I

105TH CONGRESS

1ST SESSION H. R. 549

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

FEBRUARY 4, 1997

Ms. NORTON introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committee on Government Reform and Oversight, for a period to be subsequently determined

by the Speaker, in each case for consideration of such provisions as fall

within the jurisdiction of the committee concerned

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
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1 by the taxpayer as an employee, and net earn2 ings from self-employment (as defined in sec3 tion 1402)), shall be sourced at the place such

4 services are performed.

5 ‘‘(B) SERVICES PERFORMED IN WASHING6 TON-BALTIMORE AREA TREATED AS PER7 FORMED IN THE DISTRICT OF COLUMBIA.—

8 Services performed in the Washington-Balti9 more area shall be treated as performed in the

10 District of Columbia.

11 ‘‘(C) INDIVIDUALS PERFORMING 80 PER12 CENT OF SERVICES WITHIN WASHINGTON-BAL13 TIMORE AREA.—If, during any taxable year, at

14 least 80 percent of the hours of service per15 formed by an individual are performed within

16 the Washington-Baltimore area, all such service

17 shall be treated for purposes of this paragraph

18 as performed within the District of Columbia.

19 ‘‘(D) WASHINGTON-BALTIMORE AREA.—

20 For purposes of this paragraph, the term

21 ‘Washington-Baltimore area’ means the area

22 consisting of—

23 ‘‘(i) the Washington/Baltimore Con24 solidated Metropolitan Statistical Area (as
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1 designated by the Office of Management

2 and Budget), and

3 ‘‘(ii) St. Mary’s County, Maryland.

4 ‘‘(3) INTEREST.—

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

6 accrued during the taxable year shall be treated

7 as from sources outside the District of Colum8 bia.

9 ‘‘(B) EXCEPTION FOR SMALL AMOUNTS OF

10 NON-DISTRICT-SOURCED INTEREST.—Interest

11 which would (but for this subparagraph) be

12 treated as from sources outside the District of

13 Columbia shall be treated as from sources in

14 the District of Columbia to the extent the

15 amount of such interest does not exceed $400.

16 ‘‘(C) EXCEPTION FOR INTEREST PAID BY

17 DISTRICT OF COLUMBIA BUSINESSES AND RESI18 DENTS.—

19 ‘‘(i) BUSINESSES.—In the case of in20 terest paid during a calendar year by a

21 debtor which was required to file (and

22 filed) a franchise tax return with the Dis23 trict of Columbia for the debtor’s taxable

24 year ending with or within the prior cal25 endar year, an amount equal to the D.C.
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1 percentage (as shown on such return) of

2 such interest shall be treated as from

3 sources within the District of Columbia.

4 The preceding sentence shall apply only if

5 such percentage is furnished to the tax6 payer in writing on or before January 31

7 of the year following the calendar year in

8 which such interest is paid.

9 ‘‘(ii) OTHERS.—Interest shall be

10 treated as from sources within the District

11 of Columbia if the interest is paid during

12 a calendar year by a debtor—

13 ‘‘(I) which was required to file

14 (and filed) an income tax return with

15 the District of Columbia for the debt16 or’s taxable year ending during the

17 prior calendar year, and

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

19 a franchise tax return with the Dis20 trict of Columbia for such taxable

21 year.

22 ‘‘(D) SPECIAL RULE FOR DETERMINATION

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

24 Interest shall be treated as from sources within

25 the District of Columbia if the interest is paid
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1 during a calendar year by a debtor which was

2 required to file (and filed) a franchise tax re3 turn with the District of Columbia for such

4 debtor’s taxable year ending during such cal5 endar year, but which was not required to file

6 such a return for such debtor’s prior taxable

7 year.

8 ‘‘(4) DIVIDENDS.—

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

10 accrued during the taxable year shall be treated

11 as from sources outside the District of Colum12 bia.

13 ‘‘(B) EXCEPTION FOR SMALL AMOUNTS OF

14 NON-DISTRICT-SOURCED DIVIDENDS.—Divi15 dends which would (but for this subparagraph)

16 be treated as from sources outside the District

17 of Columbia shall be treated as from sources in

18 the District of Columbia to the extent the

19 amount of such dividends do not exceed $400.

20 ‘‘(C) EXCEPTION FOR DIVIDENDS PAID BY

21 CORPORATION ENGAGED IN BUSINESS IN THE

22 DISTRICT OF COLUMBIA.—In the case of divi23 dends paid during a calendar year by a corpora24 tion which was required to file (and filed) a
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1 franchise tax return with the District of Colum2 bia for the debtor’s taxable year ending during

3 the prior calendar year, an amount equal to the

4 D.C. percentage (as shown on such return) of

5 such dividends shall be treated as from sources

6 within the District of Columbia. The preceding

7 sentence shall apply only if such percentage is

8 furnished to the taxpayer in writing on or be9 fore January 31 of the year following the cal10 endar year in which such dividends are paid.

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

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

13 property shall be sourced to the place such property

14 is located at the time of the disposition.

15 ‘‘(6) DISPOSITION OF INTANGIBLE PROP16 ERTY.—

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

18 from the disposition of intangible property shall

19 be treated as from sources outside the District

20 of Columbia.

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

22 most recent income received or accrued before

23 such disposition which was attributable to such

24 property was from sources within the District

25 of Columbia, a like portion of the income, gain,
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1 or loss from such disposition shall be treated as

2 from sources within the District of Columbia.

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

4 sourced at the place where such property is located.

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

6 from sources outside the District of Columbia.

7 ‘‘(9) INCOME FROM PROPRIETORSHIP.—

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

9 or business carried on by the taxpayer as a pro10 prietorship, income from such trade or business

11 (other than income which is included in net

12 earnings from self-employment by the taxpayer)

13 shall be treated as from sources outside the

14 District of Columbia.

15 ‘‘(B) EXCEPTION FOR DISTRICT OF CO16 LUMBIA BUSINESSES.—If the taxpayer is re17 quired to file (and files) a franchise tax return

18 with the District of Columbia for the taxable

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

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

21 income.

22 ‘‘(10) INCOME FROM PARTNERSHIPS AND S

23 CORPORATIONS.—
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1 ‘‘(A) PARTNERSHIPS.—In the case of a

2 taxpayer who is a partner in a partnership, in3 come from such partnership (other than income

4 which is included in net earnings from self-em5 ployment by any partner) shall be treated as

6 from sources outside the District of Columbia.

7 ‘‘(B) EXCEPTIONS.—

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

9 to a partnership which was required to file

10 (and filed) a franchise tax return with the

11 District of Columbia for the partnership’s

12 taxable year ending with or within the tax13 payer’s taxable year to the extent of the

14 D.C. percentage of the taxpayer’s distribu15 tive share of the partnership income.

16 ‘‘(ii) Subparagraph (A) shall not

17 apply to a partnership which was not re18 quired to file a franchise tax return with

19 the District of Columbia for the partner20 ship’s taxable year ending with or within

21 the taxpayer’s taxable year to the extent of

22 the taxpayer’s distributive share of part23 nership income which is not (as determined

24 under this subsection) from sources outside

25 the District of Columbia.
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1 ‘‘(C) S CORPORATIONS.—Rules similar to

2 the rules of this paragraph shall apply to share3 holders of an S corporation.

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

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

6 decedent, and income from an estate, shall be

7 sourced at the place where the decedent was domi8 ciled at the time of his death.

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

10 than retirement income) from a trust shall be treat11 ed as from the same sources as the income of the

12 trust to which it is attributable.

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

14 For purposes of subsection (f)—

15 ‘‘(1) RETIREMENT INCOME.—The term ‘retire16 ment income’ has the meaning given such term by

17 section 114(b)(1) of title 4, United States Code (de18 termined without regard to subparagraph (I) there19 of).

20 ‘‘(2) D.C. PERCENTAGE.—The term ‘D.C. per21 centage’ means the percentage determined by divid22 ing—

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

24 of Columbia (as shown on the original return

25 for the taxable year), by
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1 ‘‘(B) total net income from all sources (as

2 shown on such return).

3 The preceding sentence shall be applied based on

4 amounts shown on the original applicable District of

5 Columbia franchise or income tax return.

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

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

8 trust.

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

10 such regulations as may be necessary or appropriate to

11 carry out the purposes of this section, including regula12 tions to prevent the abuse of the purposes of this section

13 through the manipulation of the rules of subsection (f) by

14 means of personal service corporations or otherwise.’’

15 (b) CONFORMING AMENDMENTS.—

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

17 is amended by adding at the end the following:

18 ‘‘Such regular tax shall be determined without re19 gard to section 59B.’’

20 (2) The table of parts for subchapter A of chap21 ter 1 of such Code is amended by adding at the end

22 the following new item:

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

of Columbia.’’
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years ending after the

3 date of the enactment of this Act.

4 SEC. 3. ANNUAL TREASURY STUDY ON IMPACT OF TAX RE5 DUCTIONS FOR RESIDENTS OF DISTRICT OF

6 COLUMBIA.

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

8 his delegate shall conduct an annual study of the impact

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

10 Revenue Code of 1986 (relating to limitation on tax im11 posed on residents of the District of Columbia) on the

12 economy of the District of Columbia. In determining such

13 impact, the study shall include an evaluation of changes

14 in the following (among others):

15 (1) The number and characteristics of individ16 uals who are residents of the District of Columbia

17 who claim the benefits provided by such part and

18 the number and characteristics of such individuals

19 who choose not to claim such benefits.

20 (2) Investment in the District of Columbia.

21 (3) Capital gain net income of such individuals

22 determined for property within the District of Co23 lumbia.

24 (4) Tax revenues to the District of Columbia.
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1 (5) The number of new businesses in the Dis2 trict of Columbia, the number and size of establish3 ments in the District of Columbia, and the growth

4 of existing businesses as measured by growth in em5 ployment and taxes payable to the District of Co6 lumbia.

7 (6) The number and characteristics of house8 holds residing in the District of Columbia.

9 (7) The employment and earnings of individuals

10 who are residents of the District of Columbia.

11 (8) Changes in the characteristics of employ12 ment within the District of Columbia, including the

13 proportion of jobs in the District of Columbia which

14 are held by residents of the District of Columbia.

15 (9) Home sales and residential rental activity in

16 the District of Columbia, by price levels of the prop17 erty involved.

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

19 including incentives for businesses to operate in the

20 District of Columbia.

21 (11) The number and characteristics of Federal

22 income tax filers (by filing and income category)

23 claiming deductions for charitable contributions,

24 home mortgage interest, and investment interest.
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1 (12) Comparable factors, by jurisdiction, for

2 other governmental jurisdictions within the Wash3 ington metropolitan statistical area.

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

5 be submitted to—

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

7 the Committee on Governmental Reform and Over8 sight, of the House of Representatives, and

9 (2) the Committee on Finance, and the Com10 mittee on Governmental Affairs, of the Senate.

11 (c) BASELINE.—As soon as practical after the date

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

13 or his delegate shall collect baseline data for purposes of

14 the study under subsection (a).

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