COLLECTION PROVISIONS.

SEC. 202. COLLECTION PROVISIONS. (a) Amendment of Chapter 64.— Chapter 64 of the Internal Revenue Code of 1954 (relating to collection) is amended by adding at the end thereof the following new subchapter: “Subchapter E— Collection of State Individual Income Taxes “Sec. 6361. General rules. “Sec. 6362. Qualified State individual income taxes. “Sec. 6363. State agreements; other procedures. “Sec. 6364. Regulations. “Sec. 6365. Definitions and special rules. “SEC. 6361. GENERAL RULES. “(a) Collection and Administration.— In the case of any State which has in effect an agreement with the Secretary entered into under section 6363, the Secretary or his delegate shall collect and administer the qualified State individual income taxes of such State. All provisions of this subtitle, subtitle G, and chapter 24 relating to the collection and administration of the taxes imposed by chapter 1 on the incomes of individuals (and all civil and criminal sanctions provided by this subtitle or by title 18 of the United States Code with respect to such collection and administration) shall apply to the collection and administration of qualified State individual income taxes as if such taxes were imposed by chapter 1, except to the extent that their application is modified by the Secretary or Ins delegate by regulations necessary or appropriate to reflect the provisions of this subchapter, or to reflect differences in the taxes or differences in the situations in which liability for such taxes arises. “(b) Civil Proceedings.— Any person shall have, with respect to a qualified State individual income tax (including the current collection thereof), the same right to bring or contest a civil action and obtain review thereof, in the same court or courts and subject to the86 Stat. 937 same requirements and procedures, as he would have under chapter 76, and under title 28 of the United States Code, if the tax were imposed by section 1 (or were for the current collection of the tax imposed by section 1). To the extent that the preceding sentence provides judicial procedures (including review procedures) with respect to any matter, such procedures shall replace judicial procedures under State law, except that nothing in this subchapter shall be construed in any way to affect the right or power of a State court to pass on matters involving the constitution of that State. “(c) Transfers to States.— “(1) Prompt transfers.— Any amount collected under this sub-chapter which is apportioned to a qualified State individual income tax shall be promptly transferred to the State on the basis of estimates by the Secretary or his delegate. In the case of amounts collected under chapter 24, the estimated amount due the State shall be transferred to the State not later than the close of the third business day after the amount is deposited in a Federal Reserve bank. In the case of amounts collected pursuant to a return, a declaration of estimated tax, an amendment of such a declaration, or otherwise, the estimated amount due the State shall be transferred to the State not later than the close of the 30th day after the amount is received by the Secretary or his delegate. “(2) Adjustments.—Not less often than once each fiscal year the difference between collections (adjusted for credits and refunds) made under this subchapter during the preceding fiscal year and the transfers to the States made on account of estimates of such collections shall be determined, and such difference shall be a charge against, or an addition to, the amounts otherwise payable. “(d) Special Rules.— “(1) United states to represent state interest.— “(A) General rule.— In all administrative proceedings, and in all judicial proceedings (whether civil or criminal), relating to the administration and collection of a State qualified individual income tax the interests of the State imposing such tax shall be represented by the United States in the same manner in which the interests of the United States are represented in corresponding proceedings involving the taxes imposed by chapter 1. “(B) Exceptions.— Subparagraph (A) shall not apply “(i) proceedings in a State court involving the constitution of that State, and “(ii) proceedings involving the relationship between the United States and the State. “(2) Allocation of overpayments and underpayments.— If the combined amount collected in respect of a qualified State individual income tax for any period and the taxes imposed by chapter 1 for such period with respect to the income of any individual is greater or less than the combined amount required to be paid for such period, the collected amount shall be divided between the accounts for such taxes on the basis of the respective amounts required to be paid. “(3) Finality of administrative determinations.—Administrative determinations of the Secretary or his delegate as to tax liabilities of, or refunds owing to, individuals with respect to qualified State individual income taxes shall not be reviewed by or enforced by any officer or employee of any State or political subdivision of a State. 86 Stat. 938 “SEC. 6362. QUALIFIED STATE INDIVIDUAL INCOME TAXES. “(a) Qualified State Individual Income Taxes Defined.— For purposes of this subchapter— “(1) In general.— The term ‘qualified State individual income tax’ means— “(A) a qualified resident tax, and “(B) a qualified nonresident tax. “(2) Qualified resident tax.— The term ‘qualified resident tax’ means a tax imposed by a State on the income of individuals who are residents of such State which is either— “(A) a tax based on taxable income which meets the requirements of subsection (b), or “(B) a tax which is a percentage of the Federal tax which meets the requirements of subsection (c), and which, in addition, meets the requirements of subsections (e) and (f). “(3) Qualified nonresident tax.— The term ‘qualified non-resident tax’ means a tax which is imposed by a State on the wage and other business income of individuals who are not residents of such State and which meets the requirements of subsections (d), (e),and (f). “(b) Qualified Resident Tax Based on Taxable Income.— “(1) In general.— A tax meets the requirements of this subsection only if it is imposed on an amount equal to the individual’s taxable income (as defined in section 63) for the taxable year, adjusted— “(A) by subtracting an amount equal to the amount of his interest on obligations of the United States which was included in his gross income for the year, “(B) by adding an amount equal to his net State income tax deduction for the year, and “(C) by adding an amount equal to his net tax-exempt income for the year. “(2) Permitted adjustments.— A tax which otherwise, meets the requirements of paragraph (1) shall not be deemed to fail to meet such requirements solely because it provides for one or more of the following adjustments: “(A) There is imposed a tax on the amount taxed under section 56 (relating to the minimum tax for tax preferences). “(B) A credit determined under rules prescribed by the Secretary or his delegate is allowed against, such tax for income tax paid to another State or a political subdivision thereof. “(3) Net state income tax deduction.— For purposes of this subsection and subsection (c), the term ‘net. State income tax deduction’ means the excess (if any) of (A) the amount deducted from income under section 164(a)(3) as taxes paid to a State or a political subdivision thereof, over (B) amounts included in income as recoveries of prior income taxes paid to a State or a political subdivision thereof which had been deducted under section 164(a)(3). “(4) Net tax-exempt income.— For purposes of this subsection and subsection (c), the term ‘net tax-exempt income’ means the excess (if any) of— “(A) the interest on obligations described in section 103 (a)(1) other than obligations of the State and its political subdivisions, and 86 Stat. 939 “(B) the interest on obligations described in such section. or the State and its political subdivision which under the law of the State is subject to the individual income tax imposed by the State, over the sum of the amount of deductions allocable to such interest which is disallowed by application of section 265, and the amount of the proper adjustment to basis allocable to such obligations which is required to be made for the taxable year under section 1016(a)(5) or (6). “(c) Qualified Resident Tax Which Is a Percentage of the Federal Tax.— “(1) In general.— A tax meets the requirements of this subsection only if it is imposed as a specified percentage of the excess of the taxes imposed by chapter 1 over the sum of the credits allowable under part IV of subchapter A of chapter 1 (other than the credits allowable by sections 31 and 39). “(2) Required adjustment.— A tax meets the requirements of this subsection only if the liability for tax is decreased by the decrease in such liability which would result from excluding from gross income an amount equal to the interest on obligations of the United States which was included in gross income for such year. “(3) Permitted adjustments.— A tax which otherwise meets the requirements of paragraphs (1) and (2) shall not be deemed to fail to meet such requirements solely because it provides for both of the following adjustments: “(A) the liability for tax is increased by the increase in such liability which would result from including as an item of gross income an amount equal to the net tax-exempt income for the year, and “(B) the liability for tax is increased by the increase in such liability which would result from including as an item of gross income an amount equal to the net State income tax deduction for the year. “(4) Further permitted adjustment.— A tax which otherwise meets the requirements of paragraphs (1) and (2) shall not be deemed to fail to meet such requirements solely because a credit determined under rules prescribed by the Secretary or his delegate is allowed against such tax for income tax paid to an-other State or a political subdivision thereof. “(d) Qualified Nonresident Tax.— “(1) In general.— A tax imposed by a State meets the requirements of this subsection only if it has the following characteristics— “(A) such tax is imposed by the State on the wage and other business income of individuals who are not residents of such State, “(B) such tax applies only with respect to wage and other business income derived from sources within such State, “(C) such tax applies only if 25 percent or more of the individual’s wage and other business income for the taxable year is derived from sources within such State, “(D) the amount of such tax imposed with respect to any individual who is not a resident does not exceed the amount of tax for which he would be liable under such State’s qualified resident tax if he were a resident of such State and if his taxable income were an amount equal to the excess of— “(i) the amount of his wage and other business income derived from sources within such State, over 86 Stat. 940 “(ii) that portion of the nonbusiness deductions taken into account for purposes of the State’s qualified resident tax which bears the same ratio to the amount of such deductions as the income referred to in clause (i) beats to his adjusted gross income, and “(E) the State has in effect for the same period a qualified resident tax. “(2) Wage and other business income.— The term ‘wage and other business income’ means— “(A) wages, as defined in section 3401 (a), “(B) net earnings from self-employment (within the meaning of section 1402 (a)), and “(C) the distributive share of income of any trade or business carried on by a trust, estate, or electing small business corporation (within the meaning of section 1371(a)) to the extent such share (i) is includible in the gross income of the individual for the taxable year, and (ii) would constitute net earnings from self-employment (within the meaning of section 1402(a)) if such trade or business were carried on by a partnership. “(e) Requirements Relating to Residence.— A tax imposed by a State meets the requirements of this subsection only if for purposes of such tax— “(1) Resident individual.— An individual (other than a trust or estate) is treated as a resident of such State with respect to a taxable year only if— “(A) his principal place of residence has been within such State for a period of at least 135 consecutive days and at least 30 days of such period are in such taxable year, or “(B) in the case of a citizen or resident of the United States who is not a resident (determined in the manner provided in subparagraph (A)) of any State with respect to such taxable year, such individual is domiciled in such State for at least 30 days during such taxable year. Nothing in this subchapter shall be construed to require or authorize the treatment of a Senator, Representative, Delegate, or Resident Commissioner as a resident of a State other than the State which he represents in Congress. “(2) Estate.—An estate of an individual is treated as a resident of the last State of which such individual was a resident (within the meaning of paragraph (1)) before his death. “(3) Trusts.— “(A) Testamentary trust.— A trust with respect to which a deceased individual is the principal contributor by reason of property passing on his death is treated as a resident of the last State of which such individual was a resident (within the meaning of paragraph (1)) before his death. “(B) Non testamentary trust.— A trust (other than a trust described in subparagraph (A)) is treated as a resident of such State with respect to a taxable year only if the principal contributor to the trust, during the 3–year period ending on the date of the creation of the trust, resided in the State for an aggregate number of days longer than the aggregate number of days he resided in any other State. “(C) Special rules.— For purposes of this paragraph— “(i) If on any day before the close of the taxable year an existing trust received assets having a value greater86 Stat. 941 than the aggregate value of all assets theretofore contributed to the trust, such trust shall be treated as created on such day. For purposes of this subparagraph, the value of any asset taken into account shall be its fair market value on the day it is contributed to the trust. “(ii) The principal contributor to the trust is the individual who contributed more (in value) of the assets contributed on the date of the creation of the trust (determined after applying clause (i)) than any other individual. “(iii) If the foregoing rules would create more than one State of residence (or no State of residence) for a trust, such trust shall be treated as a resident of the State determined under similar principles prescribed by the Secretary or his delegate by regulations. “(4) Liability for tax on change of residence.— With respect, to a taxable year, in the case of an individual (other than an individual who comes into being or ceases to exist) who becomes a resident, or ceases to be a resident, of the State, his liability to such State for the resident tax is determined by multiplying the amount which would be his liability for tax (after the non refundable credits allowed against such tax) if he had been a resident of such State for the entire taxable year by a fraction the numerator of which is the number of days he was a resident of such State and the denominator of which is the total number of days in the taxable year. In the case of an individual who is treated as a resident of a State with respect to a taxable year by reason of paragraph (1)(B), the preceding sentence shall lie applied by substituting days of domicile for days of residence. “(5) Current collection of tax.— In applying chapter 24 (relating to witholding) and section 6015 and other provisions relating to declarations of estimated income (and amendments thereto)— “(A) in the case of a resident tax, an individual is treated as subject to the tax if he reasonably expects to reside in the State for 30 days or more or if such individual is a resident of the State (within the meaning of paragraph (1), (2), or (3)), and “(B) in the case of a nonresident tax, an individual is treated as subject to the tax if he reasonably expects to receive wage and other business income (within the meaning of subsection (d)(2)) for 30 days or more during the taxable year. “(f) Additional Requirements.— A tax imposed by a State shall meet the requirements of this subsection only if— “(1) State agreement must be in effect for period concerned.— A State agreement entered into under section 6363 is in effect with respect to such tax for the taxable period in question. “(2) State laws must contain certain provisions.— Under the laws of such State— “(A) the provisions of this subchapter (and of the regulations prescribed thereunder) as in effect from time to time are made applicable for the period for which the State agreement is in effect, and “(B) any change made by the State in the tax imposed by the State will not apply to taxable years beginning in any calendar year for winch the State agreement is in effect unless such change is enacted before November 1 of such calendar year. 86 Stat. 942 “(3) State laws taxing income of individuals can only be of certain kinds.— The State does not impose any tax on the income of individuals other than— “(A) a qualified resident tax, “(B) a qualified nonresident tax, and “(C) a separate tax on income which is not wage and other business income and which is received or accrued by individuals who are domiciled in the State but who are not residents of the State within the meaning of subsection (e)(1) “(4) Taxable years must coincide.— The taxable years of individuals under such tax coincide with taxable years for purposes of the taxes imposed by chapter 1. “(5) Married individuals.— A married individual (within the meaning of section 143)— “(A) who files a joint return for purposes of the taxes imposed by chapter 1 shall not file a separate return for purposes of such State tax, and “(B) who files a separate return for purposes of the taxes imposed by chapter 1, shall not file a joint return for purposes of such State tax. “(6) No double jeopardy under state law.— The laws of such State do not provide criminal or civil sanctions for an act (or omission to act) with respect to a qualified resident tax or qualified nonresident tax other than the criminal or civil sanctions to which an individual is subjected by reason of section 6361. “(7) Partnerships, trusts, subchapter s corporations, and other conduit entities.— Under the State law the tax treatment of— “(A) partnerships and partners, “(B) trusts and their beneficiaries, “(C) estates and their beneficiaries, “(D) electing small business corporations (within the meaning of section 1371(a)) and their shareholders, and “(E) any other entity and the individuals having beneficial interests therein, to the extent that such entity is treated as a conduit for purposes of the taxes imposed by chapter 1, shall correspond to the tax treatment provided therefor in the case of the taxes imposed by chapter 1. “(8) Members of armed forces.— The relief provided to any member of the Armed Forces of the United States by section 514 of the Soldiers’ and Sailors’ Civil Belief Act (50 U.S.C. App. sec. 574) is in no way diminished. “(9) Withholding on compensation of employees of railroads, motor carriers, airlines, and water carriers.—There is no contravention of the provisions of section 26, 226A, or 324 of the Interstate Commerce Act or of section 1112 of the Federal Aviation Act of 1958 with respect to the withholding of compensation to which such sections apply for purposes of the nonresident tax. “SEC. 6363. STATE AGREEMENTS; OTHER PROCEDURES. “(a) State Agreement.— If a State elects to enter into an agreement with the United States to have its individual income taxes collected and administered as provided in this subchapter, it shall file notice of such election in such manner and with such supporting information as the Secretary or his delegate may prescribe by regulations. The Secretary shall enter into an agreement with such State unless the Secretary notifies the Governor of the State within 90 days86 Stat. 943 after the date of the filing of the notice of the election that the State does not have a qualified State individual income tax (determined without regard to section 6362(f)(1)). The provisions of this subchapter shall apply on and after the date (not earlier than the first January 1 which is more than 6 months after the date of the notice) specifics for this purpose in the agreement. “(b) Withdrawal.— “(1) By notification.— If a State wishes to withdraw from the agreement, it shall notify the Secretary or his delegate of its intention to withdraw in such manner as the Secretary or his delegate may prescribe by regulations. The provisions of this subchapter (other than this section) shall not apply on or after the date specified for this purpose in the notification. Except as provided in regulations, the date so specified shall not be earlier than the first January 1 which is more than 6 months after the date on which the Secretary or his delegate is so notified. “(2) By change in state law.— Any change in State law which would (but for this subchapter) have the effect of causing a tax to cease to be a qualified State individual income tax shall be treated as an intention to withdraw from the agreement. Notification by the Secretary to the Governor of such State that the change in State law will tie treated as an intention to withdraw shall be made by the Secretary in such manner as the Secretary or his delegate shall by regulations prescribe. Such notification shall have the same effect as a notice under paragraph (1) of an intention to withdraw from the agreement received on the effective date of the change in State law. “(c) Transition Years.— “(1) Subchapter ceases to apply during taxpayer’s year.— If the provisions of this subchapter cease to apply on a day other than the last day of the taxpayers taxable year, then amounts previously paid to the United States on account, of the State’s qualified individual income tax for that taxable year (whether paid by withholding, estimated tax, credit in lieu of refund, or otherwise) shall be treated as having been paid on account of the States individual income tax law for that taxable year. Such amounts shall lie transferred to the State as though the State had not withdrawn from the agreement. Returns, applications, elections, and other forms previously filed with the Secretary or his delegate for that taxable year, which are thereafter required to lie hied with the appropriate State official shall be treated as having been filed with the appropriate State official. “(2) Prevention of unintended hardships or benefits.— The State may by law provide for the transition to a qualified State individual income tax or from such a tax to the extent necessary to prevent double taxation or other unintended hardships, or to prevent unintended benefits, under State law. “(3) Administration of subsection.— The provisions of this subsection shall be administered by the Secretary or his delegate, by the State, or jointly, to the extent provided in regulations pre-scribed by the Secretary or his delegate. “(d) Judicial Review.— “(1) In general.—Whenever tinder this sect i mi the Secretary or his delegate determines that a State does not have a qualified State individual income tax. such State may. within 60 days after the Governor of the State has been notified of such action, file with the United States court of appeals for the circuit in which such State, is located, or with the United States Court of Appeals for the District of Columbia, a petition for review of such action.86 Stat. 944 A copy of the petition shall be forthwith transmitted by the clerk of the court to the Secretary or his delegate. The Secretary or his delegate thereupon shall file in the court, the record of the proceedings on which he based his action as provided in section 2112 of title 28, United States Code. “(2) Jurisdiction of court; review.— The court shall have jurisdiction to affirm the action of the Secretary or his delegate or to set it aside in whole or in part, anti to issue, such other orders as may be appropriate with regard to taxable years which include any part or the period of litigation. The judgment of the court shall be subject to review by the Supreme Court, of the United States upon certiorari or certification as provided in section 1254 of title 28, United States Code. “(3) Stay of decision.— “(A) If judgment on a petition to review a determination under subsection (a) includes a determination that the State has a qualified State individual income tax, then the provisions of this subchapter shall apply on and after the first January 1 which is more than 6 months after the date of the judgment. “(B) If judgment on a petition to review a determination by the Secretary under subsection (b)(2) includes a determination that the State does not have a qualified State individual income tax, then the provisions of this subchapter (other than this section) shall not apply on and after the first January 1 which is more than 6 months after the date of the judgment. “(4) Preference.— Any judicial proceedings under this section shall be entitled to, and, upon request of the Secretary or the State, shall receive a preference and shall be heard and determined as expeditiously as possible. “SEC. 6364. REGULATIONS. “The Secretary or his delegate shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subchapter. “SEC. 6365. DEFINITIONS AND SPECIAL RULES. “(a) State.— For purposes of this subchapter, the term ‘State’ includes the District of Columbia. “(b) Governor.— For purposes of this subchapter, the term ‘Governor’ includes the Commissioner of the District of Columbia. “(c) Application of Subchapter.— Whenever this subchapter begins to apply, or ceases to apply, to any State tax on any January 1— “(1) except as provided in paragraph (2), such change shall apply to taxable years beginning on or after such date, and “(2) for purposes of chapter 24, such change shall apply to wages paid on or after such date.” (b) Clerical Amendment.— The table of subchapters for chapter 64 of such Code is amended by adding at the end thereof the following: “Subchater E. Collection of State individual income taxes.”