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Simple and new analysis method of phase noise requirements on a local oscillator (LO) for a RFID system is proposed. In general case, phase noise requirements are derived mathematically considering a reciprocal mixing with an interference signal. However, in RFID systems using the same oscillator for the transmitted signal and the LO, range correlation phenomenon effects the phase noise requirements. Thus we tried to derive new phase noise equation considering the range correlation effect on the residual phase noise in RFID system. Simulation results for UHF RFID system show that range correlation effect is a crucial factor in RFID system design.