District of Columbia Economic Recovery Act

Summary: District of Columbia Economic Recovery Act - Amends the Internal Revenue Code to set forth a limitation on the income tax imposed on individuals who are residents of the District of Columbia.  Specifies that the limitation is the sum of:   (1) 15 percent of so much District-sourced income as exceeds the exemption amount; and (2) the average rate of the non-District-sourced adjusted gross income. Sets forth definitions, including for "resident of the District of Columbia" and "exemption amount." 
Provides for the tax treatment of certain sources of income.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``District of Columbia Economic 
Recovery Act''.

SEC. 2. LIMITATION ON INCOME TAX IMPOSED ON INDIVIDUALS WHO ARE 
              RESIDENTS OF THE DISTRICT OF COLUMBIA.

    (a) In General.--Subchapter A of chapter 1 of the Internal Revenue 
Code of 1986 (relating to determination of tax liability) is amended by 
adding at the end the following new part:

``PART VIII--LIMITATION ON TAX IMPOSED ON RESIDENTS OF THE DISTRICT OF 
                                COLUMBIA

                              ``Sec. 59B. Limitation on tax.

``SEC. 59B. LIMITATION ON TAX.

    ``(a) General Rule.--The net income tax of an individual who is a 
resident of the District of Columbia for the taxable year shall not 
exceed the limitation determined under subsection (b) for such year.
    ``(b) Limitation.--The limitation determined under this subsection 
is the sum of the amounts determined under paragraphs (1) and (2).
            ``(1) 15-percent rate of district-sourced income in excess 
        of exemption amount.--The amount determined under this 
        paragraph is an amount equal to 15 percent of so much of 
        District-sourced income as exceeds the exemption amount.
            ``(2) Average rate of non-district-sourced adjusted gross 
        income.--The amount determined under this paragraph is an 
        amount equal to the average rate of the non-District-sourced 
        adjusted gross income.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Resident of district of columbia.--An individual is a 
        resident of the District of Columbia for the taxable year if--
                    ``(A) such individual used a residence in the 
                District of Columbia as a place of abode (and was 
                physically present at such place) for at least 183 days 
                of such taxable year, and
                    ``(B) such individual files a District of Columbia 
                income tax return for such taxable year.
            ``(2) Net income tax.--The term `net income tax' means--
                    ``(A) the sum of regular tax liability and the tax 
                imposed by section 55 (determined without regard to 
                this section), reduced by
                    ``(B) the aggregate credits allowable under part IV 
                (other than section 31).
            ``(3) Exemption amount.--The term `exemption amount' 
        means--
                    ``(A) $30,000 in the case of a joint return or a 
                surviving spouse,
                    ``(B) $15,000 in the case of--
                            ``(i) an individual who is not a married 
                        individual and is not a surviving spouse, and
                            ``(ii) a married individual filing a 
                        separate return, and
                    ``(C) $25,000 in the case of a head of a household.
            ``(4) Average rate.--The term `average rate' means the 
        percentage determined by dividing--
                    ``(A) the sum (determined without regard to this 
                section) of the taxpayer's regular tax liability and 
                the tax imposed by section 55, by
                    ``(B) the taxpayer's taxable income.
        If the percentage determined under the preceding sentence is 
        not a whole number of percentage points, such percentage shall 
        be rounded to the nearest whole number of percentage points.
            ``(5) Regular tax liability.--The term `regular tax 
        liability' has the meaning given to such term by section 26(b).
    ``(d) District-Sourced Income.--For purposes of this section, the 
term `District-sourced income' means adjusted gross income reduced by 
the sum of--
            ``(1) non-District-sourced adjusted gross income,
            ``(2) net capital gain determined by taking into account 
        only gains and losses sourced in the District of Columbia,
            ``(3) the deduction allowed by section 170, and
            ``(4) the deduction allowed by section 163 to the extent 
        attributable to qualified residence interest (as defined in 
        section 163(h)).
    ``(e) Non-District-Sourced Adjusted Gross Income.--For purposes of 
this section, the term `non-District-sourced adjusted gross income' 
means gross income of the taxpayer from sources outside the District of 
Columbia reduced (but not below zero) by the deductions taken into 
account in determining adjusted gross income which are allocable to 
such income.
    ``(f) Sources of Income.--For purposes of this section--
            ``(1) Retirement income and other income not sourced under 
        subsection.--The source of any income not specifically provided 
        for in this subsection shall be treated as from sources within 
        the District of Columbia.
            ``(2) Personal services.--
                    ``(A) In general.--Compensation (other than 
                retirement income) for services performed by the 
                taxpayer as an employee, and net earnings from self-
                employment (as defined in section 1402)), shall be 
                sourced at the place such services are performed.
                    ``(B) Services performed in washington-baltimore 
                area treated as performed in the district of 
                columbia.--Services performed in the Washington-
                Baltimore area shall be treated as performed in the 
                District of Columbia.
                    ``(C) Individuals performing 80 percent of services 
                within washington-baltimore area.--If, during any 
                taxable year, at least 80 percent of the hours of 
                service performed by an individual are performed within 
                the Washington-Baltimore area, all such service shall 
                be treated for purposes of this paragraph as performed 
                within the District of Columbia.
                    ``(D) Washington-baltimore area.--For purposes of 
                this paragraph, the term `Washington-Baltimore area' 
                means the area consisting of--
                            ``(i) the Washington/Baltimore Consolidated 
                        Metropolitan Statistical Area (as designated by 
                        the Office of Management and Budget), and
                            ``(ii) St. Mary's County, Maryland.
            ``(3) Interest.--
                    ``(A) In general.--Interest received or accrued 
                during the taxable year shall be treated as from 
                sources outside the District of Columbia.
                    ``(B) Exception for small amounts of non-district-
                sourced interest.--Interest which would (but for this 
                subparagraph) be treated as from sources outside the 
                District of Columbia shall be treated as from sources 
                in the District of Columbia to the extent the amount of 
                such interest does not exceed $400.
                    ``(C) Exception for interest paid by district of 
                columbia businesses and residents.--
                            ``(i) Businesses.--In the case of interest 
                        paid during a calendar year by a debtor which 
                        was required to file (and filed) a franchise 
                        tax return with the District of Columbia for 
                        the debtor's taxable year ending with or within 
                        the prior calendar year, an amount equal to 
the D.C. percentage (as shown on such return) of such interest shall be 
treated as from sources within the District of Columbia. The preceding 
sentence shall apply only if such percentage is furnished to the 
taxpayer in writing on or before January 31 of the year following the 
calendar year in which such interest is paid.
                            ``(ii) Others.--Interest shall be treated 
                        as from sources within the District of Columbia 
                        if the interest is paid during a calendar year 
                        by a debtor--
                                    ``(I) which was required to file 
                                (and filed) an income tax return with 
                                the District of Columbia for the 
                                debtor's taxable year ending during the 
                                prior calendar year, and
                                    ``(II) which is not required to 
                                file a franchise tax return with the 
                                District of Columbia for such taxable 
                                year.
                    ``(D) Special rule for determination of d.c. 
                percentage for new businesses.--Interest shall be 
                treated as from sources within the District of Columbia 
                if the interest is paid during a calendar year by a 
                debtor which was required to file (and filed) a 
                franchise tax return with the District of Columbia for 
                such debtor's taxable year ending during such calendar 
                year, but which was not required to file such a return 
                for such debtor's prior taxable year.
            ``(4) Dividends.--
                    ``(A) In general.--Dividends received or accrued 
                during the taxable year shall be treated as from 
                sources outside the District of Columbia.
                    ``(B) Exception for small amounts of non-district-
                sourced dividends.--Dividends which would (but for this 
                subparagraph) be treated as from sources outside the 
                District of Columbia shall be treated as from sources 
                in the District of Columbia to the extent the amount of 
                such dividends do not exceed $400.
                    ``(C) Exception for dividends paid by corporation 
                engaged in business in the district of columbia.--In 
                the case of dividends paid during a calendar year by a 
                corporation which was required to file (and filed) a 
                franchise tax return with the District of Columbia for 
                the debtor's taxable year ending during the prior 
                calendar year, an amount equal to the D.C. percentage 
                (as shown on such return) of such dividends shall be 
                treated as from sources within the District of 
                Columbia. The preceding sentence shall apply only if 
                such percentage is furnished to the taxpayer in writing 
                on or before January 31 of the year following the 
                calendar year in which such dividends are paid.
            ``(5) Disposition of tangible property.--Income, gain, or 
        loss from the disposition of tangible property shall be sourced 
        to the place such property is located at the time of the 
        disposition.
            ``(6) Disposition of intangible property.--
                    ``(A) In general.--Income, gain, or loss from the 
                disposition of intangible property shall be treated as 
                from sources outside the District of Columbia.
                    ``(B) Exception.-- If any portion of the most 
                recent income received or accrued before such 
                disposition which was attributable to such property was 
                from sources within the District of Columbia, a like 
                portion of the income, gain, or loss from such 
                disposition shall be treated as from sources within the 
                District of Columbia.
            ``(7) Rentals.--Rents from property shall be sourced at the 
        place where such property is located.
            ``(8) Royalties.--Royalties shall be treated as from 
        sources outside the District of Columbia.
            ``(9) Income from proprietorship.--
                    ``(A) In general.--In the case of a trade or 
                business carried on by the taxpayer as a 
                proprietorship, income from such trade or business 
                (other than income which is included in net earnings 
                from self-employment by the taxpayer) shall be treated 
                as from sources outside the District of Columbia.
                    ``(B) Exception for district of columbia 
                businesses.--If the taxpayer is required to file (and 
                files) a franchise tax return with the District of 
                Columbia for the taxable year, subparagraph (A) shall 
                not apply to an amount equal to the D.C. percentage of 
                such income.
            ``(10) Income from partnership.--
                    ``(A) In general.--In the case of a taxpayer who is 
                a partner in a partnership, income from such 
                partnership (other than income which is included in net 
                earnings from self-employment by any partner) shall be 
                treated as from sources outside the District of 
                Columbia.
                    ``(B) Exceptions.--
                            ``(i) Subparagraph (A) shall not apply to a 
                        partnership which was required to file (and 
                        filed) a franchise tax return with the District 
                        of Columbia for the partnership's taxable year 
                        ending with or within the taxpayer's taxable 
                        year to the extent of the D.C. percentage of 
                        the taxpayer's distributive share of the 
                        partnership income.
                            ``(ii) Subparagraph (A) shall not apply to 
                        a partnership which was not required to file a 
                        franchise tax return with the District of 
                        Columbia for the partnership's taxable year 
                        ending with or within the taxpayer's taxable 
                        year to the extent of the taxpayer's 
                        distributive share of partnership income which 
                        is not (as determined under this subsection) 
                        from sources outside the District of Columbia.
            ``(11) Income in respect of a decedent; income from an 
        estate.--Income in respect of a decedent, and income from an 
        estate, shall be sourced at the place where the decedent was 
        domiciled at the time of his death.
            ``(12) Income from a trust.--Income (other than retirement 
        income) from a trust shall be treated as from the same sources 
        as the income of the trust to which it is attributable.
    ``(g) Definitions Relating to Subsection (f).--For purposes of 
subsection (f)--
            ``(1) Retirement income.--The term `retirement income' has 
        the meaning given such term by section 114(b)(1) of title 4, 
        United States Code (determined without regard to subparagraph 
        (I) thereof).
            ``(2) D.C. percentage.--The term `D.C. percentage' means 
        the percentage determined by dividing--
                    ``(A) the net income taxable in the District of 
                Columbia (as shown on the original return for the 
                taxable year), by
                    ``(B) total net income from all sources (as shown 
                on such return).
        The preceding sentence shall be applied based on amounts shown 
        on the original applicable District of Columbia franchise or 
        income tax return.
    ``(h) Section Not To Apply to Estates and Trusts.--This section 
shall not apply to an estate or trust.
    ``(i) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''
    (b) Conforming Amendments.--
            (1) Paragraph (1) of section 55(c) of such Code is amended 
        by adding at the end the following: ``Such regular tax shall be 
        determined without regard to section 59B.''
            (2) The table of parts for subchapter A of chapter 1 of 
        such Code is amended by adding at the end the following new 
        item:

                              ``Part VIII. Limitation on tax imposed on 
                                        residents of the District of 
                                        Columbia.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.