D.C. defies tax recouple

The battle of Washington D.C. versus the U.S. Congress has added another layer of legal intrigue as the city's chief financial officer is siding with the attorney general's interpretation of the Home Rule Act in a test of wills that may impact the District's tax collections and overall fiscal condition.

"Contrary to statements made by elected leaders, as chief financial officer of the District of Columbia, it is my responsibility, pursuant to the Home Rule Act, to administer the District's taxes based on applicable law," said Glen Lee, CFO.

"I do not have the unilateral authority to re-couple the District's tax code to OBBBA without changes to District tax law."

The tax law in question is the 1973 Home Rule Act which gives the city autonomy to elect its own officials who run day-today operations, write budgets and collect taxes for the residents of the District of Columbia.

Before 1973, Congress ran the city and it still maintains budgetary and legislative oversight.

In November 2025 the Washington D.C. City Council voted unanimously to decouple its tax code from certain provisions in the Trump administration's One Big Beautiful Bill Act.

Their action was dubbed, the "Temporary Conformity Act."

According to the City Council, "The thirteen selected provisions include several of the higher-ticket items, such as the elimination of taxes on tips and overtime, an increased standard deduction, and a special depreciation allowance for certain qualified property."

Several states have exercised their right to decouple from OBBBA, which is which is frustrating the U.S. Treasury Department.

Both Houses of Congress stepped in to stop the city from decoupling by passing "House Joint Resolution 142," but according to Attorney General Brian Schwalb they overstepped the bounds of their authority.

Per a letter from Schwalb to Lee, "as it pertains to the 2025 tax filing season, we need not address whether the Temporary Conformity Act remains valid law because, regardless of its ongoing validity, HJ 142 did not retroactively alter the tax liability imposed for taxpayers whose year ended Dec. 31, 2025."

The legal technicality of not making the recouple retroactive, will not stop it from going into place next year.

The city's mayor became involved as questions arose from taxpayers who had already filed returns or were preparing to file. For now, tax season will move forward under the pre-OBBBA rules.

"Taxpayer's tax obligations to the District for tax year 2025 do not reflect the impact of the OBBBA on District tax law," said Lee.

According to CFO projections, forcing the city to recouple to OBBBA would result in a $600 million hit to a city budget that's already under duress.

The CFO is staying conservative about tax revenue projections that could be affected by another round of litigation.

"Consistent with the OCFO's ongoing practice related to uncertain revenue collections, the OCFO will continue to defer including decoupling revenues from the revenue estimates," said Lee.