II

106TH CONGRESS

2D SESSION S. 3217

To amend the Internal Revenue Code of 1986 to provide for individuals

who are residents of the District of Columbia a maximum rate of tax

of 15 percent on income from sources within the District of Columbia,

and for other purposes.

IN THE SENATE OF THE UNITED STATES

OCTOBER 18 (legislative day, SEPTEMBER 22), 2000

Mr. MACK (for himself and Mr. BROWNBACK) introduced the following bill;

which was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to provide

for individuals who are residents of the District of Columbia a maximum rate of tax of 15 percent on income

from sources within the District of Columbia, and for

other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘District of Columbia

5 Economic Renaissance Act of 2000’’.
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1 SEC. 2. SPECIAL RULES FOR TAXATION OF INDIVIDUALS

2 WHO ARE RESIDENTS OF THE DISTRICT OF

3 COLUMBIA.

4 (a) IN GENERAL.—Subchapter A of chapter 1 of the

5 Internal Revenue Code of 1986 (relating to determination

6 of tax liability) is amended by adding at the end the fol7 lowing new part:

8 ‘‘PART VIII—SPECIAL RULES FOR TAXATION OF

9 INDIVIDUALS WHO ARE RESIDENTS OF THE

10 DISTRICT OF COLUMBIA

‘‘Sec. 59B. Limitation on tax imposed on residents of the District of Columbia.

11 ‘‘SEC. 59B. LIMITATION ON TAX IMPOSED ON RESIDENTS OF

12 THE DISTRICT OF COLUMBIA.

13 ‘‘(a) GENERAL RULE.—If a taxpayer elects the appli14 cation of this section, the net income tax of an individual

15 who is a resident of the District of Columbia for the tax16 able year shall not exceed the limitation determined under

17 subsection (b) for such year.

18 ‘‘(b) LIMITATION.—

19 ‘‘(1) IN GENERAL.—The limitation determined

20 under this subsection is the sum of the following

21 amounts:

22 ‘‘(A) 15-PERCENT RATE.—15 percent of so

23 much of District-sourced income as exceeds the

24 exemption amount.
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1 ‘‘(B) AVERAGE RATE.—An amount equal

2 to the average rate of the non-District-sourced

3 adjusted gross income.

4 ‘‘(2) DISTRICT-SOURCED CAPITAL GAINS.—

‘‘For exclusion from tax of capital gains, see section 1400B.

5 ‘‘(c) DEFINITIONS.—For purposes of this section—

6 ‘‘(1) RESIDENT OF DISTRICT OF COLUMBIA.—

7 An individual is a resident of the District of Colum8 bia for the taxable year if—

9 ‘‘(A) such individual used a residence in

10 the District of Columbia as a place of abode

11 (and was physically present at such place) for

12 at least 183 days of such taxable year, and

13 ‘‘(B) such individual is subject to the Dis14 trict of Columbia income tax for such taxable

15 year.

16 ‘‘(2) NET INCOME TAX.—The term ‘net income

17 tax’ means—

18 ‘‘(A) the sum of regular tax liability and

19 the tax imposed by section 55 (determined with20 out regard to this section), reduced by

21 ‘‘(B) the aggregate credits allowable under

22 part IV (other than section 31).

23 ‘‘(3) EXEMPTION AMOUNT.—The term ‘exemp24 tion amount’ means—
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1 ‘‘(A) $30,000 in the case of a joint return

2 or a surviving spouse,

3 ‘‘(B) $15,000 in the case of—

4 ‘‘(i) an individual who is not a mar5 ried individual and is not a surviving

6 spouse, and

7 ‘‘(ii) a married individual filing a sep8 arate return, and

9 ‘‘(C) $25,000 in the case of a head of a

10 household.

11 ‘‘(4) AVERAGE RATE.—The term ‘average rate’

12 means the percentage determined by dividing—

13 ‘‘(A) the sum (determined without regard

14 to this section) of the taxpayer’s regular tax li15 ability and the tax imposed by section 55, by

16 ‘‘(B) the taxpayer’s taxable income.

17 If the percentage determined under the preceding

18 sentence is not a whole number of percentage points,

19 such percentage shall be rounded to the nearest

20 whole number of percentage points.

21 ‘‘(5) REGULAR TAX LIABILITY.—The term ‘reg22 ular tax liability’ has the meaning given to such

23 term by section 26(b).
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1 ‘‘(d) DISTRICT-SOURCED INCOME.—For purposes of

2 this section, the term ‘District-sourced income’ means ad3 justed gross income reduced by the sum of—

4 ‘‘(1) non-District-sourced adjusted gross in5 come,

6 ‘‘(2) the deduction allowed by section 170, and

7 ‘‘(3) the deduction allowed by section 163 to

8 the extent attributable to qualified residence interest

9 (as defined in section 163(h)).

10 ‘‘(e) NON-DISTRICT-SOURCED ADJUSTED GROSS IN11 COME.—For purposes of this section, the term ‘non-Dis12 trict-sourced adjusted gross income’ means gross income

13 of the taxpayer from sources outside the District of Co14 lumbia reduced (but not below zero) by the deductions

15 taken into account in determining adjusted gross income

16 which are allocable to such income.

17 ‘‘(f) SOURCES OF INCOME.—For purposes of this

18 section—

19 ‘‘(1) RETIREMENT INCOME AND OTHER INCOME

20 NOT SOURCED UNDER SUBSECTION.—The source of

21 any income not specifically provided for in this sub22 section shall be treated as from sources within the

23 District of Columbia.

24 ‘‘(2) PERSONAL SERVICES.—
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1 ‘‘(A) IN GENERAL.—Compensation (other

2 than retirement income) for services performed

3 by the taxpayer as an employee, and net earn4 ings from self-employment (as defined in sec5 tion 1402)), shall be sourced at the place such

6 services are performed.

7 ‘‘(B) SERVICES PERFORMED IN WASH8 INGTON-BALTIMORE AREA TREATED AS PER9 FORMED IN THE DISTRICT OF COLUMBIA.—

10 Services performed in the Washington-Balti11 more area shall be treated as performed in the

12 District of Columbia.

13 ‘‘(C) INDIVIDUALS PERFORMING 80 PER14 CENT OF SERVICES WITHIN WASHINGTON-BAL15 TIMORE AREA.—If, during any taxable year, at

16 least 80 percent of the hours of service per17 formed by an individual are performed within

18 the Washington-Baltimore area, all such service

19 shall be treated for purposes of this paragraph

20 as performed within the District of Columbia.

21 ‘‘(D) WASHINGTON-BALTIMORE AREA.—

22 For purposes of this paragraph, the term

23 ‘Washington-Baltimore area’ means the area

24 consisting of—
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1 ‘‘(i) the Washington/Baltimore Con2 solidated Metropolitan Statistical Area (as

3 designated by the Office of Management

4 and Budget), and

5 ‘‘(ii) St. Mary’s County, Maryland.

6 ‘‘(3) INTEREST.—

7 ‘‘(A) IN GENERAL.—Interest received or

8 accrued during the taxable year shall be treated

9 as from sources outside the District of Colum10 bia.

11 ‘‘(B) EXCEPTION FOR SMALL AMOUNTS OF

12 NON-DISTRICT-SOURCED INTEREST.—Interest

13 which would (but for this subparagraph) be

14 treated as from sources outside the District of

15 Columbia shall be treated as from sources in

16 the District of Columbia to the extent the

17 amount of such interest does not exceed $400.

18 ‘‘(C) EXCEPTION FOR INTEREST PAID BY

19 DISTRICT OF COLUMBIA BUSINESSES AND RESI20 DENTS.—

21 ‘‘(i) BUSINESSES.—In the case of in22 terest paid during a calendar year by a

23 debtor which was required to file (and

24 filed) a franchise tax return with the Dis25 trict of Columbia for the debtor’s taxable
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1 year ending with or within the prior cal2 endar year, an amount equal to the D.C.

3 percentage (as shown on such return) of

4 such interest shall be treated as from

5 sources within the District of Columbia.

6 The preceding sentence shall apply only if

7 such percentage is furnished to the tax8 payer in writing on or before January 31

9 of the year following the calendar year in

10 which such interest is paid.

11 ‘‘(ii) OTHERS.—Interest shall be

12 treated as from sources within the District

13 of Columbia if the interest is paid during

14 a calendar year by a debtor—

15 ‘‘(I) which was required to file

16 (and filed) an income tax return with

17 the District of Columbia for the debt18 or’s taxable year ending with or with19 in the prior calendar year, and

20 ‘‘(II) which is not required to file

21 a franchise tax return with the Dis22 trict of Columbia for such taxable

23 year.

24 ‘‘(D) SPECIAL RULE FOR DETERMINATION

25 OF D.C. PERCENTAGE FOR NEW BUSINESSES.—
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1 Interest shall be treated as from sources within

2 the District of Columbia if the interest is paid

3 during a calendar year by a debtor which was

4 required to file (and filed) a franchise tax re5 turn with the District of Columbia for such

6 debtor’s taxable year ending with or within such

7 calendar year, but which was not required to

8 file such a return for such debtor’s prior tax9 able year.

10 ‘‘(4) DIVIDENDS.—

11 ‘‘(A) IN GENERAL.—Dividends received or

12 accrued during the taxable year shall be treated

13 as from sources outside the District of Colum14 bia.

15 ‘‘(B) EXCEPTION FOR SMALL AMOUNTS OF

16 NON-DISTRICT-SOURCED DIVIDENDS.—Divi17 dends which would (but for this subparagraph)

18 be treated as from sources outside the District

19 of Columbia shall be treated as from sources in

20 the District of Columbia to the extent the

21 amount of such dividends do not exceed $400.

22 ‘‘(C) EXCEPTION FOR DIVIDENDS PAID BY

23 CORPORATION ENGAGED IN BUSINESS IN THE

24 DISTRICT OF COLUMBIA.—In the case of divi25 dends paid during a calendar year by a corpora-
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1 tion which was required to file (and filed) a

2 franchise tax return with the District of Colum3 bia for the corporation’s taxable year ending

4 with or within the prior calendar year, an

5 amount equal to the D.C. percentage (as shown

6 on such return) of such dividends shall be treat7 ed as from sources within the District of Co8 lumbia. The preceding sentence shall apply only

9 if such percentage is furnished to the taxpayer

10 in writing on or before January 31 of the year

11 following the calendar year in which such divi12 dends are paid.

13 ‘‘(D) SPECIAL RULE FOR DETERMINATION

14 OF D.C. PERCENTAGE FOR NEW BUSINESSES.—

15 Dividends shall be treated as from sources with16 in the District of Columbia if the dividends are

17 paid during a calendar year by a corporation

18 which was required to file (and filed) a fran19 chise tax return with the District of Columbia

20 for such corporation’s taxable year ending with

21 or within such calendar year, but which was not

22 required to file such a return for such corpora23 tion’s prior taxable year.

24 ‘‘(5) DISPOSITION OF TANGIBLE PROPERTY.—

25 Income, gain, or loss from the disposition of tangible
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1 property shall be sourced to the place such property

2 is located at the time of the disposition.

3 ‘‘(6) DISPOSITION OF INTANGIBLE PROP4 ERTY.—

5 ‘‘(A) IN GENERAL.—Income, gain, or loss

6 from the disposition of intangible property shall

7 be treated as from sources outside the District

8 of Columbia.

9 ‘‘(B) EXCEPTION.— If any portion of the

10 most recent income received or accrued by the

11 taxpayer before such disposition which was at12 tributable to such property was from sources

13 within the District of Columbia, a like portion

14 of the income, gain, or loss from such disposi15 tion shall be treated as from sources within the

16 District of Columbia.

17 ‘‘(7) RENTALS.—Rents from property shall be

18 sourced at the place where such property is located.

19 ‘‘(8) ROYALTIES.—Royalties shall be treated as

20 from sources outside the District of Columbia.

21 ‘‘(9) INCOME FROM PROPRIETORSHIP.—

22 ‘‘(A) IN GENERAL.—In the case of a trade

23 or business carried on by the taxpayer as a pro24 prietorship, income from such trade or business

25 (other than income which is included in net
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1 earnings from self-employment by the taxpayer)

2 shall be treated as from sources outside the

3 District of Columbia.

4 ‘‘(B) EXCEPTION FOR DISTRICT OF CO5 LUMBIA BUSINESSES.—If the taxpayer is re6 quired to file (and files) a franchise tax return

7 with the District of Columbia for the taxable

8 year, subparagraph (A) shall not apply to an

9 amount equal to the D.C. percentage of such

10 income.

11 ‘‘(10) INCOME FROM PARTNERSHIP.—

12 ‘‘(A) IN GENERAL.—In the case of a tax13 payer who is a partner in a partnership, income

14 from such partnership (other than income

15 which is included in net earnings from self-em16 ployment by any partner) shall be treated as

17 from sources outside the District of Columbia.

18 ‘‘(B) EXCEPTIONS.—Subparagraph (A)

19 shall not apply to a partnership—

20 ‘‘(i) which was required to file (and

21 filed) a franchise tax return with the Dis22 trict of Columbia for the partnership’s tax23 able year ending with or within the tax24 payer’s taxable year to the extent of the
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1 D.C. percentage of the taxpayer’s distribu2 tive share of the partnership income, or

3 ‘‘(ii) which was not required to file a

4 franchise tax return with the District of

5 Columbia for the partnership’s taxable

6 year ending with or within the taxpayer’s

7 taxable year to the extent of the taxpayer’s

8 distributive share of partnership income

9 which is not (as determined under this

10 subsection) from sources outside the Dis11 trict of Columbia.

12 ‘‘(11) INCOME IN RESPECT OF A DECEDENT;

13 INCOME FROM AN ESTATE.—Income in respect of a

14 decedent, and income from an estate, shall be

15 sourced at the place where the decedent was domi16 ciled at the time of his death.

17 ‘‘(12) INCOME FROM A TRUST.—Income (other

18 than retirement income) from a trust shall be treat19 ed as from the same sources as the income of the

20 trust to which it is attributable.

21 ‘‘(g) DEFINITIONS RELATING TO SUBSECTION (f).—

22 For purposes of subsection (f)—

23 ‘‘(1) RETIREMENT INCOME.—The term ‘retire24 ment income’ has the meaning given such term by

25 section 114(b)(1) of title 4, United States Code (de-
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1 termined without regard to subparagraph (I) there2 of).

3 ‘‘(2) D.C. PERCENTAGE.—The term ‘D.C. per4 centage’ means the percentage determined by

5 dividing—

6 ‘‘(A) the net income taxable in the District

7 of Columbia (as shown on the original return

8 for the taxable year), by

9 ‘‘(B) total net income from all sources (as

10 shown on such return).

11 The preceding sentence shall be applied based on

12 amounts shown on the original applicable District of

13 Columbia franchise or income tax return.

14 ‘‘(h) SECTION NOT TO APPLY TO ESTATES AND

15 TRUSTS.—This section shall not apply to an estate or

16 trust.

17 ‘‘(i) ELECTION.—The election provided in subsection

18 (a) shall be made at such time and in such manner as

19 the Secretary may by regulations prescribe. Any such elec20 tion shall apply to the first taxable year for which such

21 election was made and for each taxable year thereafter

22 until such election is revoked by the taxpayer.

23 ‘‘(j) REGULATIONS.—The Secretary shall prescribe

24 such regulations as may be necessary or appropriate to

25 carry out the purposes of this section.’’.
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1 (b) CONFORMING AMENDMENTS.—

2 (1) Section 55(c)(1) of the Internal Revenue

3 Code of 1986 is amended by adding at the end the

4 following: ‘‘Such regular tax shall be determined

5 without regard to section 59B.’’

6 (2) The table of parts for subchapter A of chap7 ter 1 of such Code is amended by adding at the end

8 the following new item:

‘‘Part VIII. Special rules for taxation of individuals who are residents of the District of Columbia.’’

9 (c) EFFECTIVE DATE.—The amendments made by

10 this section shall apply to taxable years beginning after

11 December 31, 2000.

12 SEC. 3. MODIFICATION OF ZERO PERCENT CAPITAL GAINS

13 RATE.

14 (a) INCLUSION OF ALL CENSUS TRACTS IN DC.—

15 Section 1400B(d) of the Internal Revenue Code of 1986

16 (relating to treatment of Zone as including census tracts

17 with 10 percent poverty rate) is amended to read as fol18 lows:

19 ‘‘(d) TREATMENT OF ZONE AS INCLUDING ALL CEN20 SUS TRACTS REGARDLESS OF POVERTY RATE.—For pur21 poses of applying this section (and for purposes of apply22 ing this subchapter and subchapter U with respect to this

23 section), the DC Zone shall be treated as including all cen24 sus tracts which are located in the District of Columbia.’’.
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1 (b) EXCLUSION MADE PERMANENT.—Section 1400B

2 of the Internal Revenue Code of 1986 (relating to zero

3 percent capital gains rate) is amended—

4 (1) in subsection (b)—

5 (A) by striking ‘‘, before January 1,

6 2003,’’ in each of paragraphs (2)(A)(i) and

7 (3)(A),

8 (B) by striking ‘‘and before January 1,

9 2003,’’ in paragraph (4)(A)(i), and

10 (C) by striking ‘‘before January 1, 2003’’

11 in paragraph (4)(B)(i)(I),

12 (2) by striking ‘‘, or after December 31, 2007’’

13 in each of subsections (c)(2) and (g)(2), and

14 (3) by striking ‘‘OR AFTER 2007’’ in the head15 ing of subsection (c)(2).

16 (c) 2-YEAR HOLDING PERIOD FOR ASSETS.—

17 (1) IN GENERAL.—Section 1400B(a) of the In18 ternal Revenue Code of 1986 (relating to exclusion)

19 is amended by striking ‘‘5’’ and inserting ‘‘2’’.

20 (2) CONFORMING AMENDMENTS.—Section

21 1400B(b)(7) of such Code is amended—

22 (A) by striking ‘‘5-YEAR’’ in the heading

23 and inserting ‘‘2-YEAR’’, and

24 (B) by striking ‘‘5-year’’ and inserting ‘‘2-

25 year’’.
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1 (d) MODIFICATIONS TO DEFINITION OF DC ZONE

2 BUSINESS.—Section 1400B(c) of the Internal Revenue

3 Code of 1986 is amended to read as follows:

4 ‘‘(c) DC ZONE BUSINESS.—For purposes of this

5 section—

6 ‘‘(1) IN GENERAL.—The term ‘DC Zone busi7 ness’ means any entity which is an enterprise zone

8 business (as defined in section 1397B),

9 determined—

10 ‘‘(A) after the application of section

11 1400(e), and

12 ‘‘(B) by treating no area other than the

13 District of Columbia as an empowerment zone

14 or enterprise community.

15 ‘‘(2) SPECIAL RULE FOR BUSINESSES HOLDING

16 INTANGIBLES.—Paragraph (4) of section 1397B(d)

17 shall not apply in determining whether a business is

18 a DC Zone business if—

19 ‘‘(A) at least 80 percent of the employees

20 of such business are residents of the District of

21 Columbia, and

22 ‘‘(B) at least 50 percent of the wages (as

23 defined by section 3401(a)) paid by such busi24 ness are paid to residents of the District of Co25 lumbia.’’
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1 (e) EFFECTIVE DATE.—The amendments made by

2 subsections (a), (c), and (d) shall apply to property placed

3 in service in taxable years beginning after December 31,

4 2000.

5 SEC. 4. MODIFICATION OF FIRST-TIME HOMEBUYER CRED6 IT.

7 (a) CREDIT MADE PERMANENT.—Section 1400C(i)

8 of the Internal Revenue Code of 1986 (relating to applica9 tion of section) is amended by striking ‘‘, and before Janu10 ary 1, 2002’’.

11 (b) CREDIT ALLOWABLE AGAINST AMT.—

12 (1) IN GENERAL.—Section 1400C(g) of the In13 ternal Revenue Code of 1986 (relating to credit

14 treated as nonrefundable personal credit) is

15 amended—

16 (A) by striking ‘‘For purposes of this’’ and

17 inserting the following:

18 ‘‘(1) IN GENERAL.—Except as provided in para19 graph (2), for purposes of this’’, and

20 (B) by adding at the end the following new

21 paragraph:

22 ‘‘(2) LIMITATION BASED ON AMOUNT OF

23 TAX.—The credit allowable under subsection (a) for

24 any taxable year shall not exceed the sum of—
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1 ‘‘(A) the taxpayer’s regular tax liability (as

2 defined in section 26(b)) for the taxable year,

3 reduced by the sum of the credits allowable

4 under subpart A of part IV of subchapter A

5 (other than this section) and the foreign tax

6 credit allowable under section 27(a), and

7 ‘‘(B) the tax imposed by section 55(a) for

8 the taxable year.’’.

9 (2) CONFORMING AMENDMENT.—Section

10 1400C(d) of the Internal Revenue Code of 1986 (re11 lating to carryover of credit) is amended by striking

12 ‘‘section 26(a)’’ and all that follows through ‘‘this

13 section)’’ and inserting ‘‘subsection (f)(2)’’.

14 (c) REPEAL OF LIMITATION BASED ON MODIFIED

15 GROSS INCOME.—

16 (1) IN GENERAL.—Section 1400C of the Inter17 nal Revenue Code of 1986 is amended by striking

18 subsection (b).

19 (2) CONFORMING AMENDMENTS.—

20 (A) Section 1400C of such Code is amend21 ed by redesignating subsections (c), (d), (e), (f),

22 (g), (h), and (i), as subsections (b), (c), (d), (e),

23 (f), (g), and (h), respectively.
20

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1 (B) Section 1016(a)(27) of such Code is

2 amended by striking ‘‘1400C(h)’’ and inserting

3 ‘‘1400C(g)’’.

4 (d) EFFECTIVE DATE.—The amendments made by

5 this section shall apply to taxable years beginning after

6 December 31, 2000.

7 SEC. 5. CERTAIN DC SOURCE INCOME EXCLUDED FOR PUR8 POSES OF ALTERNATIVE MINIMUM TAX.

9 (a) INDIVIDUAL DC SOURCE INCOME.—Section

10 56(b) of the Internal Revenue Code of 1986 (relating to

11 adjustments applicable to individuals) is amended by add12 ing at the end the following new paragraph:

13 ‘‘(4) TREATMENT OF DC SOURCE INCOME.—In

14 the case of a resident of the District of Columbia (as

15 defined in section 59B(c)(1)), no income treated as

16 income from sources within the District of Columbia

17 under section 59B(f) shall be included in gross in18 come for purposes of determining alternative min19 imum taxable income.’’.

20 (b) CORPORATE DC SOURCE INCOME.—Section 56(c)

21 of the Internal Revenue Code of 1986 (relating to adjust22 ments applicable to corporations) is amended by adding

23 at the end the following new paragraph:

24 ‘‘(4) TREATMENT OF DC SOURCE INCOME.—
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1 ‘‘(A) IN GENERAL.—In the case of a DC

2 Zone business (as defined in section 1400B(d)),

3 no DC source income shall be included in gross

4 income for purposes of determining alternative

5 minimum taxable income.

6 ‘‘(B) DC SOURCE INCOME.—For purposes

7 of subparagraph (A), the term ‘DC source in8 come’ means gross income derived from the ac9 tive conduct of such business within the DC

10 Zone, including income derived from property

11 located in such Zone and from services per12 formed in such Zone.’’.

13 (c) EFFECTIVE DATE.—The amendments made by

14 this section shall apply to income received or accrued in

15 taxable years beginning after December 31, 2000.

Æ