I
104TH CONGRESS
2D SESSION
H. R. 3244
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
APRIL 15, 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 Co-
lumbia a maximum rate of tax of 15 percent on income
from sources within the District of Columbia.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
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 INDIVID-
UALS 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 fol-
lowing 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 in-
dividual 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 ad-
justed gross income.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) RESIDENT OF DISTRICT OF COLUMBIA.—
An individual is a resident of the District of Colum-
bia 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 Co-
lumbia 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 with-
out regard to this section), reduced by
‘‘(B) the aggregate credits allowable under
part IV (other than section 31).
‘‘(3) EXEMPTION AMOUNT.—The term ‘exemp-
tion 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 mar-
ried individual and is not a surviving
spouse, and
‘‘(ii) a married individual filing a sep-
arate 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 li-
ability 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 ‘reg-
ular 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 ad-
justed gross income reduced by the sum of—
‘‘(1) non-District-sourced adjusted gross in-
come,
‘‘(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 IN-
COME.—For purposes of this section, the term ‘non-Dis-
trict-sourced adjusted gross income’ means gross income
of the taxpayer from sources outside the District of Co-
lumbia 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 sec-
tion—
‘‘(1) RETIREMENT INCOME AND OTHER INCOME
NOT SOURCED UNDER SUBSECTION.—The source of
any income not specifically provided for in this sub-
section 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 earn-
‘‘(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 Colum-
bia.
‘‘(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 RESI-
DENTS.—
‘‘(i) BUSINESSES.—In the case of in-
terest paid during a calendar year by a
debtor which was required to file (and
filed) a franchise tax return with the Dis-
trict of Columbia for the debtor’s taxable
year ending with or within the prior cal-
endar 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 tax-
payer 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 debt-
or’s taxable year ending during the
prior calendar year, and
‘‘(II) which is not required to file
a franchise tax return with the Dis-
trict 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 re-
turn with the District of Columbia for such
debtor’s taxable year ending during such cal-
endar 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 Colum-
bia.
‘‘(B) EXCEPTION FOR SMALL AMOUNTS OF
NON-DISTRICT-SOURCED
DIVIDENDS.—Divi-
dends 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 divi-
dends paid during a calendar year by a corpora-
tion which was required to file (and filed) a
franchise tax return with the District of Colum-
bia 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 be-
fore January 31 of the year following the cal-
endar 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
PROP-
ERTY.—
‘‘(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 pro-
prietorship, 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
CO-
LUMBIA
BUSINESSES.—If the taxpayer is re-
quired 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 tax-
payer who is a partner in a partnership, income
from such partnership (other than income
which is included in net earnings from self-em-
ployment 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 tax-
payer’s taxable year to the extent of the
D.C. percentage of the taxpayer’s distribu-
tive share of the partnership income.
‘‘(ii) Subparagraph (A) shall not
apply to a partnership which was not re-
quired to file a franchise tax return with
the District of Columbia for the partner-
ship’s taxable year ending with or within
the taxpayer’s taxable year to the extent of
the taxpayer’s distributive share of part-
nership 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 domi-
ciled at the time of his death.
‘‘(12) INCOME FROM A TRUST.—Income (other
than retirement income) from a trust shall be treat-
ed 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 ‘retire-
ment income’ has the meaning given such term by
section 114(b)(1) of title 4, United States Code (de-
termined without regard to subparagraph (I) there-
of).
‘‘(2) D.C. PERCENTAGE.—The term ‘D.C. per-
centage’ means the percentage determined by divid-
ing—
‘‘(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 re-
gard to section 59B.’’
(2) The table of parts for subchapter A of chap-
ter 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.
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