I

104TH CONGRESS

2D SESSION H. R. 4155

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.

IN THE HOUSE OF REPRESENTATIVES

SEPTEMBER 24, 1996

Ms. NORTON introduced the following bill; which was referred to the

Committee on Ways and Means

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.

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 Recovery Act’’.
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1 SEC. 2. LIMITATION ON INCOME TAX IMPOSED ON INDIVID2 UALS WHO ARE RESIDENTS OF THE DISTRICT

3 OF 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—LIMITATION ON TAX IMPOSED ON

9 RESIDENTS OF THE DISTRICT OF COLUMBIA

‘‘Sec. 59B. Limitation on tax.

10 ‘‘SEC. 59B. LIMITATION ON TAX.

11 ‘‘(a) GENERAL RULE.—The net income tax of an in12 dividual who is a resident of the District of Columbia for

13 the taxable year shall not exceed the limitation determined

14 under subsection (b) for such year.

15 ‘‘(b) LIMITATION.—The limitation determined under

16 this subsection is the sum of the amounts determined

17 under paragraphs (1) and (2).

18 ‘‘(1) 15-PERCENT RATE OF DISTRICT-SOURCED

19 INCOME IN EXCESS OF EXEMPTION AMOUNT.—The

20 amount determined under this paragraph is an

21 amount equal to 15 percent of so much of District22 sourced income as exceeds the exemption amount.

23 ‘‘(2) AVERAGE RATE OF NON-DISTRICT24 SOURCED ADJUSTED GROSS INCOME.—The amount

25 determined under this paragraph is an amount equal
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1 to the average rate of the non-District-sourced ad2 justed gross income.

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

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

5 An individual is a resident of the District of Colum6 bia for the taxable year if—

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

8 the District of Columbia as a place of abode

9 (and was physically present at such place) for

10 at least 183 days of such taxable year, and

11 ‘‘(B) such individual files a District of Co12 lumbia income tax return for such taxable year.

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

14 tax’ means—

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

16 the tax imposed by section 55 (determined with17 out regard to this section), reduced by

18 ‘‘(B) the aggregate credits allowable under

19 part IV (other than section 31).

20 ‘‘(3) EXEMPTION AMOUNT.—The term ‘exemp21 tion amount’ means—

22 ‘‘(A) $30,000 in the case of a joint return

23 or a surviving spouse,

24 ‘‘(B) $15,000 in the case of—
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1 ‘‘(i) an individual who is not a mar2 ried individual and is not a surviving

3 spouse, and

4 ‘‘(ii) a married individual filing a sep5 arate return, and

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

7 household.

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

9 means the percentage determined by dividing—

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

11 to this section) of the taxpayer’s regular tax li12 ability and the tax imposed by section 55, by

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

14 If the percentage determined under the preceding

15 sentence is not a whole number of percentage points,

16 such percentage shall be rounded to the nearest

17 whole number of percentage points.

18 ‘‘(5) REGULAR TAX LIABILITY.—The term ‘reg19 ular tax liability’ has the meaning given to such

20 term by section 26(b).

21 ‘‘(d) DISTRICT-SOURCED INCOME.—For purposes of

22 this section, the term ‘District-sourced income’ means ad23 justed gross income reduced by the sum of—

24 ‘‘(1) non-District-sourced adjusted gross in25 come,
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1 ‘‘(2) net capital gain determined by taking into

2 account only gains and losses sourced in the District

3 of Columbia,

4 ‘‘(3) the deduction allowed by section 170, and

5 ‘‘(4) the deduction allowed by section 163 to

6 the extent attributable to qualified residence interest

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

8 ‘‘(e) NON-DISTRICT-SOURCED ADJUSTED GROSS IN9 COME.—For purposes of this section, the term ‘non-Dis10 trict-sourced adjusted gross income’ means gross income

11 of the taxpayer from sources outside the District of Co12 lumbia reduced (but not below zero) by the deductions

13 taken into account in determining adjusted gross income

14 which are allocable to such income.

15 ‘‘(f) SOURCES OF INCOME.—For purposes of this sec16 tion—

17 ‘‘(1) RETIREMENT INCOME AND OTHER INCOME

18 NOT SOURCED UNDER SUBSECTION.—The source of

19 any income not specifically provided for in this sub20 section shall be treated as from sources within the

21 District of Columbia.

22 ‘‘(2) PERSONAL SERVICES.—

23 ‘‘(A) IN GENERAL.—Compensation (other

24 than retirement income) for services performed

25 by the taxpayer as an employee, and net earn-
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1 ings from self-employment (as defined in sec2 tion 1402)), shall be sourced at the place such

3 services are performed.

4 ‘‘(B) SERVICES PERFORMED IN WASHING5 TON-BALTIMORE AREA TREATED AS PER6 FORMED IN THE DISTRICT OF COLUMBIA.—

7 Services performed in the Washington-Balti8 more area shall be treated as performed in the

9 District of Columbia.

10 ‘‘(C) INDIVIDUALS PERFORMING 80 PER11 CENT OF SERVICES WITHIN WASHINGTON-BAL12 TIMORE AREA.—If, during any taxable year, at

13 least 80 percent of the hours of service per14 formed by an individual are performed within

15 the Washington-Baltimore area, all such service

16 shall be treated for purposes of this paragraph

17 as performed within the District of Columbia.

18 ‘‘(D) WASHINGTON-BALTIMORE AREA.—

19 For purposes of this paragraph, the term

20 ‘Washington-Baltimore area’ means the area

21 consisting of—

22 ‘‘(i) the Washington/Baltimore Con23 solidated Metropolitan Statistical Area (as

24 designated by the Office of Management

25 and Budget), and
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1 ‘‘(ii) St. Mary’s County, Maryland.

2 ‘‘(3) INTEREST.—

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

4 accrued during the taxable year shall be treated

5 as from sources outside the District of Colum6 bia.

7 ‘‘(B) EXCEPTION FOR SMALL AMOUNTS OF

8 NON-DISTRICT-SOURCED INTEREST.—Interest

9 which would (but for this subparagraph) be

10 treated as from sources outside the District of

11 Columbia shall be treated as from sources in

12 the District of Columbia to the extent the

13 amount of such interest does not exceed $400.

14 ‘‘(C) EXCEPTION FOR INTEREST PAID BY

15 DISTRICT OF COLUMBIA BUSINESSES AND RESI16 DENTS.—

17 ‘‘(i) BUSINESSES.—In the case of in18 terest paid during a calendar year by a

19 debtor which was required to file (and

20 filed) a franchise tax return with the Dis21 trict of Columbia for the debtor’s taxable

22 year ending with or within the prior cal23 endar year, an amount equal to the D.C.

24 percentage (as shown on such return) of

25 such interest shall be treated as from
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1 sources within the District of Columbia.

2 The preceding sentence shall apply only if

3 such percentage is furnished to the tax4 payer in writing on or before January 31

5 of the year following the calendar year in

6 which such interest is paid.

7 ‘‘(ii) OTHERS.—Interest shall be

8 treated as from sources within the District

9 of Columbia if the interest is paid during

10 a calendar year by a debtor—

11 ‘‘(I) which was required to file

12 (and filed) an income tax return with

13 the District of Columbia for the debt14 or’s taxable year ending during the

15 prior calendar year, and

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

17 a franchise tax return with the Dis18 trict of Columbia for such taxable

19 year.

20 ‘‘(D) SPECIAL RULE FOR DETERMINATION

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

22 Interest shall be treated as from sources within

23 the District of Columbia if the interest is paid

24 during a calendar year by a debtor which was

25 required to file (and filed) a franchise tax re-
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1 turn with the District of Columbia for such

2 debtor’s taxable year ending during such cal3 endar year, but which was not required to file

4 such a return for such debtor’s prior taxable

5 year.

6 ‘‘(4) DIVIDENDS.—

7 ‘‘(A) IN GENERAL.—Dividends 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 DIVIDENDS.—Divi13 dends which would (but for this subparagraph)

14 be treated as from sources outside the District

15 of Columbia shall be treated as from sources in

16 the District of Columbia to the extent the

17 amount of such dividends do not exceed $400.

18 ‘‘(C) EXCEPTION FOR DIVIDENDS PAID BY

19 CORPORATION ENGAGED IN BUSINESS IN THE

20 DISTRICT OF COLUMBIA.—In the case of divi21 dends paid during a calendar year by a corpora22 tion which was required to file (and filed) a

23 franchise tax return with the District of Colum24 bia for the debtor’s taxable year ending during

25 the prior calendar year, an amount equal to the
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1 D.C. percentage (as shown on such return) of

2 such dividends shall be treated as from sources

3 within the District of Columbia. The preceding

4 sentence shall apply only if such percentage is

5 furnished to the taxpayer in writing on or be6 fore January 31 of the year following the cal7 endar year in which such dividends are paid.

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

9 Income, gain, or loss from the disposition of tangible

10 property shall be sourced to the place such property

11 is located at the time of the disposition.

12 ‘‘(6) DISPOSITION OF INTANGIBLE PROP13 ERTY.—

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

15 from the disposition of intangible property shall

16 be treated as from sources outside the District

17 of Columbia.

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

19 most recent income received or accrued before

20 such disposition which was attributable to such

21 property was from sources within the District

22 of Columbia, a like portion of the income, gain,

23 or loss from such disposition shall be treated as

24 from sources within the District of Columbia.
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1 ‘‘(7) RENTALS.—Rents from property shall be

2 sourced at the place where such property is located.

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

4 from sources outside the District of Columbia.

5 ‘‘(9) INCOME FROM PROPRIETORSHIP.—

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

7 or business carried on by the taxpayer as a pro8 prietorship, income from such trade or business

9 (other than income which is included in net

10 earnings from self-employment by the taxpayer)

11 shall be treated as from sources outside the

12 District of Columbia.

13 ‘‘(B) EXCEPTION FOR DISTRICT OF CO14 LUMBIA BUSINESSES.—If the taxpayer is re15 quired to file (and files) a franchise tax return

16 with the District of Columbia for the taxable

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

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

19 income.

20 ‘‘(10) INCOME FROM PARTNERSHIP.—

21 ‘‘(A) IN GENERAL.—In the case of a tax22 payer who is a partner in a partnership, income

23 from such partnership (other than income

24 which is included in net earnings from self-em-
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1 ployment by any partner) shall be treated as

2 from sources outside the District of Columbia.

3 ‘‘(B) EXCEPTIONS.—

4 ‘‘(i) Subparagraph (A) shall not apply

5 to a partnership which was required to file

6 (and filed) a franchise tax return with the

7 District of Columbia for the partnership’s

8 taxable year ending with or within the tax9 payer’s taxable year to the extent of the

10 D.C. percentage of the taxpayer’s distribu11 tive share of the partnership income.

12 ‘‘(ii) Subparagraph (A) shall not

13 apply to a partnership which was not re14 quired to file a franchise tax return with

15 the District of Columbia for the partner16 ship’s taxable year ending with or within

17 the taxpayer’s taxable year to the extent of

18 the taxpayer’s distributive share of part19 nership income which is not (as determined

20 under this subsection) from sources outside

21 the District of Columbia.

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

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

24 decedent, and income from an estate, shall be
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1 sourced at the place where the decedent was domi2 ciled at the time of his death.

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

4 than retirement income) from a trust shall be treat5 ed as from the same sources as the income of the

6 trust to which it is attributable.

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

8 For purposes of subsection (f)—

9 ‘‘(1) RETIREMENT INCOME.—The term ‘retire10 ment income’ has the meaning given such term by

11 section 114(b)(1) of title 4, United States Code (de12 termined without regard to subparagraph (I) there13 of).

14 ‘‘(2) D.C. PERCENTAGE.—The term ‘D.C. per15 centage’ means the percentage determined by divid16 ing—

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

18 of Columbia (as shown on the original return

19 for the taxable year), by

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

21 shown on such return).

22 The preceding sentence shall be applied based on

23 amounts shown on the original applicable District of

24 Columbia franchise or income tax return.
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1 ‘‘(h) SECTION NOT TO APPLY TO ESTATES AND

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

3 trust.

4 ‘‘(i) REGULATIONS.—The Secretary shall prescribe

5 such regulations as may be necessary or appropriate to

6 carry out the purposes of this section.’’

7 (b) CONFORMING AMENDMENTS.—

8 (1) Paragraph (1) of section 55(c) of such Code

9 is amended by adding at the end the following:

10 ‘‘Such regular tax shall be determined without re11 gard to section 59B.’’

12 (2) The table of parts for subchapter A of chap13 ter 1 of such Code is amended by adding at the end

14 the following new item:

‘‘Part VIII. Limitation on tax imposed on residents of the District

of Columbia.’’

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

16 this section shall apply to taxable years ending after the

17 date of the enactment of this Act.

18 SEC. 3. ANNUAL TREASURY STUDY ON IMPACT OF TAX RE19 DUCTIONS FOR RESIDENTS OF DISTRICT OF

20 COLUMBIA.

21 (a) IN GENERAL.—The Secretary of the Treasury or

22 his delegate shall conduct an annual study of the impact

23 of part VIII of subchapter A of chapter 1 of the Internal

24 Revenue Code of 1986 (relating to limitation on tax im-
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1 posed on residents of the District of Columbia) on the

2 economy of the District of Columbia. In determining such

3 impact, the study shall include an evaluation of changes

4 in the following (among others):

5 (1) The number and characteristics of individ6 uals who are residents of the District of Columbia

7 who claim the benefits provided by such part and

8 the number and characteristics of such individuals

9 who choose not to claim such benefits.

10 (2) Investment in the District of Columbia.

11 (3) Capital gain net income of such individuals

12 determined for property within the District of Co13 lumbia.

14 (4) Tax revenues to the District of Columbia.

15 (5) The number of new businesses in the Dis16 trict of Columbia, the number and size of establish17 ments in the District of Columbia, and the growth

18 of existing businesses as measured by growth in em19 ployment and taxes payable to the District of Co20 lumbia.

21 (6) The number and characteristics of house22 holds residing in the District of Columbia.

23 (7) The employment and earnings of individuals

24 who are residents of the District of Columbia.
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1 (8) Changes in the characteristics of employ2 ment within the District of Columbia, including the

3 proportion of jobs in the District of Columbia which

4 are held by residents of the District of Columbia.

5 (9) Home sales and residential rental activity in

6 the District of Columbia, by price levels of the prop7 erty involved.

8 (10) Tax structure in the District of Columbia,

9 including incentives for businesses to operate in the

10 District of Columbia.

11 (11) The number and characteristics of Federal

12 income tax filers (by filing and income category)

13 claiming deductions for charitable contributions,

14 home mortgage interest, and investment interest.

15 (12) Comparable factors, by jurisdiction, for

16 other governmental jurisdictions within the Wash17 ington metropolitan statistical area.

18 (b) REPORTS.—The report of each such study shall

19 be submitted to—

20 (1) the Committee on Ways and Means, and

21 the Committee on Governmental Reform and Over22 sight, of the House of Representatives, and

23 (2) the Committee on Finance, and the Com24 mittee on Governmental Affairs, of the Senate.
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1 (c) BASELINE.—As soon as practical after the date

2 of the enactment of this Act, the Secretary of the Treasury

3 or his delegate shall collect baseline data for purposes of

4 the study under subsection (a).

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