I
105TH CONGRESS
2D SESSION
H. R. 3329
To amend the Internal Revenue Code of 1986 to expand certain enterprise
zone incentives applicable to portions of the District of Columbia and
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
MARCH 4, 1998
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 expand
certain enterprise zone incentives applicable to portions
of the District of Columbia and 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.
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. MODIFICATIONS TO ENTERPRISE ZONE BENEFITS
AVAILABLE WITH RESPECT TO THE DISTRICT
OF COLUMBIA.
(a) ENTIRE DISTRICT OF COLUMBIA TREATED AS
EMPOWERMENT ZONE.—
(1) IN
GENERAL.—Subsection (a) of section
1400 of the Internal Revenue Code of 1986 (relating
to establishment of DC Zone) is amended to read as
follows:
‘‘(a) DESIGNATION.—For purposes of this title—
‘‘(1) the District of Columbia—
‘‘(A) is hereby designated as the District
of Columbia Enterprise Zone, and
‘‘(B) shall be treated as an empowerment
zone designated under subchapter U, and
‘‘(2) the terms ‘District of Columbia Enterprise
Zone’ and ‘DC Zone’ mean the District of Colum-
bia.’’
(2) CONFORMING AMENDMENTS.—
(A) Section 1400 of such Code is amended
by striking subsections (b) and (c) and by re-
designating subsections (d), (e), and (f) as sub-
sections (b), (c), and (d), respectively.
(B) Subsection (b) of section 1400 of such
Code, as redesignated by subparagraph (A), is
amended to read as follows:
‘‘(b) SPECIAL RULE FOR APPLICATION OF EMPLOY-
MENT CREDIT.—In the case of the DC Zone, section 1396
(relating to empowerment zone employment credit) shall
be applied by substituting ‘20’ for ‘15’ in the table con-
tained in section 1396(b). The preceding sentence shall
apply only with respect to qualified zone employees, as de-
fined in section 1396(d), determined by treating no area
other than the DC Zone as an empowerment zone or en-
terprise community.’’
(C) Paragraph (2) of section 1400(d) of
such Code, as redesignated by subparagraph
(A), is amended by striking ‘‘the census tracts
referred to in subsection (b)(1) as an enterprise
community’’ and inserting ‘‘the enterprise com-
munity in the District of Columbia’’.
(D) Section 1400B of such Code is amend-
ed by striking subsection (d) and by redesignat-
ing subsections (e), (f), and (g) as subsections
(d), (e), and (f), respectively.
(E) Paragraph (1) of section 1400B(c) of
such Code is amended by striking ‘‘section
1400(e)’’ and inserting ‘‘section 1400(c)’’.
(b) CAPITAL GAINS EXCLUSION AVAILABLE FOR AS-
SETS HELD MORE THAN 2 YEARS.—
(1) IN
GENERAL.—Subsection (a) of section
1400B of such Code is amended by striking ‘‘5
years’’ and inserting ‘‘2 years’’.
(2) CONFORMING AMENDMENT.—Paragraph (7)
of section 1400B(b) of such Code is amended—
(A) by striking ‘‘5-YEAR’’ in the heading
and inserting ‘‘2-YEAR’’, and
(B) by striking ‘‘5-year’’ in the text and
inserting ‘‘2-year’’.
(c) MODIFICATIONS TO DEFINITION OF DC ZONE
BUSINESS.—Subsection (c) of section 1400B of such Code
is amended to read as follows:
‘‘(c) DC ZONE BUSINESS.—For purposes of this sec-
tion—
‘‘(1) IN GENERAL.—The term ‘DC Zone busi-
ness’ means any entity which is an enterprise zone
business (as defined in section 1397B), deter-
mined—
‘‘(A) after the application of section
1400(c),
‘‘(B) without regard to subsections (b)(1)
and (d)(2)(B) of section 1397B, and
‘‘(C) 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 busi-
ness are paid to residents of the District of Co-
lumbia.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall take effect as if included in the amend-
ments made by section 701 of the Taxpayer Relief Act
of 1997.
SEC. 3. 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—
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-
ings from self-employment (as defined in sec-
tion 1402)), shall be sourced at the place such
services are performed.
‘‘(B) SERVICES PERFORMED IN WASHING-
TON-BALTIMORE
AREA
TREATED
AS
PER-
FORMED
IN
THE
DISTRICT
OF
COLUMBIA.—
Services performed in the Washington-Balti-
more area shall be treated as performed in the
District of Columbia.
‘‘(C) INDIVIDUALS
PERFORMING
PER-
CENT OF SERVICES WITHIN WASHINGTON-BAL-
TIMORE AREA.—If, during any taxable year, at
least 80 percent of the hours of service per-
formed 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 Con-
solidated 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 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
PARTNERSHIPS
AND
S
CORPORATIONS.—
‘‘(A) PARTNERSHIPS.—In the case of a
taxpayer who is a partner in a partnership, in-
come 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.
‘‘(C) S CORPORATIONS.—Rules similar to
the rules of this paragraph shall apply to share-
holders of an S corporation.
‘‘(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, including regula-
tions to prevent the abuse of the purposes of this section
through the manipulation of the rules of subsection (f) by
means of personal service corporations or otherwise.’’
(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.
SEC. 4. ANNUAL TREASURY STUDY ON IMPACT OF TAX RE-
DUCTIONS FOR RESIDENTS OF DISTRICT OF
COLUMBIA.
(a) IN GENERAL.—The Secretary of the Treasury or
his delegate shall conduct an annual study of the impact
of part VIII of subchapter A of chapter 1 of the Internal
Revenue Code of 1986 (relating to limitation on tax im-
posed on residents of the District of Columbia) on the
economy of the District of Columbia. In determining such
impact, the study shall include an evaluation of changes
in the following (among others):
(1) The number and characteristics of individ-
uals who are residents of the District of Columbia
who claim the benefits provided by such part and
the number and characteristics of such individuals
who choose not to claim such benefits.
(2) Investment in the District of Columbia.
(3) Capital gain net income of such individuals
determined for property within the District of Co-
lumbia.
(4) Tax revenues to the District of Columbia.
(5) The number of new businesses in the Dis-
trict of Columbia, the number and size of establish-
ments in the District of Columbia, and the growth
of existing businesses as measured by growth in em-
ployment and taxes payable to the District of Co-
lumbia.
(6) The number and characteristics of house-
holds residing in the District of Columbia.
(7) The employment and earnings of individuals
who are residents of the District of Columbia.
(8) Changes in the characteristics of employ-
ment within the District of Columbia, including the
proportion of jobs in the District of Columbia which
are held by residents of the District of Columbia.
(9) Home sales and residential rental activity in
the District of Columbia, by price levels of the prop-
erty involved.
(10) Tax structure in the District of Columbia,
including incentives for businesses to operate in the
District of Columbia.
(11) The number and characteristics of Federal
income tax filers (by filing and income category)
claiming deductions for charitable contributions,
home mortgage interest, and investment interest.
(12) Comparable factors, by jurisdiction, for
other governmental jurisdictions within the Wash-
ington metropolitan statistical area.
(b) REPORTS.—The report of each such study shall
be submitted to—
(1) the Committee on Ways and Means, and
the Committee on Governmental Reform and Over-
sight, of the House of Representatives, and
(2) the Committee on Finance, and the Com-
mittee on Governmental Affairs, of the Senate.
(c) BASELINE.—As soon as practical after the date
of the enactment of this Act, the Secretary of the Treasury
or his delegate shall collect baseline data for purposes of
the study under subsection (a).
Æ