act of 2026
D
ear Chairman Mendelson:
T
his letter transmits my request to the Council to enact the Combined Reporting Amendment Act
of 2026.
T
he proposed legislation will enact, amend, and repeal provisions of law necessary to implement
the transition from the Joyce to Finnigan method of apportionment for combined reporting
pursuant to D.C. Official Code § 47-1805.02b.
I
request that the enclosed legislation be included in the Secretary’s Log of Introductions for the
next Legislative Meeting.
Sincerely,
G
len Lee
Chief Financial Officer
E
nclosures

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at the 1equ.ed of the Chief
F'inuci.al Officer
IN TIIB COUNCIL OF THE DISTRICT OF OOlUMBIA
16 To ,enact, mnend. BM repea] piovisiom of law necessm:y m implement the Finnigan
17 method ofappooiiomnem: for oom.bined1eporlmg pmsuamto o~c. Code§ 47-1:80.5.0lb
18 11.ansiition ftom the Jo).lC'1 method of a:pportio:omem: to the Finnigan method of apportio:mnem.
19
20 BE IT ENACTED BY THE COUNCIL OF TIIE DIS,TRICT OF COLUMBIA, tha.t this
21 act ma .y be cited as Ire '"Combined Reportimg Amendm.em: ht of 2026.,.
22 Sec. 2. Section 4 7-1001.04, Genera] definitions af the District of Colum!biia Official
23 Code i:s amended as follow.s.:
24 (a) {7) .. Combined gmup"' is. ·repealed and repllac-ed m read as fallows:
25 •••Combined gioup' :means the group of an persam lmt must file a oombined 1etmn as
26 reqwred by § 47-1:80.5 .02a-1, Combined 1etum reqmred; joint md several liability ad § 47-
27 1:80.5 .02b~ 11.amition fi:om the Joya mefti.od of a:pportio.mnem: to the Finnigan method of
28 appomomnent. m.clumog a. group properly m.akmg a water'.s-edge electicm under § 47-1&10.07 A,
29 \Vatet
1
,s-edge e]ection; mitiia1icm.md withdrawal"
30 (jb) A new section (l.A) is a.dded as follows:
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“‘Combined return’ means a tax return required to be filed for the combined group 31
containing information as provided in § 47-1805.02a-1, Combined return required; joint and 32
several liability or required by the Chief Financial Officer.” 33
(c) (10)(A) “Corporation” is amended by striking the phrase “would be subject to the 34
tax imposed by this chapter” and inserting the phrase “would be a ‘taxpayer.’” 35
(d) (28) “Internal Revenue Code of 1986” is amended by inserting the phrase “and 36
amendments thereto” after “October 22, 1986.” 37
(e) (49)(A) “Tax haven” is amended by inserting the phrase “, during the tax year in 38
question has no or nominal effective tax on the relevant income and any one or more of the 39
following:” after the phrase “means a jurisdiction that.” 40
(i) Paragraph (i) is amended by striking the phrase “For a particular tax year 41
in question has no, or nominal, effective tax on the relevant income and.” 42
(f) A new subsection (33A) is added as follows: 43
“‘Nexus’ means the physical, economic, electronic, or virtual presence or connection between a 44
taxpayer and the District of Columbia, whether the presence or connection is direct or indirect.” 45
(g) (55) “Unitary business” is repealed and replaced to read as follows: 46
“A group of two or more persons related by common ownership that are sufficiently 47
interdependent, integrated or interrelated through their activities so as to provide synergy and 48
mutual benefit and produce a significant sharing or exchange of value among them or a 49
significant flow of value between the separate parts. The term “unitary business” shall be 50
construed to the broadest extent permitted under the Constitution of the United States. A unitary 51
business includes that part of the business that meets the definition in this subsection (55) and is 52
conducted by a taxpayer through the taxpayer’s interest in a partnership, whether the interest in 53

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that partnership is held directly or indirectly through a series of partnerships or other pass-54
through entities.” 55
(h) (57) “Water’s-edge combined group” is amended by striking the statutory 56
reference “§ 47-1810.07” and inserting “§ 47-1810.07A, Water’s-edge election; initiation and 57
withdrawal” in its place. 58
Sec. 3. Title 47 of the District of Columbia Official Code is amended as follows: 59
Sections 47-1805.02a, Combined reporting required, and 47-1810.06, Designation of 60
agent, are repealed. A new section 47-1805.02a-1, Combined return required; joint and several 61
liability of the District of Columbia Official Code is added to read as follows: 62
“(a) For tax years beginning after December 31, 2025, except as provided in § 47- 63
1810.07A, Water’s-edge election; initiation and withdrawal, all persons, wherever incorporated, 64
domiciled, organized, formed, or established, that are members of a unitary business shall file a 65
combined return as a combined group. That return must include the income and apportionment 66
factors, determined under § 47-1810.05A, Determination of the business income of the combined 67
group, and other information required by the Chief Financial Officer for all members of the 68
combined group wherever located or doing business. The combined return must be filed under 69
the name and federal employer identification number of the parent if the parent is a member of 70
the combined group. If there is no parent, or if the parent is not a group member, the members of 71
the combined group shall choose a member who the combined group reasonably expects will 72
have the largest amount of District taxable net income on a recurring basis to file the return. The 73
filing member must remain the same in subsequent years unless the filing member is no longer 74
the parent or is no longer a member of the combined group. The return must be signed by a 75
responsible officer of the filing member on behalf of the combined group members. Members of 76

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the combined group are jointly and severally liable for the tax liability of the combined group 77
included in the combined return. 78
(b) The Chief Financial Officer may require that a combined return to include the income 79
and associated apportionment factors of persons that are not included pursuant to subsection (a) 80
of this section, but that are members of a unitary business, in order to reflect proper 81
apportionment of income of the entire unitary business. Authority to require combination under 82
this subsection (b) includes authority to require combination of the income and associated 83
apportionment factors of persons that are not subject to District tax or would not be subject to 84
District tax if doing business in the District. 85
(1) If the Chief Financial Officer determines that the reported income or loss 86
of a taxpayer engaged in a unitary business with a person not included pursuant to subsection (a) 87
of this section, or pursuant to an election under § 47-1810.07A, Water’s-edge election; initiation 88
and withdrawal, represents an avoidance or evasion of tax by such taxpayer, the Chief Financial 89
Officer may, on a case by case basis, require all or part of the income and associated 90
apportionment factors of such person be included in the taxpayer’s combined return. 91
(2) With respect to inclusion of associated apportionment factors pursuant to 92
this subsection (b), the Chief Financial Officer may require the exclusion of one or more of the 93
factors, the inclusion of one or more additional factors that will fairly represent the taxpayer’s 94
business activity in the District, or the employment of any other method to effectuate a proper 95
reflection of the total amount of income subject to apportionment and an equitable allocation and 96
apportionment of the taxpayer’s income. 97
(c) In the event of any inconsistency or conflict between any provision of Chapter 1 of 98
Title 9 of the District of Columbia Municipal Regulations and any provision of Chapter 18 of 99

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Title 47 of the District of Columbia Official Code concerning combined reporting requirements, 100
the provisions of Chapter 18 of Title 47 of the District of Columbia Official Code shall govern 101
and control. 102
(d) The Chief Financial Officer shall adopt all regulations necessary to implement 103
combined reporting; to ensure that the tax liability and net income of any taxpayer, and of each 104
entity included in a combined report, are properly reported, determined, computed, assessed, 105
collected, and adjusted both during and after inclusion in the combined group; and to prescribe 106
the form, manner, timing, place, and allowable extensions for all required returns and reports.” 107
Sec. 4. Sections 47-1810.04, Determination of taxable income or loss using combined 108
report; components of income subject to tax in the District, application of tax credits and post-109
apportionment deductions; determination of taxpayer's share of the business income of a 110
combine group apportionable to the District, and 47-1810.05, Determination of the business 111
income of the combined group. are repealed. 112
A new section 47-1810.05A, Determination of the business income of the combined 113
group, of the District of Columbia Official Code is added to read as follows: 114
“(A) The combined group calculates its District taxable net income as 115
provided in subsection A of this section. 116
(i) Determine the total combined group income or loss, before net operating loss 117
deduction, as follows: 118
(a) Each member of the combined group determines its separate 119
income or loss before net operating loss deduction, as follows: 120
(1) For a member incorporated in the United States or included in a 121
consolidated federal corporate income tax return, the member’s income or loss is the taxable 122

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income for the member under the Internal Revenue Code, on a separate entity basis, after making 123
appropriate adjustments under District tax provisions. 124
(2) For any member not included in (A)(i)(a)(1) above: 125
(I) The member’s income or loss is determined from a profit 126
and loss statement prepared for that member on a separate entity basis in the currency in which 127
its books of account are regularly maintained, provided this profit and loss statement is subject to 128
an independent audit, adjusted to conform it to the accounting principles generally accepted in 129
the United States for the preparation of such statements and further modified to take into account 130
any book-tax adjustments necessary to reflect federal and District tax law. Income or loss so 131
computed includes all income wherever derived and is not limited to items of U.S. source 132
income or effectively connected income within the meaning of the Internal Revenue Code. Items 133
of income, expense, gain or loss and related apportionment factors that are denominated in a 134
foreign currency must also be translated into U.S. dollars on a reasonable basis consistently 135
applied year-to-year and entity-by-entity. Unrealized foreign currency gains and losses are not 136
recognized. Income apportioned to the District is to be expressed in U.S. dollars. 137
(II) In lieu of the procedures set forth above in (A)(i)(a)(2)(I) or 138
in any case where it is necessary to fairly and consistently reflect the income or loss and 139
apportionment factors of foreign operations included in the unitary business, the Chief Financial 140
Officer may provide for other procedures to reasonably approximate the income or loss and 141
apportionment factors of members with foreign operations. 142
(b) Unless otherwise provided by this chapter, or by regulation, 143
income or loss of the members as determined under (A)(i)(a) of this section are combined, 144
eliminating items of income, expense, gain and loss from transactions between members of the 145

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combined group, applying the consolidated filing rules under Internal Revenue Code and agency 146
regulations as if the combined group was a consolidated filing group. 147
(1) Dividends paid by one member of the combined group to 148
another member within the combined group are excluded from that member’s income to the 149
extent those dividends are paid out of the earnings and profits of the unitary business included in 150
the combined report in the current or an earlier year. 151
(2) A charitable expense incurred by a member of a combined 152
group, to the extent allowable as a deduction pursuant to section 170 of the Internal Revenue 153
Code of 1986, is subtracted first from the apportionable income of the combined group subject to 154
the income limitations of that section applied to the entire apportionable income of the group, 155
and any excess may be carried over as provided in section 170, subject to limitations in that 156
section. 157
(ii) Determine combined group ordinary apportionable 158
income or loss by eliminating from the amount determined in (A)(i) of this section: 159
(a) The amount of any net capital gain resulting 160
from application of Subchapter P of the Internal Revenue Code of 1986, Treatment of capital 161
gains and losses; and 162
(b) Any other income or loss, or item of income, 163
expense, gain or loss, that is nonapportionable. 164
(iii) Determine the District’s share of combined group 165
ordinary apportionable income or loss by multiplying the amount determined under (A)(ii) of 166
this section by the combined group apportionment factor as determined under (B) of this section. 167
(iv) Determine the combined group District’s net capital 168

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gain or loss from the application of Subchapter P of the Internal Revenue Code of 1986, 169
Treatment of capital gains and losses, and the amount of any District’s net capital loss carryover, 170
as follows: 171
(a) Each separate item of capital gain or loss for 172
the combined group is determined following Subchapter P of the Internal Revenue Code of 1986, 173
Treatment of capital gains and losses. 174
(b) Each separate item of apportionable capital 175
gain or loss is then apportioned using the combined group’s apportionment factor determined 176
under (B) of this section, and each separate item of nonapportionable capital gain or loss is 177
allocated under § 47-1810.02, Allocation and apportionment of District and non-District income. 178
(c) The capital gains or losses allocated or 179
apportioned to the District are then netted consistent with the provisions of Subchapter P of the 180
Internal Revenue Code of 1986, Treatment of capital gains and losses. 181
(d) If the amount determined in (A)(iv)(c) of 182
this section is a net capital gain, that gain is included in combined group taxable net income or 183
loss before net operating loss deduction as computed under (A)(vi) of this section. 184
(e) If the amount determined in (A)(iv)(c) of 185
this section is a net capital loss, that loss may not be deducted from other income but may be 186
carried over by the combined group and used to offset combined group capital gains, but only to 187
the extent that the amount or use of such capital loss carryover is not subject to limitations under 188
any provision of the Internal Revenue Code or applicable federal regulations, or would not be 189
subject to such limitations applied as if the combined group was the consolidated group. 190
(f) If the combined group capital loss carryover 191

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must be attributed to particular members of the group for purposes of determining limitations 192
applicable to the amount or use of the capital loss under (A)(iv)(e) above, then this will be done 193
by multiplying the combined group net capital loss generated for any applicable year by a 194
fraction, the numerator of which is the separate entity net capital loss of the member for that 195
year, if any, and the denominator of which is the total separate entity net capital losses for all the 196
members of the combined group that had net capital losses for that year. A member’s separate 197
entity net capital loss carryover will be determined as follows: 198
(I) For each year in which the combined 199
group recognized a net capital loss, multiply the combined group net apportionable gains and 200
losses by the member’s separate entity apportionment factor determined under (B) of this 201
section, netting the resulting apportioned gains and losses as provided in (A)(iv) of this section; 202
then adding any nonapportionable gains and subtracting any losses allocated to the District that 203
were generated by that member. 204
(II) In no case may members of the 205
combined group be attributed total capital losses under (A)(iv)(f) of this section in excess of the 206
combined group net capital loss properly reported to the District in the tax year. 207
(III) In computing the net capital loss 208
carryover for the member of the combined group, the separate entity capital losses for all 209
members computed under (A)(iv)(f) of this section will be deemed to be used to offset combined 210
group capital gains in other years, as allowed under federal law, on a pro-rata basis, starting with 211
the earliest year. 212
(v) Determine the amount of any combined group 213
nonapportionable items of income, expense, gain or loss not allocated under (A)(iv)(b) of this 214

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section that are allocable to the District under § 47-1810.02, Allocation and apportionment of 215
District and non-District income. 216
(vi) Determine the combined group District net income or loss 217
before net operating loss deduction by combining and netting the results from (A)(iii), (A)(iv)(d), 218
and (A)(v) of this section. 219
(vii) Determine the combined group District taxable net income 220
after any net operating loss deduction, by deducting from the amount of combined group District 221
net income computed under (A)(vi) of this section an allowable amount of the combined group’s 222
net operating loss carryover, determined under this paragraph (vii), as follows: 223
(a) The allowable amount of the combined group net 224
operating loss carryover in any tax year is: 225
(1) The total of the combined group 226
District losses determined under (A)(vi) of this section for prior years to the extent such losses 227
have not been used to offset the combined group’s District net income and to the extent those 228
losses are not otherwise limited by District law or (A)(vii) of this section; plus 229
(2) The net operating loss carryover of 230
any members of the group created before the member became a part of the group, but only to the 231
extent that the net operating loss carryover: 232
(I) represents net operating 233
losses that were properly attributed to the member under (A)(vii)(b) below if the member was 234
part of a separate District combined group when the losses were created; 235
(II) represents net operating 236
losses properly allocated or apportioned to the District in the year created; 237

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(III) has not been used to offset 238
income of any taxpayer; 239
(IV) would not be subject to 240
limitations as to the amount or use applicable under any provision of the Internal Revenue Code 241
or federal regulations, or would not be subject to such limitations applied as if the combined 242
group was the consolidated group; and 243
(V) is not otherwise not limited by 244
District law; minus 245
(3) The net operating loss carryover of a 246
member of the combined group attributed to that member under (A)(vii)(b) below, that has not 247
been used to offset income and is not otherwise limited by District law as of the date that 248
member is no longer part of the combined group. 249
(b) If the combined group net operating 250
loss carryover must be attributed to particular members of the group for purposes of determining 251
limitations applicable to the amount or use of the net operating loss carryover under (A)(vii) of 252
this section, then this will be done by multiplying the combined group net loss generated for any 253
applicable year by a fraction, the numerator of which is the separate entity net loss of the 254
member for that year, if any, and the denominator of which is the total separate entity net losses 255
for all the members of the combined group that had net losses for that year. A member’s separate 256
entity net loss will be determined as follows: 257
(1) The amount of combined group ordinary 258
apportionable income determined under (A)(ii) of this section multiplied by the member’s 259
separate entity apportionment factor as determined under (B) of this section; plus 260

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(2) The amount of any combined group net gain 261
determined under (A)(iv) of this section multiplied by the member’s separate entity 262
apportionment factor as determined under (B) of this section; plus or minus 263
(3) The amount of any nonapportionable items 264
of income, expense, gain or loss allocated to the District under (A)(v) of this section that were 265
generated by the member; plus or minus 266
(4) Any adjustments to properly reflect the 267
member’s separate entity loss. 268
(5) In no case shall members be attributed total 269
losses under (A)(vii)(b) of this section in excess of the combined group loss properly reported to 270
the District in the tax year. 271
(6) In computing the net operating loss 272
carryover for the member of the combined group, the separate entity net operating losses for all 273
members computed under (A)(iv)(f) of this section will be deemed to be used to offset combined 274
group net income in other years, as allowed under federal law, on a pro-rata basis, starting with 275
the earliest year. 276
(viii) Application of District tax credit. If the use of a tax credit 277
provided in any other section of this chapter is limited to District tax attributed to a member of a 278
combined group, then the tax that may be offset by the credit is calculated as follows: 279
(1) The amount of combined group ordinary 280
apportionable income determined under (A)(ii) of this section multiplied by the member’s 281
separate entity apportionment factor as determined under (B) of this section; plus 282
(2) The amount of any combined group net gain 283

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determined under (A)(iv) of this section multiplied by the member’s separate entity 284
apportionment factor as determined under (B) of this section; plus or minus 285
(3) The amount of any nonapportionable items of 286
income, expense, gain or loss allocated to the District under (A)(v) of this section that were 287
generated by the member; plus or minus 288
(4) Any adjustments to properly reflect the member’s 289
separate entity loss; multiplied by 290
(5) The applicable tax rate. 291
(B) Allocation and apportionment. Unless otherwise provided in this chapter, § 292
47–1810.02, Allocation and apportionment of District and non-District income, determines how 293
income or loss, or items making up income or loss, are allocated and apportioned to the District. 294
(i) Combined group apportionment factor. The combined group 295
apportionment factor is a percentage determined under § 47-1810.02, Allocation and 296
apportionment of District and non-District income, where the numerator of the factor(s) 297
include(s) amounts sourced to the District for the combined group’s unitary business, regardless 298
of the separate entity to which those factors may be attributed, and the denominator of the 299
factor(s) include(s) amounts associated with the combined group’s unitary business wherever 300
located. 301
(ii) Separate entity apportionment factor. The separate entity 302
apportionment factor for a member of the combined group is a percentage determined under § 303
47-1810.02, Allocation and apportionment of District and non-District income, where the 304
numerator of the factor(s) include(s) amounts sourced to the District for the member, and the 305
denominator of the factor(s) include(s) amounts associated with the combined group’s unitary 306

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business wherever located. 307
(iii) If a member of the combined group holds a partnership interest, 308
that is not an unincorporated business under District law, from which it derives apportionable 309
income, the share of the partnership’s apportionment factor(s)s] to be included in the 310
apportionment factor(s) of the group is determined by multiplying the partnership’s factor(s) by a 311
ratio, the numerator of which is the amount of the partnership’s apportionable income properly 312
included in the member’s income, whether received directly or indirectly, and including any 313
guaranteed payments, and the denominator of which is the amount of the partnership’s total 314
apportionable income. If a member of the combined group directly or indirectly receives an 315
allocation of a partnership tax item, such as an item of loss or expense, so that it is not possible to 316
determine the member’s share of apportionable income, the Chief Financial Officer may provide 317
rules for inclusion of particular partnership factors, or portions of factors, in the combined 318
group’s factors.” 319
Sec 5. Section 47-1810.07, Water’s-edge reporting; initiation and withdrawal 320
election, is repealed. 321
A new section 47-1810.07A, Water’s-edge election; initiation and withdrawal, of the 322
District of Columbia Official Code is added to read as follows: 323
“(a) Water’s-edge election. For tax years beginning after December 31, 2025, members 324
of a unitary group that meet the requirements of subsection (b) of this section may elect to file as 325
a combined group pursuant to a water’s-edge election. Under such election, the combined group 326
takes into account all or a portion of the income and apportionment factors of only the following 327
members, otherwise included in the combined group pursuant to § 47-1805.02a-1, Combined 328
return required; joint and several liability, as described below: 329

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(1) the entire income and apportionment factors of a member incorporated or 330
formed in the United States under the laws of any state, the District of Columbia, or any territory 331
or possession of the United States; 332
(2) the entire income and apportionment factors of a member, regardless of 333
the place incorporated or formed, if the average of its property, payroll, and receipts factors 334
within the United States is 20 percent or more; 335
(3) the entire income and apportionment factors of a member which is a 336
domestic international sales corporations, as described in sections 991 through 994 of the 337
Internal Revenue Code of 1986, inclusive; a foreign sales corporation, as described in sections 338
921 through 927 of the Internal Revenue Code of 1986, inclusive; or a member which is an 339
export trade corporation, as described in in sections 970 through 971 of the Internal Revenue 340
Code of 1986, inclusive; 341
(4) a member not described in subparagraphs (1), (2), or (3), inclusive, shall 342
include the portion of its income derived from or attributable to sources within the United States, 343
as determined under the provisions of Internal Revenue Code of 1986 without regard to federal 344
treaties, and its apportionment factors related thereto; 345
(5) for a member that is a “controlled foreign corporation,” as defined in 346
section 957 of the Internal Revenue Code of 1986, include income to the extent of the income of 347
that member that is defined in section 952 of Subpart F of the Internal Revenue Code of 1986 348
(“Subpart F income”) not excluding lower-tier subsidiaries’ distributions of such income which 349
were previously taxed, determined without regard to federal treaties, and the apportionment 350
factors related to that income; any item of income received by a controlled foreign corporation is 351
excluded if such income was subject to an effective rate of income tax imposed by a foreign 352

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country greater than 90 percent of the maximum rate of tax specified in section 11 of the Internal 353
Revenue Code of 1986; 354
(6) a member that earns more than 20 percent of its income, directly or 355
indirectly, from intangible property or service-related activities that are deductible against the 356
apportionable income of other members of the combined group, shall include the related income 357
and the apportionment factors; and 358
(7) the entire income and apportionment factors of a member that is doing 359
business in a tax haven, where “doing business in a tax haven” is defined as being engaged in 360
activity sufficient for that tax haven jurisdiction to impose a tax under United States 361
constitutional standards. If the member’s business activity within a tax haven is entirely outside 362
the scope of the laws, provisions and practices that cause the jurisdiction to meet the criteria 363
established in § 47-1801.04(49), (General definition of “tax haven”), the activity of the member 364
shall be treated as not having been conducted in a tax haven. 365
(b) Initiation and withdrawal of election. 366
(1) A water’s-edge election is effective only if made on a timely-filed, 367
original return for a tax year by the members of the unitary business. The Chief Financial Officer 368
shall develop rules and regulations governing the impact, if any, on the scope or application of a 369
water’s-edge election, including the procedures for election and termination or deemed election, 370
resulting from a change in the composition of the unitary group, the combined group, the 371
members, and any other similar change. 372
(2) Such election constitutes consent to the reasonable production of 373
documents and taking of depositions in accordance with District law. 374
(3) In the discretion of the Chief Financial Officer, a water’s-edge 375
election may be disregarded, in part or in whole, and the income and apportionment factors of 376

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any member of the unitary group may be included in or excluded from the combined report 377
without regard to the provisions of this section, if any member of the unitary group fails to 378
comply with any provision of this chapter, or if a person otherwise not included in the water’s-379
edge combined group was availed of with a substantial objective of avoiding District income tax. 380
(4) A water’s-edge election is binding for and applicable to the tax 381
year it is made and all tax years thereafter for a period of 10 years, subject to regulations adopted 382
by the Chief Financial Officer. 383
(c) Effect of water’s-edge election on excluded entities. The election under this chapter 384
has no effect on whether entities that are excluded from the water’s-edge combined group may 385
be separately liable for tax under District law. Entities subject to the District tax must separately 386
file and pay tax in the District.” 387
Sec. 6. Section 47-1803.03, Gross income — Deductions, of the District of Columbia 388
Official Code is amended as follows: 389
(a) (a)(16) “Subpart F income” is repealed. 390
(b) (a)(17) “Dividends from a wholly-owned subsidiary” is amended by striking 391
the “.” at the end of the sentence and inserting “subject to tax under Chapter 18 of Title 47 of the 392
District of Columbia Official Code.” in its place. 393
Sec. 7. Fiscal impact statement. 394
The Council adopts the fiscal impact statement prepared by the Chief Financial Officer in 395
the committee report as the fiscal impact statement required by section 4a of the General 396
Legislative Procedures Act of 1975, approved October 16, 2006 (120 Stat. 2038; D.C. Official 397
Code § 1-301.47a). 398
Sec. 8. Applicability. 399
This act shall apply for taxable years beginning after December 31, 2025. 400

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Sec. 9. Effective Date. 401
This act shall take effect following approval by the Mayor (or in the event of veto by the 402
Mayor, action by the Council to override the veto), a 30-day period of congressional review as 403
provided in section 602(c)(1) of the District of Columbia Home Rule Act, approved December 404
24, 1973 (87 Stat. 813; D.C. Official Code § 1-206.02(c)(1)), and publication in the District of 405
Columbia Register. 406
Government of the District of Columbia
Office of the Chief Financial Officer

Glen Lee
Chief Financial Officer

1350 Pennsylvania Avenue, NW, Suite 203, Washington, DC 20004 (202)727 -2476
www.cfo.dc.gov
MEMORANDUM

TO: The Honorable Phil Mendelson
Chairman, Council of the District of Columbia

FROM: Glen Lee
Chief Financial Officer

DATE: June 24, 2026

SUBJECT: Fiscal Impact Statement – Combined Reporting Amendment Act of
2026

REFERENCE: Draft Bill as provided to the Office of Revenue Analysis on June 23,
2026

Conclusion

Funds are sufficient in the proposed revised fiscal year 2026 budget and proposed fiscal year 2027
through fiscal year 20 30 budget and financial plan to implement the bill. The bill would codify
additional provisions that are needed to implement the Combined Reporting Amendment Act of
2024.1 The projected revenue from the bill has already been incorporated into the District’s revenue
estimates.

Background
The District requires combined reporting 2 for taxpayers engaged in a “unitary businesses”3 with
activity inside and outside of the District of Columbia. Combined reporting requires various entities

1 Subtitle VII-A of the Fiscal Year 2025 Budget Support Act of 2024, Law 25-217, effective September 18,
2024.
2 D.C. Official Code § 47–1805.02a.
3 Per D.C. Official Code § 47-1801.04(55), “unitary business” means a single economic enterprise that is made
up either of separate parts of a single business entity or of a commonly controlled group of business entities
that are sufficiently interdependent, integrated, and interrelated through their activities so as 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 Honorable Phil Mendelson
FIS: “Combined Reporting Amendment Act of 2026,” Draft bill as provided to the Office of Revenue Analysis
on June 23, 2026
Page 2 of 3

in a “combined group”4 to report their combined income for tax purposes, along with allocation and
apportionment factors. Requirements for a combined group include that entities are engaged as a
unitary business. Apportionment factors , as set forth in law and regulations , provide how the
combined report allocates income derived from sources within and outside the District.

“Joyce” and “Finnigan” are two approaches to apportioning combined group income among
jurisdictions for tax purposes. 5 The District adopted the “Joyce” method when it implemented
combined reporting. The “Joyce” method requires the District to establish taxing jurisdiction
separately over every member of a corporate group selling in the District. The “Finnigan” method of
combined reporting treats the entire unitary business as a single taxpayer. The Combined Reporting
Amendment Act of 2024 required6 combined filers to switch to using the “Finnigan” method starting
in tax year 20267. A unitary business will be treated as one taxpayer for purposes of sourcing unitary
receipts, and the apportionment factor attributes in the numerator will be derived from all the
members of the combined group, regardless of whether a member has nexus 8 with the District of
Columbia. The bill provides the amendments to, and repeal s of, provisions of law necessary to
implement the Finnigan method of apportionment as follows:

The bill updates the definition of a “combined group” and adds a definition for a “combined return.”
The bill updates the definition of “unitary business” to allow for a group of two or more persons
related by common ownership to be a unitary business , removing a current law reference to a
requirement to be “a single economic enterprise that is made up either of separate parts of a single
business entity or of a commonly controlled group of business entitie s.” The bill makes other
conforming amendments to definitions.

The bill repeals the current combined reporting requirements and determination of business income
of a combined group and creates new ones to begin in tax year 2026.9 Under the bill, the combined
group calculates its District net taxable income by determining the separate income or loss before
net operating loss deduction of each member of the group and then by combining members’ income
or loss while eliminating items of income, expense, and gain and loss from transactions between
members of the combined group .10 The bill then outlines what the combined group shall eliminate
from its District net taxable income to calculate the combined group ordinary apportionable net
income or loss . The combined group must apply an apportionment factor to its apportionable net
income or loss as outlined in the bill, including the application of the apportionment factors in D .C.

4 Per D.C. Official Code § 47-1801.04(7), “combined group” means the group of all persons whose income and
apportionment factors are required to be taken into account pursuant to § 47 -1805.02a(a) and (b) and the
pertinent regulations in determining the taxpayer’s share of the net business income or loss apportiona ble to
the District.
5 “Joyce” and “Finnigan” refer to two court cases in California that ruled on apportionment methods for
combined reporting.
6 D.C. Official Code § 47–1805.02b.
7 Specifically, for tax years beginning after December 31, 2025.
8 The bill defines “nexus” to mean “the physical, economic, electronic, or virtual presence or connection
between a taxpayer and the District of Columbia, whether the presence or connection is direct or indirect.”
9 Specifically, tax years beginning after December 31, 2025.
10 Including applying the consolidated filing rules under Internal Revenue Code and IRS regulations as if the
combined group was a consolidated filing group.
The Honorable Phil Mendelson
FIS: “Combined Reporting Amendment Act of 2026,” Draft bill as provided to the Office of Revenue Analysis
on June 23, 2026
Page 3 of 3

Official Code § 47–1810.0211 and allocation of non apportionable income. The bill outlines how the
combined group ’s net capital gain or loss is determined and lays out allowable amounts of net
operating losses that may be carried over by the combined group.

The bill makes conforming edits to the requirements for a “water’s edge” election 12. Previously a
taxpayer had to make an election to file under the worldwide reporting category. Under the bill, the
default reporting position is worldwide, but taxpayers may elect to file “water’s edge” reporting.

Financial Plan Impact

Funds are sufficient in the proposed revised fiscal year 2026 budget and proposed fiscal year 2027
through fiscal year 20 30 budget and financial plan to implement the bill. The bill would codify
additional provisions that are needed to implement the Combined Reporting Amendment Act of
2024.13 The projected revenue from the bill has already been incorporated into the District’s revenue
estimates as follows:

Combined Reporting Amendment Act of 2026
Revenue Included in the District’s Revenue Estimates
($ thousands)

FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 Total
Increase in
corporate tax
collections
$0 $0 $23,100 $15,800 $15,800 $54,700

11 Beginning with tax year 2015, all business income is apportioned by the sales factor. The sales factor is a
fraction, the numerator of which is the total sales of the taxpayer in the District during the tax period, and the
denominator of which is the total sales of the taxpayer everywhere during the tax period.
12 By repealing D.C. Official Code § 47-1810.07 and creating a new section, D.C. Official Code § 47-1810.07A
(Water’s-edge election; initiation and withdrawal).
13 Subtitle VII-A of the Fiscal Year 2025 Budget Support Act of 2024, Law 25-217, effective September 18,
2024.