Gray to propose tax changes for tech firms, investors

District Mayor Vincent Gray is proposing two changes to the way the
D.C. Mayor Vincent Gray. (Ricky Carioti - The Washington Post) city taxes technology companies and their local investors.

District residents who invest in technology companies or take on equity as part of their employment would be subject to a 3 percent capital gains tax on investments they hold for two years or longer.

The District has no existing capital gains tax rate, but instead requires an individual who holds an equity stake in a technology company to pay his or her regular income tax rate.

David Zipper, the city’s director of business development and strategy, said the proposed change aims to grow the number of early-stage investors who reside in the city, while also encouraging the founders of tech start-ups to remain in the city after they cash in on their venture.

The second proposal would impact the way that qualified high-technology companies — a broad category that includes such industries as the life sciences, software development and Web site design — pay corporate income taxes.

Currently, there are geographic zones within the District where high-tech companies are exempt from corporate income taxes for five years. That five-year period begins after a firm registers with the District’s Office of Tax and Revenue, Zipper said.

Gray is now suggesting that those geographic boundaries be dropped, thus exempting high-tech companies in every corner of the city from paying corporate income tax during the five years after they register with the city.

“We want to make sure it’s as easy as possible for tech entrepreneurs and business people to set up their business in the city without worrying about which streets are in and which streets are out,” Zipper said.

Gray plans to formally introduce the proposals to the D.C. Council on April 17.

The Office of the Deputy Mayor for Planning and Economic Development has made more aggressive moves in recent months to foster the city’s burgeoning technology industry. In January, the city finalized a $100,000 grant to establish “The Fort,” the District’s first start-up accelerator.