DC Metropolitan Business Law Alert - Updates on Important Legal Developments that Impact the Business Community in DC, Md and Va.

On September 20, 2011, the District of Columbia Council agreed to raise the income tax rate on all households in the District earning $350,000 or more per year to 8.95% from 8.5%.  The rate increase shall be effective as of October 1, 2011, the beginning of the District’s 2012 fiscal year.  According to the District’s Office of the Chief Financial Officer, the tax increase affects about 6,000 residents of the District and is projected to increase the District’s tax revenue by $106 million over the next four years.  The Council also approved a measure to eliminate the retroactive application of income tax on interest earned from out of state municipal bonds; opting, instead, to tax the interest earned on out of state municipal bonds beginning with bonds purchased on or after January 1, 2012.

A recent court decision has shed some light on the fiduciary duty that D.C. employees owe to their employer. In National Railroad Passenger Corporation v. Veolia Transportation Services, Inc. (D.D.C. May 9, 2011), the federal district court for the District of Columbia evaluated the nature of the fiduciary duty that Amtrak employees owed to their employer while Amtrak prepared its bid for a government contract. The court examined various factual scenarios in which an employee engages in direct and indirect competition with its employer, and emphasized that a breach of the employee’s fiduciary duty is extremely fact-specific and must be evaluated on a case-by-case basis. For more information on this case, click here.

Last week, the District of Columbia filed suit (District of Columbia v. Expedia, D.C. Super. Ct. No. 0002117-11, March 22, 2011) against numerous online travel companies (“OTCs”), including Expedia, Hotels.Com, Hotwire and Orbitz, claiming that these OTCs owe millions of dollars for unpaid sales taxes. DC asserts that the taxes are due because the OTCs have paid sales taxes based on the hotel room costs to the OTCs (the hotels offer discounted wholesale prices to the OTCs) rather than the actual retail room rates the OTCs charged to their customers, the hotel guests. The DC case is similar to hundreds of others lawsuits filed by cities, counties and some states in recent years, all seeking, with varying results, additional taxes based on the OTCs’ alleged practices of underpaying the proper taxes due.

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