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[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 3217 Introduced in Senate (IS)]

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.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``District of Columbia Economic 
Renaissance Act of 2000''.

SEC. 2. SPECIAL RULES FOR TAXATION OF 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--SPECIAL RULES FOR TAXATION OF INDIVIDUALS WHO ARE 
                 RESIDENTS OF THE DISTRICT OF COLUMBIA

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

``SEC. 59B. LIMITATION ON TAX IMPOSED ON RESIDENTS OF THE DISTRICT OF 
              COLUMBIA.

    ``(a) General Rule.--If a taxpayer elects the application of this 
section, 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.--
            ``(1) In general.--The limitation determined under this 
        subsection is the sum of the following amounts:
                    ``(A) 15-percent rate.--15 percent of so much of 
                District-sourced income as exceeds the exemption 
                amount.
                    ``(B) Average rate.--An amount equal to the average 
                rate of the non-District-sourced adjusted gross income.
            ``(2) District-sourced capital gains.--

                                ``For exclusion from tax of capital 
gains, see section 1400B.
    ``(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 is subject to the District of 
                Columbia income tax 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) the deduction allowed by section 170, and
            ``(3) 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 with or 
                                within 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 with or within 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 corporation'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 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.
                    ``(D) Special rule for determination of d.c. 
                percentage for new businesses.--Dividends shall be 
                treated as from sources within the District of Columbia 
                if the dividends are 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 
                such corporation's taxable year ending with or within 
                such calendar year, but which was not required to file 
                such a return for such corporation's prior taxable 
                year.
            ``(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 by the taxpayer 
                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.--Subparagraph (A) shall not apply 
                to a partnership--
                            ``(i) 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, or
                            ``(ii) 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) Election.--The election provided in subsection (a) shall be 
made at such time and in such manner as the Secretary may by 
regulations prescribe. Any such election shall apply to the first 
taxable year for which such election was made and for each taxable year 
thereafter until such election is revoked by the taxpayer.
    ``(j) 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) Section 55(c)(1) of the Internal Revenue Code of 1986 
        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. Special rules for taxation 
                                        of individuals who are 
                                        residents of the District of 
                                        Columbia.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2000.

SEC. 3. MODIFICATION OF ZERO PERCENT CAPITAL GAINS RATE.

    (a) Inclusion of All Census Tracts in DC.--Section 1400B(d) of the 
Internal Revenue Code of 1986 (relating to treatment of Zone as 
including census tracts with 10 percent poverty rate) is amended to 
read as follows:
    ``(d) Treatment of Zone as Including All Census Tracts Regardless 
of Poverty Rate.--For purposes of applying this section (and for 
purposes of applying this subchapter and subchapter U with respect to 
this section), the DC Zone shall be treated as including all census 
tracts which are located in the District of Columbia.''.
    (b) Exclusion Made Permanent.--Section 1400B of the Internal 
Revenue Code of 1986 (relating to zero percent capital gains rate) is 
amended--
            (1) in subsection (b)--
                    (A) by striking ``, before January 1, 2003,'' in 
                each of paragraphs (2)(A)(i) and (3)(A),
                    (B) by striking ``and before January 1, 2003,'' in 
                paragraph (4)(A)(i), and
                    (C) by striking ``before January 1, 2003'' in 
                paragraph (4)(B)(i)(I),
            (2) by striking ``, or after December 31, 2007'' in each of 
        subsections (c)(2) and (g)(2), and
            (3) by striking ``or after 2007'' in the heading of 
        subsection (c)(2).
    (c) 2-Year Holding Period for Assets.--
            (1) In general.--Section 1400B(a) of the Internal Revenue 
        Code of 1986 (relating to exclusion) is amended by striking 
        ``5'' and inserting ``2''.
            (2) Conforming amendments.--Section 1400B(b)(7) of such 
        Code is amended--
                    (A) by striking ``5-year'' in the heading and 
                inserting ``2-year'', and
                    (B) by striking ``5-year'' and inserting ``2-
                year''.
    (d) Modifications to Definition of DC Zone Business.--Section 
1400B(c) of the Internal Revenue Code of 1986 is amended to read as 
follows:
    ``(c) DC Zone Business.--For purposes of this section--
            ``(1) In general.--The term `DC Zone business' means any 
        entity which is an enterprise zone business (as defined in 
        section 1397B), determined--
                    ``(A) after the application of section 1400(e), and
                    ``(B) by treating no area other than the District 
                of Columbia as an empowerment zone or enterprise 
                community.
            ``(2) Special rule for businesses holding intangibles.--
        Paragraph (4) of section 1397B(d) shall not apply in 
        determining whether a business is a DC Zone business if--
                    ``(A) at least 80 percent of the employees of such 
                business are residents of the District of Columbia, and
                    ``(B) at least 50 percent of the wages (as defined 
                by section 3401(a)) paid by such business are paid to 
                residents of the District of Columbia.''
    (e) Effective Date.--The amendments made by subsections (a), (c), 
and (d) shall apply to property placed in service in taxable years 
beginning after December 31, 2000.

SEC. 4. MODIFICATION OF FIRST-TIME HOMEBUYER CREDIT.

    (a) Credit Made Permanent.--Section 1400C(i) of the Internal 
Revenue Code of 1986 (relating to application of section) is amended by 
striking ``, and before January 1, 2002''.
    (b) Credit Allowable Against AMT.--
            (1) In general.--Section 1400C(g) of the Internal Revenue 
        Code of 1986 (relating to credit treated as nonrefundable 
        personal credit) is amended--
                    (A) by striking ``For purposes of this'' and 
                inserting the following:
            ``(1) In general.--Except as provided in paragraph (2), for 
        purposes of this'', and
                    (B) by adding at the end the following new 
                paragraph:
            ``(2) Limitation based on amount of tax.--The credit 
        allowable under subsection (a) for any taxable year shall not 
        exceed the sum of--
                    ``(A) the taxpayer's regular tax liability (as 
                defined in section 26(b)) for the taxable year, reduced 
                by the sum of the credits allowable under subpart A of 
                part IV of subchapter A (other than this section) and 
                the foreign tax credit allowable under section 27(a), 
                and
                    ``(B) the tax imposed by section 55(a) for the 
                taxable year.''.
            (2) Conforming amendment.--Section 1400C(d) of the Internal 
        Revenue Code of 1986 (relating to carryover of credit) is 
        amended by striking ``section 26(a)'' and all that follows 
        through ``this section)'' and inserting ``subsection (f)(2)''.
    (c) Repeal of Limitation Based on Modified Gross Income.--
            (1) In general.--Section 1400C of the Internal Revenue Code 
        of 1986 is amended by striking subsection (b).
            (2) Conforming amendments.--
                    (A) Section 1400C of such Code is amended by 
                redesignating subsections (c), (d), (e), (f), (g), (h), 
                and (i), as subsections (b), (c), (d), (e), (f), (g), 
                and (h), respectively.
                    (B) Section 1016(a)(27) of such Code is amended by 
                striking ``1400C(h)'' and inserting ``1400C(g)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2000.

SEC. 5. CERTAIN DC SOURCE INCOME EXCLUDED FOR PURPOSES OF ALTERNATIVE 
              MINIMUM TAX.

    (a) Individual DC Source Income.--Section 56(b) of the Internal 
Revenue Code of 1986 (relating to adjustments applicable to 
individuals) is amended by adding at the end the following new 
paragraph:
            ``(4) Treatment of dc source income.--In the case of a 
        resident of the District of Columbia (as defined in section 
        59B(c)(1)), no income treated as income from sources within the 
        District of Columbia under section 59B(f) shall be included in 
        gross income for purposes of determining alternative minimum 
        taxable income.''.
    (b) Corporate dc source income.--Section 56(c) of the Internal 
Revenue Code of 1986 (relating to adjustments applicable to 
corporations) is amended by adding at the end the following new 
paragraph:
            ``(4) Treatment of dc source income.--
                    ``(A) In general.--In the case of a DC Zone 
                business (as defined in section 1400B(d)), no DC source 
                income shall be included in gross income for purposes 
                of determining alternative minimum taxable income.
                    ``(B) DC source income.--For purposes of 
                subparagraph (A), the term `DC source income' means 
                gross income derived from the active conduct of such 
                business within the DC Zone, including income derived 
                from property located in such Zone and from services 
                performed in such Zone.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to income received or accrued in taxable years beginning after 
December 31, 2000.
                                 <all>
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