[Congressional Record (Bound Edition), Volume 152 (2006), Part 11]
[House]
[Pages 14565-14566]
[From the U.S. Government Publishing Office, www.gpo.gov]




 CLARIFYING TREATMENT OF SELF-EMPLOYMENT FOR PURPOSES OF LIMITATION ON 
                  STATE TAXATION OF RETIREMENT INCOME

  Mr. SENSENBRENNER. Mr. Speaker, I move to suspend the rules and pass 
the bill (H.R. 4019) to amend title 4 of the United States Code to 
clarify the treatment of self-employment for purposes of the limitation 
on State taxation of retirement income, as amended.
  The Clerk read as follows

                               H.R. 4019

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. CLARIFICATION OF TREATMENT OF SELF-EMPLOYMENT FOR 
                   PURPOSES OF THE LIMITATION ON STATE TAXATION OF 
                   RETIREMENT INCOME.

       (a) In General.--Section 114(b)(1)(I) of title 4, United 
     States Code, is amended--
       (1) by inserting ``(or any plan, program, or arrangement 
     that is in writing, that provides for retirement payments in 
     recognition of prior service to be made to a retired partner, 
     and that is in effect immediately before retirement begins)'' 
     after ``section 3121(v)(2)(C) of such Code'',
       (2) by inserting ``which may include income described in 
     subparagraphs (A) through (H)'' after ``(not less frequently 
     than annually'',
       (3) by adding at the end the following:
     ``The fact that payments may be adjusted from time to time 
     pursuant to such plan, program, or arrangement to limit total 
     disbursements under a predetermined formula, or to provide 
     cost of living or similar adjustments, will not cause the 
     periodic payments provided under such plan, program, or 
     arrangement to fail the `substantially equal periodic 
     payments' test.'', and
       (4) by adding at the end the following:
       ``(4) For purposes of this section, the term `retired 
     partner' is an individual who is described as a partner in 
     section 7701(a)(2) of the Internal Revenue Code of 1986 and 
     who is retired under such individual's partnership 
     agreement.''.
       (b) Application.--The amendments made by this section apply 
     to amounts received after December 31, 1995.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
Wisconsin (Mr. Sensenbrenner) and the gentleman from Michigan (Mr. 
Conyers) each will control 20 minutes.
  The Chair recognizes the gentleman from Wisconsin.


                             General Leave

  Mr. SENSENBRENNER. Mr. Speaker, I ask unanimous consent that all 
Members may have 5 legislative days within which to revise and extend 
their remarks and include extraneous material on H.R. 4019 currently 
under consideration.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Wisconsin?
  There was no objection.
  Mr. SENSENBRENNER. Mr. Speaker, I yield myself such time as I may 
consume.
  Mr. Speaker, I rise in support of H.R. 4019, a bill to amend title 4 
of the United States Code to clarify the treatment of self-employment 
for the purposes of the limitation on State taxation of retirement 
income.
  This bill makes technical and clarifying amendments to the 
legislation enacted in 1996 to restrict the ability of States to tax 
certain pension income received by their former residents and 
nonresidents who earned income in that State.
  Virtually every State correctly interpreted the law to encompass all 
retired individuals as Congress intended, and adjusted their tax 
systems accordingly. However, after 10 years, at least one State has 
sought to promote an interpretation of the law at odds with 
congressional intent by taxing the retirement income of partners who no 
longer live in the State or who may never even have ever lived there.
  H.R. 4019 clarifies and reiterates the policy Congress wrote into 
Public Law 104-95, that States are prohibited from taxing the 
retirement income of all nonresident retirees, whether the individual 
is a retired employee, partner or principal.
  Mr. Speaker, this bill, which enjoys bipartisan support, merely 
restores fairness and the original intent of Congress by reaffirming 
that States should treat all retirees equally.
  I urge my colleagues to join me in supporting this legislation.
  Mr. Speaker, I reserve the balance of my time.
  Mr. CONYERS. Mr. Speaker, I yield myself as much time as I may 
consume.
  Mr. Speaker, I rise in support of H.R. 4019, and I support the 
measure which is intended to clarify current law that prohibits States 
from taxing the retirement income of any nonresident, whether the 
individual is a retired employee, partner or a principal, and says that 
the benefits reduction calculations under the bill include components 
from both qualified and nonqualified plans.
  Now, since 1996, States have adjusted their tax system to reflect the 
policy and to allow several different interpretations. The policy would 
upset expectations and reliance upon the law. And what we are doing is 
eliminating that possibility. This would also, without this change, 
further confuse the tax system and certainly lead to unnecessary 
litigation.
  It should be noted that the States affected by Public Law 104-95 have 
adjusted their tax schemes to comply with the law as they understood 
it. However, there is one State presently that construes the statute in 
contravention of the original intent, and if this State, New York, is 
permitted to implement its interpretation of the bill, other States may 
follow. This, in turn, would most definitely spur an unlimited amount 
of needless litigation. So it is essential that for consistency and 
uniformity that this legislation before us be enacted.
  We should note that neither the Federation of Tax Administrators nor 
the National Governors Association are opposing this clarification.
  This clarification is needed to protect the current State taxation 
policies, and I am proud to support it and urge my colleagues to do as 
well
  Mr. CANNON. Mr. Speaker, I would like to thank Chairman 
Sensenbrenner, Ranking Member Conyers and Representatives Watt for 
their work and leadership on this legislation.
  H.R. 4019 is a technical amendment to Public Law 104-95. This 
legislation clarifies that all retirees should be treated the same with 
regard to how States may tax retirement payments.
  In 1996, Congress passed Public Law 104-95 to prohibit States from 
taxing the retirement income of nonresident retirees. Essentially, if 
retirees, most of whom are on fixed incomes, are not living in the 
State, then no State except the State where the individual resides 
should tax the retirees' incomes.
  After passage of the 1996 law, most States interpreted the law, as it 
was intended, to apply to all retirees, including employees and 
partners. One State, however, has recently taken the position that it 
can treat retired employes of a company and retired partners from 
partnership differently. This State's interpretation is contrary to the 
original intent of the law and would allow for a State to tax the 
retirement payments of a person who retires from a partnership, no 
matter where that retiree is living. This was not the intent of 
Congress when the bill was passed, as was emphasized at our hearing by 
our former colleague Mr. Gekas, who was chair of the subcommittee when 
Public Law 104-95 was enacted. Congress intended for all retirees to be 
treated the same under the law, and H.R. 4019 simply clarifies that 
intent. States must treat all retirees similarly.
  I have worked with the State tax administrators and crafted a 
manager's amendment that passed the full committee by voice vote in 
order to alleviate their initial concerns, an appreciate their efforts 
in coming to the table to reach agreement.
  I urge all of my colleagues to support H.R. 4019.
  Mr. CONYERS. Mr. Speaker, I have no further requests for time, and I 
yield back the balance of my time.
  Mr. SENSENBRENNER. Mr. Speaker, I have no further requests for time, 
and I yield back the balance of my time.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from Wisconsin (Mr. Sensenbrenner) that the House suspend the 
rules and pass the bill, H.R. 4019, as amended.
  The question was taken; and (two-thirds having voted in favor 
thereof) the rules were suspended and the bill, as amended, was passed.
  A motion to reconsider was laid on the table.

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