File a Final DC FP-31 When You Sell Your Company

A return that does not stop on its own

If your business is in DC and owns tangible personal property, it files an FP-31 every year. That means furniture, fixtures, equipment, computers and supplies. Most operating companies have plenty.

The return is due even when no tax is owed. It keeps being due each year until a final return has been filed. Selling the business does not end it. Filing the final return does.

That is why the FP-31 shows up so often in closing cleanup. A company that stopped filing for a year or two, because nothing was owed, can find it has unfiled returns standing between it and a clean Certificate of Clean Hands.

These rules apply to companies located in the District. A company based in Maryland or Virginia follows that state's rules instead.

The District's calendar, not yours

The personal property tax year runs from July 1 to June 30. The return is due July 31.

That rarely lines up with a closing date. A sale that closes in March falls in the middle of a tax year, and a sale that closes in early July lands right before a return is due. Know where your closing falls before you negotiate who pays what.

If you need more time to put the final return together, a three month extension to file is available online. Ask for it on the FP-129A before the due date. Ask your CPA whether any tax still has to be paid by the original due date.

How the tax is figured

There is no tax on the first $225,000 of value. Above that, the rate is 3.4%.

A simple example: a company reporting $300,000 of personal property owes tax on the $75,000 above the exclusion. At 3.4%, that is $2,550 for the year. Many smaller offices owe nothing at all and still have to file.

How value is measured for the return, and how to report older equipment, are questions for your CPA or OTR. Do not guess at the values just because the business is changing hands.

Splitting the bill with your buyer

Who pays which share of the tax after a sale is set in the purchase agreement. DC does not decide that for you. The two sides do.

A common approach is to divide the current year's tax by how long each side owned the assets. Other deals put it all on one side and adjust the price. Either can work, as long as it is written down clearly.

Raise it early. It is a small number in most sales, and small numbers argued over at the closing table waste goodwill you may need for bigger points.

The assets are the same ones in the bulk sale notice

The furniture, equipment and supplies on your FP-31 are much the same property the buyer describes in its bulk sale notice to OTR. Keep your asset list consistent across the purchase agreement, the notice and the final return.

Marking the return final

The FP-31 has a box to mark the return as final when operations end. File and pay electronically on MyTax.DC.gov, check that box, and keep a copy.

In an asset sale, your company is the one that stops operating, so your company files the final return. The buyer then files its own FP-31 under its own entity going forward.

Ask your CPA how this works if you are selling shares instead and the company itself keeps operating.

Once the final FP-31 is in, the yearly reminder stops. Pair it with your other final filings, including the D-30 or D-20 and your DOES unemployment account, so nothing is left open in the District's systems.

If you find old gaps

Missed years are common and fixable. File the missing returns, pay any tax and penalties due, and then file the final one.

Do this before you go to market if you can. A buyer who finds unfiled returns during diligence will usually ask for a larger holdback, and every week spent fixing it then is a week the closing waits.

If you are thinking about selling a District company and want a value range first, send a short request or call (202) 555-0174.