Committee of the Whole - Regular Meeting

I'm calling to order this hearing. This is a public hearing of the Committee of the Whole of the Council of the District of Columbia. I'm Phil Mendelson, Chair of the Council and Chair of the Committee of the Whole. Today is Wednesday, September 14, 2026. The time is 219 in the afternoon, and we are in room 412 of the John A. Wilson Building. The subject of today's hearing is consideration of two bills. The first is Bill 26-94, entitled Society for Science, Real Property Tax Exemption Amendment Act of 2025. This bill was introduced by Councilmember Pinto on January 29, 2025. The stated purpose of the bill is to amend Title 47, which is our tax code, to provide real property tax exemptions for properties located at 1719 N Street, 1723 N Street, 808th Street Northwest that are owned or being sold by the Society for Science, Inc. I believe it also includes property to be acquired.

by the Society for Science.

The second bill is Bill 26-708, which is entitled Combined Reporting Amendment Act of 2026. This legislation was introduced by me on behalf of the Chief Financial Officer on Tuesday, June 23rd of this year, and the stated purpose of this bill is to enact, amend, or repeal provisions of law necessary to transition from the choice method of apportionment for combined reporting to the Finnegan method Under the choice method each corporation of a unitary group is looked at separately when determining whether it is taxable in the district Whereas under the Finnegan method the unitary group is looked at as a whole in other words if one member is taxable in the district the entire unitary group is taxable in the district for apportionment purposes and With regard to this hearing and both of these bills, testimony today, any statements that anyone wishes to submit following this hearing, either witnesses who wish to supplement their testimony, or anyone who hasn't testified today but wishes to submit statements for the record has two weeks to do so. That is, the record will close at 5 p.m. on Wednesday, September 30, 2026. The way our witness list is broken out for today is that we are going to hear testimony from folks who identified that Bill 26-94 is the bill they wish to testify about. Then we will hear testimony regarding Bill 26-708. That's the combined reporting bill. And then we will hear from government witnesses. We have one representative, corporate tax counsel from the Office of the Chief Financial Officer. It's my practice to call witnesses up if they're here in person until we fill up the table. And if there are any who are testifying online, they'll be part of the group. And we'll get through the seven folks who asked to testify. Maya Amjera, if she's here, if you would come forward. Kara Lesser. Now, Ms. Amjera, and I apologize if I mispronounced your name, is president and CEO of the Society for Science. Kara Lesser is founder and executive director of Kidd Museum. Tara Walker is virtual. Louis Cho, who's with GreenGuard. Eric Brooks. Are you Mr. Brooks? I hope you would come forward. Michelle Hackman. And the last witness I have, if they're here in person, I don't know where we'll fit them. Iman or Iman Sarer? Is that person here? All right. Ms. M. Jarrah. And I apologize if I'm mispronouncing your name. You have to turn your microphone on. Great.

Thank you.

Thank you.

Good afternoon, Chairman Mendelson, members of the Committee of the Whole, and staff. My name is Maya Ajmera. I am a longtime resident of Ward 6. president and CEO of Society for Science and executive publisher of Science News. Thank you for the opportunity to testify in support of Bill 26-94, the Society for Science Real Property Tax Exemption Amendment Act of 2025. Society for Science was founded right here in Washington DC in 1921 with a powerful idea. Science belongs to everyone. For more than a century, we have worked to strengthen scientific literacy, expand access to STEM education, and support the next generation of scientists and engineers through trusted science journalism. World-renowned STEM research competitions and outreach programs reaching teachers and students in Washington, DC and across the country. For nearly a century, we operated from two brownstones in Ward 2, but we had outgrown them. In 2024, we purchased a 96,000 square foot headquarters at 1776 Massachusetts Avenue Northwest. This building is much more than our new home. Our vision is for our headquarters to become a community asset for young people, educators, scientists, and the public in Washington, DC. The nation's capital is home to some of the world's leading scientific policy and research institutions. Yet for too many district students, teachers, families, and community members, the world of science can still feel distant and inaccessible. We want 1776 to change that. Our plan is to transform the building into a hub for science, education, and public engagement in the district centered around three public assets. The first is a STEM research and innovation hub developed with the Kidd Museum, where students, educators, and families can learn by doing. It will offer hands-on classrooms, collaborative learning spaces, and professional development for teachers. Our goal is to serve more than 25,000 district students and educators annually. The second is a National Science Convening Center, a flexible 300-seat space that can host the district science fair, showcase student research, and bring together students, scientists, educators, policymakers, and the public. And the third is a 21st century multimedia newsroom that will expand how we bring accurate, timely science journalism to the public. At a time when misinformation is everywhere, trusted, evidence-based science journalism has never been more important. We are asking for this property tax exemption because it will allow us to put more resources directly into the district. Every dollar we invest in programming instead of property taxes is a dollar we can use to reach more DC students, support more teachers, strengthen science journalism, and open more doors to STEM. I have spent my career believing that scientific talent is everywhere. but opportunity is not. This exemption will help us change that right here in Washington, DC. It will help us create a place where a young person can walk through our doors, encounter science, and begin to imagine a future they may never have thought possible. That is the promise of 1776 Massachusetts Avenue. Thank you for the opportunity to testify. I'm happy to answer any questions.

Thank you, Ms. Ajmera.

Ajmera.

Ajmera.

I'm getting closer.

Kara Lesser.

Good afternoon. My name is Kara Lesser, and I'm the founder and executive director of Kid Museum, which is a creative learning lab for youth ages 4 to 18 based in Bethesda, Maryland. KID is a 501c3 nonprofit organization that's recognized as the nation's leading center for maker learning. We provide hands-on learning experiences grounded in STEM, critical thinking, creativity, and problem solving. We serve the greater DMV through school partnerships, teacher training, and community after-school and family programs that build skills for a fast-changing future. Currently, we serve about 40,000 people annually, with 30% to 50% of all program participants coming from under-resourced neighborhoods. We're very proud of the proven impact of our work building STEM identity and future-ready skills. 95% of elementary school students served last year reported experiencing joy in STEM learning. Three out of every four students reported liking math more. And 88% that people like me can be scientists or engineers. DC youth, families, and teachers participate in our programs today, but we know that geographic distance is a barrier. And we're excited to share that KID and Society for Science are developing a partnership that would bring these impactful hands-on STEM learning experiences to its new headquarters site at 1776 Massachusetts Avenue. When fully activated, we anticipate reaching approximately 25,000 district students, educators, and community members, and up to 100 district schools annually through programming at this facility. We know from our work with schools and communities that young people need more than occasional exposure to STEM. They need sustained opportunities through community-based wraparound services to investigate real problems, work collaboratively, build and test ideas, and see themselves as people who can shape the future. Likewise, educators need spaces where they can learn, collaborate, and bring new approaches back to their classrooms. The society's new facility will become an important hub for that work in the district. A real property tax exemption would allow the society to direct more of its charitable resources toward programming, educational access, and community partnerships, including opportunities for DC students and teachers. For more than a century, Society for Science has advanced scientific education and opportunity from its home in Washington, DC. In this next chapter, Kit is excited to partner with the Society for Science to deepen its work in the community and nationally. I respectfully urge you to grant the Society for Science a real property tax exemption for its headquarters at 1776 Massachusetts Avenue. Granting this exemption would help protect that investment and maximize the public benefit created by the society's new headquarters. This is not simply an investment in a building. It's an investment in educational opportunity in DC's students and teachers and in the next generation of scientists, innovators, and problem solvers. Thank you for your time and for your consideration.

Thank you, Ms. Lesser. Tara Walker, who I believe is online,

Are you guys able to hear me okay?

Yes.

Thank you. Good afternoon. Good afternoon, Chairman, committee members, and members of the Board of the Society of Science. My name is Tara Walker, and I am a science educator in Washington, D.C., serving students in grades five and six. I am also a science district lead. Project Lead the Way teacher, and a proud advocate for the Society of Science. I am here today to share my personal experience with the Society of Science and why its work is so important to students, educators, and communities like ours in the DMV. As an educator who has dedicated more than 12 years to teaching and inspiring young people, I have seen firsthand the incredible potential work of students who are often overlooked or underserved. Our students are curious, creative, and capable of making meaningful contributions to science. However, talent alone is just not enough. Students need access to resource, mentorships, research opportunities, and they need adults who believe in them to back their future dreams. My involvement with the Society for Science has opened my eyes in a tremendous way and opened up many doors and opportunities. I am able to connect with students to authentic scientific research through my role as an advocate and also attending the Research Science Conference. I've gained opportunities to connect with other STEM leaders from around the USA. I've learned how to better support students who are invested in pursuing science and research. On top of that, being able to give them opportunities that didn't exist at first. This makes my work especially meaningful to me. This opportunity brings those experiences back to my students here in the Washington DC area for them to be able to have a broader experience. In many underserved communities, students may not have access to research, laboratories, scientific mentors, let alone a sink in the classroom. These future scientists, they believe in themselves from the work that we put in. The Society for Science have helped me bridge the gap by creating pathways for the students to participate in science fairs, develop research skills, engage in professional and explore careers and educational opportunities that they may have not considered before. As an advocate, one of my goals is to recruit and support students in becoming involved in the society programs and research opportunities. I want to help students take their first step into the scientific inquiry, see their work and celebrate it. celebrated in advance from those school level science fairs to district, regional, and state competitions. I also want them to connect with students in colleges and institutions in the District of Columbia, including opportunities to explore STEM in places such as Howard University and the University of District of Columbia. These experiences can help students understand that science is not just a subject that you learn in school. It actually paves the way for the future. I tell people all the time, if you can understand science, you can understand the world that we work in and you can be a part of making a difference on a daily. The impact extends beyond an individual student's need. When it comes to investing in student research and investing in their future, we need people like the Society of Science to be able to back them and have the facilities for them to be able to operate in that way. I'm grateful for the opportunities that the Society has provided me. I'm asking that you guys pass this bill so that way we can continue to change the way for more than 100 years to come. My experiences is just a start. I've been with the society for the past two and a half years. I believe that this is just a start and I look forward to more. Thank you. If you have any questions, I will be here to be able to answer them. Thank you for allowing me to give my testimony.

Thank you, Ms. Walker. Eric Brooks. ERIC BROOKS, Good afternoon, Chairman Mendelson and members of the Council.

My name is Eric Brooks. I am a Ward 6 resident and a lawyer in private practice here in Washington, DC. I am also a proud alum of the Society for Science. I spent March 11 through 17, 2010 in Washington, DC, participating as a finalist in the society's Intel, now Regeneron, science talent search. In preparing this testimony, I did not have to look up those dates because that entire week is seared in my memory. My time at the Science Talent Search was a transformative week of my youth. The Society brought me into a unique community of young people who loved asking difficult research questions and trying to answer them. It gave us encouragement, a sense of belonging, and a chance to imagine what we might contribute. Although many in my cohort have now grown up to be the world's leading scientists and mathematicians, I took a different path, but one no less influenced by my participation in the science talent search. After studying math in college, I ultimately went to law school. Yet I still draw on my scientific and mathematical background all the time. My work often touches on economics and emerging technologies, and addressing these issues requires engaging with technical ideas, reading research papers, reviewing complex evidence, questioning assumptions, and working patiently through difficult problems. The Society helped me nurture habits of mine that have served me well, even in a career I wasn't imagining during that week in 2010. The Washington location of the Science Talent Search and the Society was not an incidental background to the experience, but a central part of it. I distinctly remember visiting the National Academy of Sciences, meeting my congressional representatives at the Capitol, and even passing the time with my new friends in front of the White House. Those experiences helped me see science not just as something that happened in a university, but as part of our public life. The scientific community should be in conversation with our capital city, and young scientists should have the opportunity to make that connection for themselves. A permanent home here also offers the opportunity to bring that experience to more DC students, not just through a single competition, but through opportunities to meet scientists, explore their interests, and find a community that encourages their curiosity. And conversely, the Washington DC community, including me, benefits greatly from access to the society's public events. At a personal level, my week in Washington was my first meaningful introduction to this city. And ever since, that connection has deepened. I've now had four different jobs here in both public service and private practice. I am proud to live here. And it all started with the week that I spent in Washington DC with the society. I am therefore happy to speak in support of an enactment that will help the Society for Science stay rooted here in Washington, DC. The next generation of young scientists should have a chance to benefit from the same marvelous experience that I had and more. Thank you, and I'm available to answer any questions.

Thank you, Mr. Brooks. Michelle Hackman?

Yes, turn it to .. Good afternoon, Chairman Mendelson and members of the Committee of the Whole. My name is Michelle Hackman. I'm a resident of Ward 1 in Washington, DC, a reporter at a national publication, and an alumna of the Society for Science Science Talent Search Program. I am pleased to testify today in support of Bill 2694, the Society for Science Real Property Tax Exemption Amendment Act of 2025. My relationship with the Society for Science began when I was 17 years old, just like Eric, and a senior in high school. I had spent months conducting research examining teenagers' relationships with their cell phones. My work ultimately earned me second place in the 2011 Science Talent Search. As a finalist, I came to Washington DC for a week for the competition. I presented my research, met incredible young scientists from across the country, visited my representatives on Capitol Hill, and even took a trip to the White House to meet Barack Obama. That week-long trip to DC as a high schooler inspired a lifelong love for this city. While most of my fellow finalists didn't also move here, I'm confident that the experience formed lifelong warm memories for all of them and made clear the obvious importance of connecting their scientific work to government policy and public advocacy. I ultimately didn't become a scientist. I became a journalist. But the lessons I learned from science research have stayed with me throughout my career. Follow the evidence, question all your assumptions, be willing to discover that your hypothesis is wrong, and explain complicated ideas clearly enough that other people can understand them. Today, I live and work here in Washington. As a journalist covering public policy, I see every day how deeply science and evidence are intertwined with the decisions made in this city and how important it is that the public can understand and engage with those decisions. That's one reason I believe that this society's plans for its new headquarters at 1776 Massachusetts Avenue are so important. Washington is home to some of the world's greatest scientific research and policy institutions. Yet proximity doesn't necessarily mean access. For a young person growing up in the district, these institutions and the people working inside them can still feel very far away. The Society for Science has an opportunity to change that. The society envisions its new headquarter not simply as an office building, but as a place where students, teachers, scientists, and members of the public can come together, where young people can meet scientists and engineers, share their own research, and begin to imagine themselves as part of that world. I know firsthand what that kind of exposure can mean for a student. I grew up in an affluent public school district on Long Island with an established science research program. Without it, I would have never even known to apply for the science talent search. DC's public school students deserve that same chance and encouragement. This matters at a moment when trustworthy scientific information has never been more needed. As a journalist, my job is to help people understand complicated issues and make sense of competing claims. The Society for Science has been doing something closely related for close to a century, connecting the public with science and helping people understand why evidence matters. The society has been part of my life since I was a teenager. Washington is now my home. I would be proud to see the society create a permanent home here that opened its doors more widely to the people of this city, especially its young people. I respectfully urge the council to support Bill 2694. and grant Society for Science the real property tax exemption that will help make this vision possible. Thank you for the opportunity to testify.

Thank you, Ms. Heckman. There were two other people I called who I don't believe are here. Louis Joe from Green Guard and Iman Soror, either online or here. Ms. Ajumar, I think I'm going to direct my questions to you. So first of all, I will admit I did not know anything about the Society for Science, and I'm impressed with the work that you do. The bill that we have would exempt from taxation, 1719 N Street, 1723 N Street, and 800 8th Street. My impression is those have all been sold by you in the last year.

So the two buildings on N Street were sold this past year. Yes.

And 8th Street?

And 8th Street, actually, we were considering purchasing that building. but decided not to and wanted a bigger space to build this community asset for Washington DC.

And you have acquired 1776 Massachusetts Avenue.

That is correct. We actually live there on the fourth floor, our whole organization.

So the only property you have at this point is 1776 Massachusetts? That is correct. And 800 8th Street you never owned.

We never owned.

So my impression is that what you're looking for is an exemption on 1776 Massachusetts Avenue. That is correct. Which is not in the bill, but that doesn't matter. And that you also want forgiven the I always get a confused deed transfer and recordation taxes for the two properties on N Street.

Yes.

So this bill was first introduced by Council Member Pinto a couple of years ago. And there was what we call tax abatement financial analysis, or TAFA, that was done at the time. TAFA was done more recently because there was actually some talk about including it in the Budget Support Act. a practice that I generally do not like, and so that did not happen here. But my understanding is that the TAFA said that looking at your financial situation, that the exemption is not necessary. I'm assuming you're familiar with that. So how do you respond?

So for me to get this right, I'm going to read some comments based on so I get it right from a financial perspective. In its analysis, OCFO concluded that the revenue generated by renting out the top three floors of 1776 would provide enough funding for the society to undergo the renovation and sustain future operations. However, making this determination OCFO relied on the assumption that all three floors would immediately be rented as soon as they were advertised as available. In reality, there is no guarantee that the top floors will be fully rented and no way to predict how long it will take to find a tenant. Additionally, the OCFO based its projections on commercial rent rates that are unrealistic in the district's current economic climate. It's highly unlikely that we would be able to find any tenants if we marketed the space at the rates OFC OCFO assumed. Removing that projected rental income, our financials as presented in the TAFA clearly show that we need the tax exemption. In addition, the TAFA takes into account revenue that is restricted. Many of our donations come with restrictions on what the funds can be used for. For example, some donors specify that their gift can only be used for a particular project and not for the organization's general overhead. And we have many different programs that are very specified with restricted funding. And we get audited on that, that we cannot use those funds otherwise. Moreover, some of our donations are large multi-year pledges. Even though the pledge is recorded as revenue in the year it's committed, the cash itself arrives over several years. So it may look like we have more money in one year than the next, when in fact the donation was simply spread out over time. So if you get $10 over 10 years, they're going to record that $10 on that first year. and then it gets paid out over the next nine years and the assets start dwindling and when you look at our asset balance sheet you're actually seeing a large you know assets are large but it's actually based on a one-time grant that's spread out over many many years and that will the assets will will come down. And I'm happy to provide more written feedback on this.

Well, I'd like you to do that, please. I'll take you up on that offer. But if you receive a large grant that's paid, or is it a grant or a donation? Are we talking about grants which typically come from other nonprofits or come from government?

It's coming from a foundation or a company or whatever, but they're donations.

OK. So what I'm hearing you say is that you will receive a large donation, but it's actually paid out over several years. But it's, according to the chief financial officer's analysis, booked in one year. But that happens every year. So company Smith gives you $1 million spread out over three years. And next year, company Jones gives you $1 million spread out over three years.

Actually, that program is now funded for 10 years. We have a program that's funded for 10 years. I'm just going to use $10 to make it simpler. That donation is given over 10 years, but that money is recorded in the first year, that $10. And so every year, second, third, fourth, fifth year, $10 gets released from our assets, but the cash is given to us each year.

Sure, but don't you get $10 the next year from a different donor for another program?

Not in that amount, no.

So it was sort of an anomaly, then, what the CFO looked at?

I think it's an extraordinary event, and I will be quite clear with you, for the science talent search. The science talent search. is our premier program. And the company Regeneron has supported it for the first 10 years and now put in another 10 years. And that revenue was booked at that first year of its commitment. We had Westinghouse for 50 years for the science talent search. Then we had Intel for the next 25. And then Regeneron came in. And we had it for 10 years. And then they just renewed another 10 years this past year. And the revenue it provides to the city when we bring in students and teachers, we bring in, I can tell you, how much is actually revenues given back to the city?

Well, no, I did see something about that, but that's not of as much interest to me.

OK.

I'm more interested in your financials.

Yep. And so I'm happy to provide you more detailed information on that.

So the TAFA says the annual program administrative expenses, including taxes and other property related expenses, are consistently covered in full by donor contributions and other revenue sources. There is a healthy, fiscally prudent cash reserve not subject to donor restrictions commensurate with the budget and expense responsibilities of a medium-sized nonprofit organization. A significant portion of these cash reserves are subject to a spending policy that is in line with standard nonprofit best practices.

So that, yes, let me provide you some more feedback on that. The revenues that they're talking about is our reserve fund. That's a $20 million unrestricted reserve fund that is used for special projects and on emergency basis only. In the nonprofit sector, you usually want a reserve fund to last for six months of your operating. So we have a $40 million budget. Our board of trustees are very clear that they want a $20 million reserve that if the sky fell out, that we could still operate for six months. This became very important to us, our reserves, during the time of COVID, actually. And so using that reserve is strictly up to the Board of Trustees and will not use it to pay property tax.

So then looking further, the occupancy and renovation of the property is expected to change the applicant's expected annual income and expenses, as it will generate revenue from the property, but also shoulder increased expenses from operations and debt service. The applicant intends to finance approximately $20 million of the $49 million acquisition which I believe we've done through an industrial revenue bond that we approved, and renovation project with debt and fund the remaining portion through a capital campaign. According to the most recent financial statements, the applicant does not maintain any other long-term debt on its balance sheet. So is that accurate?

That is, I mean, yes. I mean, we do not have any other debt on our balance sheet. We are looking to probably get a loan of a certain amount. We're not sure yet, based on the renovation cost of the building. Right now, the renovation is costing us about $32 million. And with inflationary costs and other costs, labor costs going up, that may increase. The Board of Trustees will need to make a determination with our finance team of how much of a loan we plan to take. I do not want to be married to a mortgage, put it that way, because we're looking as much as possible to raise capital campaign donations for certain parts of the building.

So the construction, which I guess includes the acquisition, is $32 million?

No, that does not include the acquisition.

The IRB is for the construction?

Yes.

And that's up to $25 million.

That is correct.

So the $32 million construction, if you take out the full $25 million, that would leave $7 million.

We already have some capital campaign donations.

So the acquisition of 1776 has already been paid for.

That's right.

Without debt?

I'm sorry, without?

Without debt.

Without debt. And how did we do that? Is that the next question?

Yeah. I assume some of it came from the proceeds of salary.

Some of it came from the proceeds of the building. It's public knowledge. N Street was sold for $4.6 million, which brought in proceeds about $4.1 into that. And then we were able to receive a donation to help us pay for the rest.

So continuing, and I think this may be where the disagreement is, according to the applicant's income expense projections, the renovation and tenant occupancy of the property will allow the applicant to receive net revenue from rents that will partially offset the applicant's real estate occupancy costs in their own portion of the renovated building. The OCFO finds that given this expected net rental income bolstered by its history of fundraising and other sources of revenue generation, the applicant can expect to be able to satisfy a lender's required debt service coverage imposed as a financing condition without the need for the requested exemption.

Would you like me to comment on that? Yes. I'll do the best I can with that. What I said before is that we cannot rely on the potential of future rental income. We do not know. We just don't know if those floors will be rented or ever be rented. We just do not know. And we made that very clear to TAFA that using that as a line item that that could be is not possible.

So it could materialize, but it might not.

That's correct. And based on the volatility of the markets, real estate market, we believe it's going to be very difficult. We already had, yes?

So is it possible then that these, I think it's three floors, will be vacant forever?

Or we will maybe use them and increase our work with the kid museum and make it two floors. We really have to see at this point. But right now, I am not in a position to say that those floors will be rented. especially at the rental of the rent base that they are projecting.

I don't have any other questions for you. If you could either give us what you read or supplement, that might be the better approach.

I'll give some analysis.

That would be very helpful.

Yes, absolutely. Thank you for your time.

Sure. Thank you, each of you, for your testimony. Sorry I didn't ask any of the others of you questions.

Thank you so much. Be well.

So now we're going to move on to something more exciting, which is combined reporting. I have a number of witnesses before we get to the government. Robert Vincent Branham, who's chair of the Legislation Committee at DC Federation of Civic Associations. Eric Jones, who's VP of Government at DC Commercial at the Apartment Office Building Association. Matt Walker. Alan Pasteski. Patricia Stamper. Kelsey Johnson, who's vice president of state affairs at Global Business Alliance. Darian Shansky. And Michael Mazerov. Mr. Branham, you're first.

Greetings and salutations, Mr. Chairman and members of the committee. I am Robert Vincent Branham, President Emeritus and Chairman of the Legislation Committee, D.C. Federation of Civic Associations, a former advisory neighborhood commissioner, and a military service-connected disabled veteran. Although I speak to support Bill 26-0708, Combined Reporting Amendment Act of 2026, I acknowledge openly and clearly I am not an authority on municipal tax policy. My voice represents the perspective of an individual taxpayer feeling overburdened and outweighed by a tax structure which is carried too much on the shoulders and out of the pockets of low-wage workers, retired seniors, and persons on fixed income. The core question before the committee and the council is how to share the fiscal burden of receiving tax sales income to govern the operations and provide essential services to people of the District of Columbia. The phrase, quote, go where the money is, end quote, is most famously attributed to the notorious bank robber Willie Sutton, who allegedly used it to explain why he targets banks. Reportedly, when a reporter asked, he said, that's where the money is. This is not to say that the District of Columbia, let me say that this transformation or transition of the two policies, Finnegan and Joyce, is not robbery, because the courts that have looked at it have found it legal. The District of Columbia is not the only jurisdiction transferring or transitioning from the Joyce reporting method to the Finnegan method regarding corporate taxation to determine the sales tax factor. This method will accrue increased sales tax revenue to the District of Columbia and for the benefit of the people of the District of Columbia. I thank you for allowing me this opportunity to testify. Thank you and have a great day. Thank you.

Thank you, Mr. Branham. And you're in support of the bill? Yes. Mr. Walker? Mr. Pasteski? Yes, Mr. Pasteski.

Hello, Chair Mendelson and members of the committee. My name is Alan Posetsky, and I'm testifying on behalf of the Global Business Alliance, a business association representing 200 American companies with a global heritage that invest in the district and employ over 25,000 in the district. I'm a practicing corporate tax professional and advocate for over 35 years. DC, like 27 other states, has water's edge combined reporting, under which affiliated companies file their tax returns on a combined group basis. DC enacted its combined reporting regime in 2011, and in 2024, modified its apportionment rules to transition from the Joyce to the Finnegan method. I'm here today concerning Bill 26708, which is designed specifically only to implement the transition to Finnegan. Unfortunately, in accomplishing that objective, this bill would also make significant changes to the district's combined reporting laws that go way beyond the transition to Finnegan. This is because the approach of the bill to make this transition is to repeal DC's entire existing combined reporting statute and replace it with the MTC model statute. When DC enacted combined reporting, it used the MTC model statute as a starting point, but went through a thorough process ultimately enacting a comprehensive, carefully considered combined reporting regime. I know because I was intimately involved with the creation of the statute in 2011, and I believe you were there as well. 26708 would now reintroduce two provisions of the model that DC specifically rejected back in 2011 and is completely unrelated to the Finnegan change. These two provisions would potentially result in double taxation of foreign businesses that invest in DC, taxing the same income once abroad and again in DC. override federal tax treaties and DC's current treaty protections, and subject to income to DC tax even though the federal government does not tax it. These changes would undercut the existing combined reporting policies that DC and every state currently has, which is why no state has adopted the entire MTC model statute as written in its entirety. And you should not as well. For these reasons, we believe- Let me interrupt.

Are these both in Section 5?

The same section.

In Section 5 of the bill?

I think it's 5. I'd have to check, but I believe it's 5.

OK, but that's where they are.

All right, keep going, please. For these reasons, we believe these changes were unintended consequences of the effort to shift to Finnegan. The practical impact of the legislation as drafted would make DC less competitive in attracting and retaining international businesses and the jobs and investment they bring to the district. Some may suggest that these changes should just be included with the model to close corporate tax loopholes. I can tell you that argument simply does not hold any water. D.C. already has the tools to address these concerns and had them for years. Since 2011, D.C. has had a related party ad-back statute, water's edge combined reporting, and tax haven affiliate inclusion rules. These provisions provide a comprehensive framework to prevent any perceived loopholes. In fact, D.C.'s existing laws represent the gold standard for presenting tax abuse and are among the most restrictive in the country. Your current law serves as a model for other jurisdictions. The two proposed changes will create double tax override treaties and make DC an outlier. Therefore, we urge the council to amend the bill to preserve the two existing provisions in question and limit this legislation to accomplishing its goal of the transition to Finnegan. Thank you very much, and I'm happy to answer any questions.

Thank you. I probably will have some questions. Patricia Stamper.

Good afternoon. I am at the cardiologist hold for me. Okay, here we go, here we go, here we go. My name is Patricia Stan from a War Central resident, a homeowner, educator, mother, and budding entrepreneur. I support B26-0708 to comply with the Reporting Amendment Act of 2026. Corporate tax law can be complicated, but what this bill is trying to do can be explained simply. If a large group of related companies Make money from doing business in D.C. D.C. should be able to fairly count that business activity when deciding how much the group owes in D.C. taxes. D.C. is moving from what is called the Joyce method to the Finnegan method. Okay, cool. On the new D.C. method, D.C. would treat a group of related companies more like one taxpayer than calculating the group share of taxable income connected to D.C. That matters because a large... Companies often separate across many states and through many related businesses. Our tax laws should keep up with the way modern businesses actually operate here in 2026. But my testimony is more than just about corporate taxes. Tax policy is public policy. When D.C. does not collect revenue fairly, someone else carries the burden. Too often, working families and residents with least amount of money feel budget cuts, higher costs, or reduced service is the hardest. We should not balance our budget on the backs of our poorest residents. I'm building wealth for my family through home ownership, entrepreneurship, education, and assets that I hope to pass down to my children. I want other D.C. families to have that same opportunity. That requires a city with strong schools, safe transportation, affordable housing, libraries, recreation centers, workforce program, health services, and strong neighborhoods. I especially want us to remember Ward 7 and 8, communities that have experienced generations of disinvestment deserve intentional investment as DC grows. I support modernizing DC's combined reporting system so multi-state corporations pay their appropriate share of taxes on economic activity connected to the district. But I also ask for transparency, evaluation, and public accountability. I ask that the council and the chief public financial officer publicly answer four simple questions. Real quick, how much additional revenue did D.C. actually collect? What kind of corporations were most affected? And how is D.C. making sure that this law is properly enforced? And last but not least, how will the council measure whether this change worked? Residents should not need a law degree, accounting degree, or Ph.D. to understand where our government money goes or where it comes from. But principle is simple. Everyone should contribute their fair share. Everyone should be able to see whether the system is working. Every DC resident, all awards should have a fair opportunity to benefit for the prosperity of our city. I respectfully urge the council to support B26-0708 and to make transparency and accountability part of this implementation. Thank you for the opportunity to testify, Chairman Mendelsohn.

Thank you, Ms. Stamper. Kelsey Johnson. Darien Shansky, who I believe is virtual.

Hi there. Can you hear me okay? Yes. Terrific. So I am here in support of this change. I was expecting to be speaking after Michael Masaroff. I want to emphasize just a handful of things and just make myself available to answer any questions. First of all, I want to emphasize that Finnegan is correct theoretically and correct as a matter of law. I also want to emphasize that to the extent the current DC combined reporting regime doesn't include all the changes in the MTC regime, It should shift to the MTC regime. The various provisions that was mentioned, like the ADBAP provision, are known to be faulty and ineffective. And so to the extent that this provision or this measure would change those, it should be adopted. And I'm happy to answer more questions either in this hearing or in written testimony submitted sometime afterwards.

Thank you. And Mr. Masaroff.

Thank you, Mr. Chairman. Thank you for the opportunity to present testimony on the proposed Combined Reporting Amendment Act. My name is Michael Masarov. I retired from the State Fiscal Policy Division of the Center on Budget and Policy Priorities in 2024, where I worked for 26 years as a state tax policy analyst, principally focused on state taxation of businesses. Prior to that, I was the director of policy research for the Maldi State Tax Commission. I'm still a part-time consultant to the center, and I also serve on the board of the Institute on Taxation and Economic Policy. However, today I'm just representing myself, speaking as someone interested in furthering good tax policy. While I was still employed by the center, I was invited to present some recommendations for changes to the district's business tax policy at a meeting of the Tax Revision Commission in January 2023. And one of my recommendations was that the district change from the Joyce approach to this Finnegan method of combined reporting. And so I was pleased that Mayor Bowser included this change in her fiscal 25 budget and that the council enacted it effective with the 2026 tax year. That was a wise decision. The fundamental goal of combined reporting is to ensure that the income tax liability of a multi-state corporation to a particular state is not affected in any way by how the corporation chooses to divide itself up with respect to its legal structure. And that objective can only be partially achieved if a state uses the Joyce approach, because under it, the profits of a member of a multi-legal entity corporate group are only fully in the state's tax base if the state can establish independent taxing jurisdiction over that member, which it may not be able to do. Under the Finnegan method, the entire unitary combined group is treated as the taxpayer, and all the profits of the unitary members are in the tax base to the same extent they would be if the corporation were a single legal entity. If a state doesn't require the Finnegan method, corporations can divide themselves up and then wall off a large share of their profits in subsidiaries that a state can't tax. An increasing number of states have come to realize that, with 18 of the 29 states mandating combined reporting now using Finnegan. In addition to DC, Colorado, New Jersey, and Vermont have all switched from Joyce to Finnegan in the past five years. Now, the Finnegan method is already the law in the district. However, that change was effectuated through a one paragraph addition to the tax code. The bill before you provides much more detail about how the change will be implemented, including other advisable conforming changes and other provisions of the combined reporting rules. It's preferable that those details be provided through statutory language rather than regulations, which can always be challenged as inconsistent with the statute itself. The bill is substantially based on a model implementing the Finnegan method of combined reporting that was carefully developed by the Multistate Tax Commission over the course of a three-year project. And that project received substantial input from the Revenue Department staff of other combined reporting states, as well as from the business community. Moreover, basing the district's combined reporting law on the MTC model Finnegan statute is consistent with past practice. When the district first adopted combined reporting in 2011, the law was substantially based on the model Joyce combined reporting statute that the MTC had adopted in 2006. Because the Finnegan method of combined reporting is the conceptually correct approach and is not vulnerable to the tax avoidance opportunities that exist under Joyce, and because the bill before you is based on a carefully developed model drafted by the MTC, I respectfully urge the committee to approve it. Thank you again for the opportunity to testify, and I'll be happy to answer any questions.

Thank you, Mr. Mazerov.

So Mr. Masaroff, I have your statement. And Mr. Pisteski, I don't have your statement.

I did not submit it yet.

But you will.

I will be submitting it, yes.

That would be very helpful. So what I'm hearing from several witnesses is the, what's it called, the MTC model is desirable. But there's a problem with, I'll say, Section 5.

Not all of Section 5, but. Well, the MTC has two models. Mr. Mazzarelli, there's a Joyce model and a Finnegan model. The two provisions that I'm talking about are identical in the Joyce model and the Finnegan model. They're unrelated to the apportionment. So that's what I would say, is that we're talking about, if you want to go to the MTC model, would have been the way I would do it, but you could do it that way. But at least don't do these other things that are unintended consequences that will result now, such as, changing your whole tax base. This is just supposed to be a Finnegan change, not going to a new combined reporting regime, which is what this would do. No state has adopted the MTC model. So you can hear how great a model it is and how many people worked on it, but not one of those 29 states has adopted it. They've all listened to the pros and cons and tweaked it in various ways. And that's why I urge you not to just adopt the model, because we went through this in 2011 making those same changes.

But the tweaks that you want to see are in Section 5. Are in Section 5. Yes. And I couldn't begin to report them. But there were two. There were two.

And I sent them to Blaine last week. So he has them.

I mean, because for me, the threshold question, and I have to say, I don't fully understand these different models. But the first question I have is, why are we switching models? inferring that whether it's Finnegan or Joyce, it sort of permeates the entire model. So you kind of have to do one model or the other. Is that correct?

Only a piece, and correct me if I'm wrong, only a piece of that entire model relates to Finnegan or Joyce on apportionment. There are other people. I'll give you an example. In the model, there is a water's edge versus worldwide.

But that's one of the tweaks you don't want.

I don't care if, well, no. I don't care if it's a change. The current law is water's edge is the default, and you can elect worldwide. That is what DC and most states do. The MTC model is the opposite. Worldwide is the default, and you can elect voters edge. Personally, I like the way it is, but as long as you have the optionality, I'm not really concerned. So that's an example where the MTC model addresses a topic that has nothing to do with Joyce or Finnegan. OK. And so the two provisions I'm here to talk about as to what income is included in a group is completely unrelated to Joyce and Finnegan. And all states have used the language that I'm recommending, which is the language you have now. Your current statute.

Did I have now as in you've submitted it to? No, no, no.

Your current law. I submitted basically to get back to where you are now.

Got it. Mr. Mazerov, you want to help me here?

I don't think I can help you unless Mr. Posetsky is more specific about which two provisions, base broadening provisions he's objecting to, which he hasn't specified yet. But just let me say that, you know, We can debate the merits of those particular things, but I don't think we should debate them on the basis of the issue of double taxation, because that issue is a myth. There is not double taxation. We have an apportionment system, the way states prevent to prevent double taxation of income is that they use an apportionment system. All states do it that way. The federal government does not. The federal government uses foreign tax credits to prevent double taxation. But to say that states' use of inclusion of foreign entities in their tax base inherently creates and the pre-apportionment tax base under combined reporting inherently creates double taxation is really not true when it's comparing an apples and oranges system. And the authority of states to use combined reporting and to include foreign entities or foreign operations in in how they calculate taxes for multinational corporations, has been approved by the Supreme Court going all the way back initially to the 1920s, and then more recently in the early 1980s and early 1990s, upholding the constitutionality of worldwide combined reporting. There may be merits to what Mr. Posetsky's concerns are, but they shouldn't be justified in terms of arguments that what this bill will do is create double taxation, because it doesn't.

We could debate that, and we've debated that before. But I think rather than getting into that debate, I think, and I could tell you what the two provisions are. It has to do with the US source income provision and the treaty override provision and the 20% test. But regardless, I think the real focus here that we've lost is the bill is designed to shift to Finnegan. That was the only goal of this bill. No revenue impact, no other impact on anything else. And what it does is do other things. And it should not be doing that at this point. It should only be doing what it was intended to do. And I think Mr. Roswell hopefully can agree that that is a separate issue. We could switch to Finnegan and keep other things intact that are unrelated to Finnegan. And that's what I am advocating here, to keep those provisions intact. And I could send you more details. I didn't know how detailed we were going to be. That's why I didn't submit anything yet.

Yeah, and I don't know how detailed we're going to be either. It's always a mystery to me. So what I heard you say, Mr. Pisetsky, is that the bill, there are only a few provisions in the bill that are necessary for the shift to Finnegan.

Yes.

Is there harm in the rest of the bill other than the two provisions you want taken out?

Not to my knowledge. For my members and what's important to us, what we focus on, I didn't see anything else. There's some other nuances. Like I said, Water's Edge being a default, I don't have an issue with it. And if no one else has brought it to your attention, I would assume no.

And the bill is a model bill.

What do you mean the bill is a model?

There's this model.

The bill just copies the model MTC statute, correct? It was a cut and paste approach. Rather than finding all of the places you needed to tweak to get to Finnegan, they said, let's just cut it. And I'm sure we hear that testimony later. We'll just follow the MTC model Finnegan bill. That is, I think, what happened here.

Give me a second. Can you repeat what the two provisions are?

Yes. OK, so I'll go one at a time. I'll try to. One is, it talks about who's included in the group. That's the section five of the bill. And one of the two sections talks about if a foreign company has US source income, it's included in the group. US source income is a federal defined term. It's very broad, very controversial, Problematic it is. The current DC statute and all other states use something called effectively connected income, which is what the federal government uses. It's really active business income that a foreign company is doing something in the country. They have a business. They're doing something here. That is the standard that DC currently has. That is the standard other states have. And that is the standard the federal government has. The MTC model statute, though, goes to this US source income very broad provision. And that's when we get into double taxation and treaty overrides, which we won't debate double tax. But there is clearly treaty issues. But let's not go down that path. Point is, US source income versus effectively connected. You have the effectively connected. Other states have effectively connected. The US model does not. It opens the door to a taxation of income that the federal government does not tax.

So the goal here would be to either strike that provision or to replace it with language in the current statute?

To effectively replace it with the language in the current statute.

And what's the second provision?

The second provision, again, it talks about what's included in a DC combined return. It says if a foreign company gets 20% of its intangible income, it was an approach focusing on intangibles and royalties years ago. If it gets 20% of its intangible income from other members of the group and is not exempt by treaty, then you have to include it. The model statute and this proposal take out the not exempt by treaty part. So most of the payments we're talking about, it's intangibles only, is a royalty, for example. A company in DC pays a royalty to its foreign parent. It's exempt under a treaty from taxation in the US. In the DC current law, And in other states, not an issue, not included in a DC return. Even if you met this 20% test threshold, it's exempt by treaty. It doesn't matter. Model statute takes out that little clause and then now tests whether 20% of that income is from the US affiliate. No treaty protection. And in fact, it's even a little more egregious in DC than other places, because DC has a specific code section that says treaty exempt income should not be taxed. So this would be in conflict with that provision. And I've talked to several practitioners, and they're not really sure how that would resolve itself. Again, an unintended consequence. of this.

So your recommendation there would be to strike the language?

To add back the treaty paragraph, the five words about treaty that is currently in the D.C. statute.

All right. And you, both of them, your recommendations you've given to Mr. Stone?

I've given them. And again, it gets, it's nothing new. It's getting back to where you are now.

Sure. So Mr. Masarov, do you want to say anything further?

Well, I would, Let me point out, I mean, Professor Shiansky has his hand raised, and he is much more of an expert in state and federal international.

He also said he wanted to testify after you, and I made him go first.

OK. He's more of an expert on international tax law than I am federal international tax law. So if it's all right with you, and you're willing to ask him to respond. I mean, I have perceptions, but he'll be more accurate, I think.

All right. Mr. Shensky?

Hi there. Sorry if I was briefed before. Again, I've been teaching in this area for a long time, and I'm eager to help you make the right decision here. I came to testify in connection with Finnegan in case there were legal issues about it. I was surprised by these objections to the MTC model, now that I understand what they are. What I would say is, if you want to pass Finnegan and not address these issues, that is a reasonable choice. I will say that income shifting, so taking advantage of these kinds of formal rules, so namely effective connective income versus more general notion or treaty protected income. These are tools of the trade for how you shift income. They are a menu. They have a definition and you get your shifted income into the box and it evaporates out of the US tax base and out of the DC tax base. The MTC model widely uses broader terms that are consistent with economic reality. So I actually think these are probably changes for the better. If you want to bracket it, discuss it later. But the idea that there's, but I think that there are good changes. The MTC, which is hardly a band of radicals, arrived at a legally and policy sound place. And so if you wanted to pass these changes as well, you would further fortify your corporate tax base, which I think would be a good idea.

If I understood what you just said, it was leave the bill as it is.

I think there's a lot to be said for it. I mean, I understand this is primarily a Finnegan bill. I also came here to talk about Finnegan. So it's up to you to think about the various. But I do want to defend these provisions that came from the MTC model as sound choices that would make your system better.

Well, what about the argument that every state that's looked at this, and I can't remember how many it is, but I think it was over two dozen, has not adopted these two provisions?

Well, again, if the idea is to have further discussion, sure. I will tell you that my experience is that as you go around the state talking about good tax policy, there's a huge amount of pressure for states to not do everything that they could do to protect their corporate tax bases. And this seems like... a compromise that has been popular across the states. Yes, we'll broaden the base a little bit, but we're still going to give you this loophole. And I think that, you know, I don't think D.C. has to do it or should do it just because other states have under pressure in different political contexts.

Mr. Chairman, if I can also comment. I mean, part of the issue here, and it goes just beyond the provisions that Mr. Posetsky is talking about, but for example, he alluded to the fact that the district has an add-back rule and says that that's adequate to prevent profit shifting. One of the common provisions of ad-back rules that the business community has managed to get into them is to say they don't apply if the subsidiary is in a country with which the US has a foreign tax treaty, as if somehow the fact that we have a tax treaty with another company guarantees that income shifting doesn't occur. Well, we have a tax treaty with Ireland. We have a tax treaty with Switzerland. And we have a tax treaty with the Netherlands. And those are three of the most well-known locations for shifting profit out of the US. And so any provision that says, well, as long as there's a treaty provision or as long as we're using a provision of federal law and not state-specific language, that's adequate. Well, it really isn't necessarily adequate.

Yeah, I'll just counter one thing. I support ADVAC rules, as DC has, because they do provide protection. Do they provide every protection? No. Professor Shansky and Mr. Mazur will have you believe that corporate tax departments spend all day planning transactions and shifting income out of the US. And just because income ends up in Ireland or Switzerland, it's nefarious. I can tell you I worked for a Swiss company for over 30 years. We paid billions and billions of dollars to our Swiss parent. None of it was nefarious. None of it was ever adjusted on audit. And we even got an agreement between the US and Swiss government, which many companies do, confirming that the amount was legitimate and good. But they would have you believe that I should not get a tax deduction for that, or that should somehow is nefarious. I agree that there could be abuses in the world. We all have. You have the tools in your current law more than almost any state has. I think there are two or three states that have the three tools you have right now. And that is where you have the best combined reporting bill. Fix Finnegan and move on to greener pastures is where I think you should go with this.

What are the three tools we have?

You have an add-back rule, you have your combined reporting, Warner's Edge bill, and you have a tax haven provision in your combined reporting statute.

OK, give me a second. Mr. Shensky, your hand is still raised.

Oh, sorry, I was just going to add one thing that there's a lot of evidence showing significant heterogeneity, so variety in taxpayers. And so the fact that a lot of taxpayers are compliant and looking to follow the rules doesn't mean that there aren't a handful, especially the most profitable, that have a great appetite for aggressive tax maneuvering. And you have tools, but those tools put a lot of pressure on your tax department. If you have different rules, different defaults, you're going to make your life a lot easier. Thank you.

All right. I think I'm going to leave the questioning there. Mr. Pisetsky, I don't have your statement, and you're going to refine it probably.

I will refine it, but I'll also put more details on the provisions to supplement what we sent to Blaine. That would be very helpful. So it's very clear for you.

And Mr. Mazerov, I do have your statement. I don't know if you want to supplement it, but you're welcome to. And Professor Shensky, I don't have a statement from you. If you want to submit something in light of this conversation, that would be helpful as well.

I will do that. Thank you for the opportunity.

Thank you. Thank you, each of you, for your testimony. You don't want my statement in writing? That's up to you. You usually use like an 18-point font, so. Thank you. Thank you, Mr. Branham. We're going to turn to the government. And I have one witness, Ayesha Hashmi. And Ms. Hashimi, you are corporate tax counsel. So you don't call me your honor. Oh, I'm sorry. That's OK. And you should put your microphone on so you understand everything that's been said.

I do.

Excellent. So you have a statement. Why don't you provide that?

Good morning, Chairman Mendelson. Good afternoon, I guess, and members of the Committee of the Whole. My name is Aisha Hashmi, and I'm Corporate Tax Counsel, as you stated, for the Office of the Chief Financial Officer. I am pleased to testify for the OCFO on Bill 26-0708, the Combined Reporting Amendment Act of 2026. The purpose of my testimony is to explain the district's existing combined reporting framework, the difference between the so-called Joyce and Finnegan methods of apportionment, the district's transition to Finnegan, and why the bill is necessary to implement the transition described in DC Official Code 47-1805.05 . The district imposes corporate franchise tax and an unincorporated business franchise tax on the income of businesses with a sufficient connection or nexus in the district. Combined reporting is a method by which a unitary business, which may be comprised of more than one separate legal entity, is reported on a combined report rather than each legal entity filing its own tax return with the district. The district has already adopted mandatory combined reporting codified in section 47, 1805.02A for unitary businesses beginning with tax years after December 31, 2010. Since that time, the district has followed what is known as the Joyce method for purposes of combined reporting. The Joyce method treats the individual corporate entity as the relevant taxpayer for nexus purposes. In 2024, however, the Council enacted legislation codified in DC Official Code Section 47-1805.02 , which expressly provided for a transition from the Joyce method to the Finnegan method. DC Official Code Section 47-1805.02 requires that for tax years beginning after December 31, 2025, the combined group will be treated as one taxpayer for purposes of sourcing unitary receipts, and that the numerator of the apportionment formula will be derived from all members of the combined group, regardless of whether the individual member has district nexus. The bill provides the conforming and technical amendments required to implement the transition from the Joyce method to the Finnegan method mandated by DC Official Code Section 47-1805.02 for purposes of combined reporting. Before explaining combined reporting and the difference between Joyce and the Finnegan methods, it's important to understand the concept of apportionment in this context. A business operating in multiple jurisdictions may earn income from activities occurring throughout the country. Apportionment is the mechanism used by jurisdictions to determine what portion of that business income is attributable to a particular jurisdiction for state and local tax purposes. The jurisdiction applies an apportionment formula to the business's relevant factors such as receipts to determine the portion properly attributable to that jurisdiction. Apportionment determines which piece of the pie a state can tax. By way of an example, if a company earns $100 million from its nationwide business, apportionment determines what portion of that $100 million will be taxed by a particular jurisdiction. Combined reporting addresses situations in which multiple legally separate corporate entities operate together as a single unitary business and how their income should be apportioned. Rather than allowing related corporations to determine their taxable income entirely on a separate entity basis, combined reporting looks at the economic activities of the unitary group as a whole. The district then determines the portion of the group's income attributable to the district through the district's apportionment rules. The Joyce and Finnegan methods begin with the same basic concept. The income of the unitary business is combined. The difference between these methods is principally how the combined group's apportionment factors are determined, particularly the sales factor numerator. Under the Joyce method, the members of the combined group are treated separately for purposes of determining whether their own activities are subject to taxing jurisdiction. A member generally contributes its in-state receipts to the numerator only if that particular member has nexus in the jurisdiction. Under the Finnegan method, the combined group is treated as a single taxpayer for apportionment purposes. When the combined group has nexus in the jurisdiction, the relevant in-state receipts of the group members can be included in the numerator, even if the individual member generating those receipts would not independently have nexus. Attached to my testimony is a chart illustrating a simple example of how the Joyce and Finnegan methods differ. As you can see, the chart assumes a unitary business that is combined, consisting of companies A, B, and C. Company A has Nexus in the district, and $10 million of its sales are apportioned to the district. Company B has Nexus in the district, and $2 million of its sales are apportioned to the district. Company C does not independently have nexus in the district, but $8 million of its sales are apportioned to the district. Under the Joyce method, Company C's $8 million generally would not be included in the district numerator, because it does not have nexus in the district. However, under the Finnegan method, the combined group is treated as one taxpayer. Accordingly, the $8 million generated by Company C will be included in the district numerator, because the combined group has nexus in the district. This distinction can materially affect the amount of income apportioned to the district. The bill is necessary to enact, amend, and repeal provisions of the law needed to implement the transition from the Joyce to Finnegan method of apportionment for combined reporting pursuant to DC official code section 47-1805.02 . However, assuming that this bill is enacted during the remaining time in this council period, There is not sufficient time to implement the transition to the Finnegan method for tax year 2026. Therefore, the Office of Tax and Revenue requests that the applicability date for this bill be amended to apply to tax years beginning after December 31, 2026. Likewise, a similar amendment to DC Official Code Section 47-1805.02 should be enacted. Thank you for the opportunity to provide this testimony. I'm happy to answer any questions you may have. I think there was also a list of questions that were provided that I'm happy to respond to as well.

We'll see what I get to.

OK.

So I'm a little bit confused. Apparently, the council adopted this change in 2024.

That's right. It was just a placeholder that said we were moving from Joyce to Finnegan.

So did the Office of Tax and Revenue do anything about it other than this bill?

Right. So the bill went through a long and technical drafting and review process before it was formally introduced at the time.

This bill. But I'm talking about after we acted in 2024. Did the Finnegan method get used?

No, because it was to be applicable for tax years 2026.

OK. So that just seems strange to me. Why did we do this in 2024? And maybe you don't know, but.

Yes, I'm not familiar. It was a placeholder. It could have been a budget reason. I'm not familiar with why it would be in 2024.

That's when there were revenues booked against the financial plan. So the council acted in 2024. But in terms of implementation, I don't know if I want to say implementation, compliance by taxpayers, they continue even at this moment to use the choice method.

That's right.

So we need this bill in order to actually do what we said in 2024.

That's right. And something similar happened in 2011. I drafted the combined reporting legislation in 2011, as well as this one. And in 20, we created transitional rules. We are now in 2026, but business entities normally obtain an extension. So their tax returns tend to not be filed until October of 2026. And so they're often looking for relief from any underpayment penalties. And there's usually transitional rules that can be facilitated in order to provide relief to taxpayers in light of, I mean, I imagine taxpayers are are looking to file Finnegan in these quarters. They're just looking for the guidance it has to do. Most business filers generally know how Finnegan apportionment works. And they may have filed estimated quarterly tax payments to that effect. And they'll probably square up in the last quarter. And OTR would probably provide some rules for any relief for underpayment.

So your recommendation is that we change the bill so that it's applicable for tax years beginning this year, FY 20, excuse me, calendar year 20.

For the next year, for 2027. Yes.

Yeah. I'm looking at your language. Amended to apply to tax years beginning after December 31, 2026.

That's right.

So you're saying there might be some returns filed this year.

Well, not if, depending on how this goes now, because those returns won't be filed until October. So there's still notice to business filers.

Well, it's highly unlikely the council is going to act in the next month. So the earliest we could do a markup would be October 20th. I'm not saying we would. It is quite probable the council will act on it this calendar year. But as you know, we could do an emergency bill which makes it effective as soon as the mayor signs it, and maybe we would. But none of that's going to be known to taxpayers until December. So what does that do with returns?

Well, that is why we're proposing that we push it back a year.

But you said there might be some business filers who would be looking at the Finnegan method because the bill's pending.

Yeah, so some corporate filers that I've spoken to, they'll prepare. Their tax departments would prepare. They would presumably have filed some quarterly estimated tax payments on a Finnegan model.

And that'll just get trued up on their last payment on their return?

That's right. Right. If we didn't move forward, then they would have less of a payment in their last quarter, presumably.

OK. Do you know if there's a fiscal impact if we change the applicability year?

I'm not aware of that. But I can certainly coordinate a response through our Office of Revenue Analysis.

I need you to do that, because I'm guessing we did what we did in 2024, because it had an effect on the budget and financial plan we were adopting. And so if we're delaying this another year, that could have a fiscal impact.

I can absolutely coordinate a response.

As in, yes. So I do need you to get back to us with regard to what you think the fiscal impact will be. I realize that's not the same as a formal fiscal impact statement, but I think you have access to people who know so that we can get a sense of what the fiscal impact statement would be. Certainly. So you drafted the 2011 statute. You drafted this bill. That's right. You were here listening to the testimony with the previous witnesses.

That's right.

Why didn't we just tweak what we have in the law instead of adopting the other model?

So even initially in Joyce, we had similar language, but there were compromises that were made even in Joyce. So to say that, well, let's just revert back to sort of this original model, that Joyce model has also been heavily compromised. And I wouldn't say it was a cut and paste model from the MTC. If you compare it, it's definitely heavily redlined, because we had to tailor it to the district. I mean, we have, for example, unincorporated business entities in the district, which is not a reality in the MTC model. So there were a lot of tweaks that were made in both regards, in Joyce and in Finnegan. And we adopted this model because, and I think just to clarify the two provisions are in section four and five. And I think the phrasing that we're looking at is without regard to federal treaties. And so what that's doing is section four and section five. Section five is the one that relates to controlled foreign corporations. is that we are including in the taxable base income that would have been ordinarily exempt through a federal treaty. And so first I wanted to say in that regard is that a state can tax. income that is exempt from federal income tax under a US tax treaty, depending on the state's law. Federal tax treaties do not automatically bind state income tax systems. The IRS itself says that some states honor US treaty provisions and some do not. The treaty may prevent the federal government from taxing particular income, but not a state. Second, there are, in fact, other states that tax treaty exempt income. So I believe that prior testimony was incorrect. And in that is some heavy hitter states. New York, for example, New Jersey in specified circumstances, and California have this in their combined reporting regime.

So I think there's some disagreement on that point. And if you could, following the hearing, support substantiate your argument.

Sure, I can supplement my testimony. Therefore, the treatment of treaty-exempt income is not unique to the district, although specific rules and limitations are different. Usually, different states have different mechanics, depending on how their statutes are drafted.

The language, as I understand it, does conflict with another provision in Title 47?

Right, and so I think there you could do two things, either use statutory construction principles, which is the later in time trumps the earlier provision in time, or a repeal of the earlier provision, depending on where the council wanted to go with this provision.

Or we could just say notwithstanding.

or notwithstanding. Third, we did adopt the MTC model in large part for Finnegan, as we did in 2011, when we became a Joyce combined reporting jurisdiction. And we've not had any major combined reporting litigation. I am the corporate tax litigator at the Office of Tax and Revenue, and I've been there for over 20 years. Since 2011, we've had one case that was in superior court on combined reporting. And that was it. And we certainly had cases in audit, but cases that were resolved. And there were certainly arguments on double taxation and various. Double taxation is a very common argument made by taxpayers. And so those are resolved at the audit level. And there's a lot of proof that is shown in order to see double taxation. A lot of time, taxpayers allege double taxation when there, in fact, is no double taxation. And so those are resolved through the audit process, and worst case, through litigation. And again, one combined reporting case since Joyce. And there was a lot of pushback when we first enacted Joyce. A lot of advocacy groups, there were a lot of compromises. And so there was a lot of pushback, but yet it only yielded one case in litigation. We are a member of the MTC, and we participate heavily in the uniformity and litigation committees, and we assist in model statute drafting. And as the prior testimony was given, there is quite a bit of work that goes into these models. They solicit teamwork from other states, other jurisdictions, the private sector. There is a hearing officers report that's quite extensive. And so the project goes on for a very long time. Now, the question about whether Finnegan has been adopted, this particular version has been adopted. I mean, I believe the Finnegan model was drafted in 2021 by the MTC. So I'm not sure which states would have had the opportunity to adopt it since then. It's sort of more of a recent thing. So I don't think it's accurate to characterize it as no other state has adopted this model in exactly the same way. And with respect to the treaty provision, even if it's not stated in the exact same way, it's not to say that New York and New Jersey and California don't do the same thing. They can either do it through an add back of treaty exempt income. So there's different mechanics, but you get to the same point of actually including it in the tax base. Now, there would be a revenue impact from excluding the phrase without regard to federal treaties because you are reducing the tax base. So there would be a fiscal impact. I imagine Office of Revenue Analysis would have to factor that into a revised fiscal statement if that's a revenue analysis, if that's the direction that the council wanted to go. So it's really just a policy call. And again, the way to fix the fix would be just to strike that particular language, not the provision, just the language without regard to federal treaties.

That's one of the two provisions to which there was objection.

Right, and those two provisions have the same phrase. So provision four has without regard to federal treaties, and provision five has without regard to federal treaties. Now, there was another provision that was mentioned, about 20%. That provision is provision two, the entire income and apportionment factors of a member, regardless of the place incorporated or formed, if the average of its property payroll and receipts factors within the United States is 20%. But there isn't a without regard to federal treaties language in that. So I'm not sure if that was an error.

No, I think the complaint, I'm not going to say it very well. And you can have access to what we're getting, because I'd like you to respond to it. But I don't think that was a treaty issue.

That's been in our law since Joyce. So that has not changed.

So what I'm hearing is that these objectionable issues are not in the bill inadvertently.

That's right. They're not inadvertent. They're deliberately in the bill.

And what I think I heard from Professor Shensky was that they have the effect of broadening our tax base.

That's correct. And I would say it's Finnegan, because it's about the tax base. So what's in the tax base? In order to get to the right apportionment, you have to figure out the tax base. And I think it's all connected to Finnegan.

Well, I meant broadening the tax base as in what's taxable in the District of Columbia. Give me a second here. So if I ask you the question, how many jurisdictions currently use the Finnegan method, I'm not sure that gives us a full picture, because we're spending a lot of time at this hearing talking about some provisions that could be included in a Finnegan bill and could be excluded in a Finnegan bill.

That's right. Each state tailors its own Finnegan and its own choice.

But Finnegan is fairly common among the states.

That's right. That's the trend. When we moved to Joyce in 2011, the trend was Joyce. And it has shifted towards Finnegan, with the vast majority of combined reporting states using Finnegan.

So Putting aside this broadening of the base, is part of the advantage of transitioning to Finnegan that it's easier to administer from a tax compliance, tax administration perspective?

I would argue that it's a little bit more complex, because now you are looking at a possibly wider web of connected entities. And so an audit, a Finnegan audit, may be a little more complex than a Joyce audit. And of course, we'd have other compliance burden would just be the forms that we would need, which we already have. We would just have to tweak those forms. But when we moved to Joyce, we did receive training on Joyce, how to do a Joyce audit. It was a one-week training program by the auditors. And they have been auditing combined reporting cases. So it would just be something similar as far as Finnegan is concerned. But the thing is, it would just be the actual apportionment, not the whole. I mean, we've been a combined reporting state since 2011. So it wouldn't be training on all of combined reporting. It would just be on the tweaks that Finnegan makes.

So what's the advantage of switching to Finnegan?

Well, the largest one would be it is a more fair and accurate reflection of what a business's trade or business is, and that their revenue that is generated, it is like a federal consolidated return. It presents a better picture of how that corporation and its related entities are doing business, as opposed to the Joyce model, which just looked at nexus entities. And frankly, nexus at the time was a physical presence nexus. I mean, businesses, that's not the reality today. Businesses are not doing. Brick and mortar, you know, they're not brick and mortar the way they used to be of a lot of online companies and whatnot so this more accurately Reflects the revenue and captures that revenue in the tax base that's generated in the district So the council acted in 2024 And this bill was introduced in June 2026 why did it take so long I So the effective date of the legislation was to be for 2026, so it was for this year. It is a very, very robust bill. It went through a really long and technical drafting and review process. At the time, we were also, ORTR was prioritizing OBBBA and decoupling initiatives. The legislation required a careful review of existing DC code provisions, definitions, regulations, federal law, related statutes to ensure that the new language would work properly with existing tax structure. So it was a matter of looking at the entire corporate tax code and determining whether other provisions needed to be repealed or how to make those provisions conforming. And there still may be the tweaks. For example, the exclusion from gross income for businesses that have treaty-exempt income. So you'll see the tweaks. And some tweaks we were able to do in Joyce through regulations, but some we'll have to do statutorily. And we did have one round of combined reporting amendment acts post-Joyce, because you don't really know how it's going to play out. So there may be conforming amendments that are needed subsequently. The drafting process also required careful attention to how it would interact with certain existing rules, such as apportionment, federal taxable income, foreign corporations, tax treaties, partnerships, anti-abuse provisions. So each of these needed to be considered and ensure that the provisions would work together and did not create unintended consequences, I believe was the phrase used. The proposal also went through several layers of review at the Office of Tax and Revenue, including consideration of administrative and implementation burdens. Our Office of Revenue Analysis then evaluated the anticipated revenue and fiscal implications of the legislation. And then following these reviews, the legislation went through the Office of the Chief Financial Officer's review process and ultimately through the council's procedures for formally introducing the legislation. So it's a really comprehensive and vast. It's about 20 pages. And it pretty much rewrites the corporate tax code of the district for multi-state entities.

True, but it's also based on the model statute. So it was a matter of tweaking it. Well, I'll just note, because I'm not sure there's a value in belaboring this, but if we adopted in 2024 that we wanted to go this way, Two years later is when we got the bill. And receiving it in June, there's no way we were going to adopt it before the recess. That would be July 15th, less than a month. So actually, we're moving very quickly by having a hearing really the next available week after it was introduced. And as I indicated before, I don't see how this will get through the council until probably December. So give me a second here. So you've heard the testimony, plus the questions I've asked of you. I would really encourage, it would be helpful if you would supplement your testimony in response to some of what's been said here, as well as elaborate some of your testimony, or expand on some of your testimony. And I would say the same to others. And I see that Mr. Petesky is still in the audience. He's heard everything, so he has an opportunity And I don't want this to sound like this is a courtroom where you have like two weeks to submit your reply briefs, because it's not like that. But it would be very helpful to have all these arguments, these pros and cons further fleshed out for us.

Sure. So thank you.

I have no further questions, and I have no further witnesses. So this has been a hearing on, well, this part of the hearing has been on Bill 26-708, Combined Reporting Amendment Act of 2026, and earlier, the proposed tax exemption for Society for Science. The record will close Wednesday, September 30th. What do I mean by that? We have to file a record, and this is a political body, so we receive testimony comments anytime, right up to the vote, even after the vote. But we have to file a record, and so we have a cutoff date for that. But it's great if people get us stuff before the record closes. And with that, the time is 4.07 p.m., and this hearing is adjourned.

Thank you.