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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 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--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 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.--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
adjusted gross income.
''(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 files a District of Columbia
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 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) 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 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 during 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 during 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 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 before January 31 of the year following the
calendar 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 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 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.--
''(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 taxpayer's taxable
year to the extent of the D.C. percentage of
the taxpayer's distributive share of the
partnership income.
''(ii) Subparagraph (A) shall not apply to
a partnership 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) 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 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. 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.
District of Columbia Economic Recovery Act - Amends the Internal Revenue Code to set forth a limitation on the income tax imposed on individuals who are residents of the District of Columbia. Specifies that the limitation is the sum of: (1) 15 percent of so much District-sourced income as exceeds the exemption amount; and (2) the average rate of the non-District-sourced adjusted gross income. Sets forth definitions, including for "resident of the District of Columbia" and "exemption amount."
Provides for the tax treatment of certain sources of income.