To amend the Internal Revenue Code of 1986 to provide tax incentives for manufacturing businesses in the United States.

November 18, 2003

Mr. DASCHLE (for Mr. KERRY) introduced the following bill; which was read twice and referred to the Committee on Finance

To amend the Internal Revenue Code of 1986 to provide tax incentives for manufacturing businesses in the United States.

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

SECTION 1. SHORT TITLE.

This Act may be cited as the `Manufacturing Job Production Act of 2003'.

SEC. 2. TEMPORARY MANUFACTURING JOB CREATION TAX CREDIT.

(a) IN GENERAL- Subpart F of part IV of subchapter A of chapter 1 (relating to rules for computing work opportunity credit) is amended by inserting after section 51A the following new section:

`SEC. 51B. REFUND OF PAYROLL TAXES ATTRIBUTABLE TO NEW MANUFACTURING EMPLOYEES DURING 2004 AND 2005.

`(a) GENERAL RULE- In the case of an employee's first taxable year beginning in any applicable calendar year, the amount of the work opportunity credit determined under section 51 (without regard to this section) for the taxable year shall be increased by the increased manufacturing wages payroll tax rebate amount.

`(b) APPLICABLE CALENDAR YEAR- For purposes of this section, the term `applicable calendar year' means 2004 and 2005.

`(c) INCREASED MANUFACTURING WAGES PAYROLL TAX REBATE AMOUNT-

`(1) IN GENERAL- For purposes of this section, the term `increased manufacturing wages payroll tax rebate amount' means an amount equal to the applicable percentage of the excess (if any) of--

`(A) the qualified manufacturing wages paid or incurred by the employer with respect to employment during the applicable calendar year, over

`(B) the sum of--

`(i) the qualified manufacturing wages paid or incurred by the employer with respect to employment during the previous calendar year, plus

`(ii) an amount equal to the amount determined under clause (i) multiplied by a percentage equal to the percentage change in the contribution and benefit base under section 230 of the Social Security Act from the applicable calendar year to the previous calendar year.

`(2) APPLICABLE PERCENTAGE- For purposes of this subsection, the term `applicable percentage' means--

`(A) for 2004, 50 percent, and

`(B) for 2005, 25 percent.

`(d) OTHER DEFINITIONS AND RULES- For purposes of this section--

`(1) QUALIFIED MANUFACTURING WAGES-

`(A) IN GENERAL- The term `qualified manufacturing wages' means wages which are paid by the taxpayer and included under section 263A in the cost of property produced by the taxpayer.

`(B) WAGES- The term `wages' has the meaning given such term by section 3121(a), except that in the case of any employer subject to tax under chapter 22 with respect to any employee, the such term includes compensation within the meaning of section 3231(e).

`(C) UNITED STATES- For purposes of this paragraph, the term `United States' includes the territories and possessions of the United States.

`(2) PREDECESSORS- Any reference in this section to an employer shall include a reference to a predecessor.

`(3) OTHER RULES- Rules similar to the rules of sections 51(k) and 52 shall apply.

`(e) REGULATIONS- The Secretary shall prescribe such regulations as may be necessary to carry out this section, including regulations for the application of this section in the case of acquisitions and dispositions.'.

(b) CONFORMING AMENDMENT- The table of sections for subpart F of part IV of subchapter A of chapter 1 is amended by inserting after the item relating to section 51A the following new item:

SEC. 3. MODIFICATIONS OF EXCLUSIONS AND ROLLOVERS OF GAIN ON QUALIFIED SMALL BUSINESS STOCK.

(a) EXCLUSION OF GAIN ON QUALIFIED SMALL BUSINESS STOCK-

(1) INCREASE IN EXCLUSION PERCENTAGE-

(A) IN GENERAL- Section 1202(a)(1) (relating to exclusion for gain from certain small business stock) is amended by striking `50 percent' and inserting `75 percent'.

(B) 100-percent exclusion for critical technology, small manufacturing, and specialized small business investment businesses- Section 1202(a) is amended by adding at the end the following new paragraph:

`(3) CRITICAL TECHNOLOGY, SMALL MANUFACTURING, AND SPECIALIZED SMALL BUSINESS INVESTMENT BUSINESSES-

`(A) IN GENERAL- In the case of qualified small business stock acquired after the date of the enactment of this paragraph which is stock in--

`(i) a critical technology corporation,

`(ii) a manufacturing corporation, or

`(iii) a corporation which is a specialized small business investment company (as defined in subsection (c)(2)(B)(ii)),

paragraph (1) shall be applied by substituting `100 percent' for `75 percent'.

`(B) CRITICAL TECHNOLOGY CORPORATION- The term `critical technology corporation' means a corporation substantially all of the active business activities of which during substantially all of a taxpayer's holding period of stock in the corporation are in connection with--

`(i) transportation or homeland security technologies,

`(ii) antiterrorism technologies,

`(iii) technologies enhancing security by improving methods of personal identification (including biometrics),

`(iv) environmental technologies for pollution minimization, remediation, or waste management,

`(v) national defense technologies, or

`(vi) energy efficiency or the development of non-fossil based fuel source technologies.

`(C) MANUFACTURING CORPORATION- The term `manufacturing corporation' means a corporation substantially all of the active business activities of which during substantially all of a taxpayer's holding period of stock in the corporation are in connection with manufacturing (as determined under the North American Industrial Classification System).'.

(C) EMPOWERMENT ZONE CONFORMING AMENDMENT- Section 1202(a)(2)(A) is amended--

(i) by striking `60 percent' and inserting `100 percent', and

(ii) by striking `50 percent' and inserting `75 percent'.

(2) DECREASE IN HOLDING PERIOD-

(A) IN GENERAL- Section 1202(a)(1) is amended by striking `5 years' and inserting `4 years'.

(B) CONFORMING AMENDMENT- Section 1202(j)(1)(A) is amended by striking `5 years' and inserting `4 years'.

(3) EXCLUSION AVAILABLE TO CORPORATIONS-

(A) IN GENERAL- Subsection (a) of section 1202 (relating to partial exclusion for gains from certain small business stock) is amended by striking `other than a corporation'.

(B) TECHNICAL AMENDMENT- Subsection (c) of section 1202 is amended by adding at the end the following new paragraph:

`(4) STOCK HELD AMONG MEMBERS OF CONTROLLED GROUP NOT ELIGIBLE- Stock of a member of a parent-subsidiary controlled group (as defined in subsection (d)(3)) shall not be treated as qualified small business stock while held by another member of such group.'.

(4) STOCK OF LARGER BUSINESSES ELIGIBLE FOR EXCLUSION-

(A) IN GENERAL- Paragraph (1) of section 1202(d) (defining qualified small business) is amended by striking `$50,000,000' each place it appears and inserting `$100,000,000'.

(B) INFLATION ADJUSTMENT- Section 1202(d) (defining qualified small business) is amended by adding at the end the following:

`(5) INFLATION ADJUSTMENT OF ASSET LIMITATION- In the case of stock issued in any calendar year after 2004, the $100,000,000 amount contained in paragraph (1) shall be increased by an amount equal to--

`(A) such dollar amount, multiplied by

`(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year, determined by substituting `calendar year 2003' for `calendar year 1992' in subparagraph (B) thereof.

If any amount as adjusted under the preceding sentence is not a multiple of $10,000, such amount shall be rounded to the nearest multiple of $10,000.'.

(b) INCREASE IN PERIOD TO PURCHASE REPLACEMENT STOCK AND QUALIFY FOR ROLLOVER-

(1) IN GENERAL- Section 1045(a)(2) (relating to nonrecognition of gain) is amended by striking `60-day' and inserting `180-day'.

(2) CONFORMING AMENDMENT- Section 1045(b)(2) is amended by striking `60-day' and inserting `180-day'.

(c) EFFECTIVE DATES-

(1) EXCLUSION- The amendments made by subsection (a) shall apply to stock issued after the date of the enactment of this Act.

(2) ROLLOVER- The amendment made by subsection (b) shall apply to sales after the date of the enactment of this Act.

SEC. 4. DEFERRED PAYMENT OF TAX BY CERTAIN SMALL BUSINESSES.

(a) IN GENERAL- Subchapter B of chapter 62 of the Internal Revenue Code of 1986 (relating to extensions of time for payment of tax) is amended by adding at the end the following new section:

`SEC. 6168. EXTENSION OF TIME FOR PAYMENT OF TAX FOR CERTAIN SMALL BUSINESSES.

`(a) IN GENERAL- An eligible small business may elect to pay the tax imposed by chapter 1 in 4 equal installments (6 equal installments in the case of a qualified manufacturer).

`(b) LIMITATION- The maximum amount of tax which may be paid in installments under this section for any taxable year shall not exceed whichever of the following is the least:

`(1) The tax imposed by chapter 1 for the taxable year.

`(2) The amount contributed by the taxpayer into a BRIDGE Account during such year.

`(3) The excess of--

`(A) $250,000 ($400,000 in the case of a qualified manufacturer), over

`(B) the aggregate amount of tax for which an election under this section was made by the taxpayer (or any predecessor) for all prior taxable years.

`(c) DEFINITIONS- For purposes of this section--

`(1) ELIGIBLE SMALL BUSINESS-

`(A) IN GENERAL- The term `eligible small business' means, with respect to any taxable year, any person if--

`(i) such person meets the active business requirements of section 1202(e) throughout such taxable year,

`(ii) the taxpayer has gross receipts of $10,000,000 or less for the taxable year,

`(iii) the gross receipts of the taxpayer for such taxable year are at least 10 percent greater than the average annual gross receipts of the taxpayer (or any predecessor) for the 2 prior taxable years, and

`(iv) the taxpayer uses an accrual method of accounting.

`(B) CERTAIN RULES TO APPLY- Rules similar to the rules of paragraphs (2) and (3) of section 448(c) shall apply for purposes of this subsection.

`(2) QUALIFIED MANUFACTURER- The term `qualified manufacturer' means an eligible small business substantially all of the business activities of which are in connection with manufacturing (as determined under the North American Industrial Classification System).

`(d) DATE FOR PAYMENT OF INSTALLMENTS; TIME FOR PAYMENT OF INTEREST-

`(1) DATE FOR PAYMENT OF INSTALLMENTS-

`(A) IN GENERAL- If an election is made under this section for any taxable year, the first installment shall be paid on or before the due date for such installment and each succeeding installment shall be paid on or before the date which is 1 year after the date prescribed by this paragraph for payment of the preceding installment.

`(B) DUE DATE FOR FIRST INSTALLMENT- The due date for the first installment for a taxable year shall be whichever of the following is the earliest:

`(i) The date selected by the taxpayer.

`(ii) The date which is 2 years after the date prescribed by section 6151(a) for payment of the tax for such taxable year.

`(2) TIME FOR PAYMENT OF INTEREST- If the time for payment of any amount of tax has been extended under this section--

`(A) INTEREST FOR PERIOD BEFORE DUE DATE OF FIRST INSTALLMENT- Interest payable under section 6601 on any unpaid portion of such amount attributable to the period before the due date for the first installment shall be paid annually.

`(B) INTEREST DURING INSTALLMENT PERIOD- Interest payable under section 6601 on any unpaid portion of such amount attributable to any period after such period shall be paid at the same time as, and as a part of, each installment payment of the tax.

`(C) INTEREST IN THE CASE OF CERTAIN DEFICIENCIES- In the case of a deficiency to which subsection (e)(3) applies for a taxable year which is assessed after the due date for the first installment for such year, interest attributable to the period before such due date, and interest assigned under subparagraph (B) to any installment the date for payment of which has arrived on or before the date of the assessment of the deficiency, shall be paid upon notice and demand from the Secretary.

`(e) SPECIAL RULES-

`(1) APPLICATION OF LIMITATION TO PARTNERS AND S CORPORATION SHAREHOLDERS-

`(A) IN GENERAL- In applying this section to a partnership which is an eligible small business--

`(i) the election under subsection (a) shall be made by the partnership,

`(ii) the amount referred to in subsection (b)(1) shall be the sum of each partner's tax which is attributable to items of the partnership and assuming the highest marginal rate under section 1, and

`(iii) the partnership shall be treated as the taxpayer referred to in paragraphs (2) and (3) of subsection (b).

`(B) OVERALL LIMITATION ALSO APPLIED AT PARTNER LEVEL- In the case of a partner in a partnership, the limitation under subsection (b)(3) shall be applied at the partnership and partner levels.

`(C) SIMILAR RULES FOR S CORPORATIONS- Rules similar to the rules of subparagraphs (A) and (B) shall apply to shareholders in an S corporation.

`(2) ACCELERATION OF PAYMENT IN CERTAIN CASES-

`(A) IN GENERAL- If--

`(i) the taxpayer ceases to meet the requirement of subsection (c)(1)(A)(i), or

`(ii) there is an ownership change with respect to the taxpayer,

then the extension of time for payment of tax provided in subsection (a) shall cease to apply, and the unpaid portion of the tax payable in installments shall be paid on or before the due date for filing the return of tax imposed by chapter 1 for the first taxable year following such cessation.

`(B) OWNERSHIP CHANGE- For purposes of subparagraph (A), in the case of a corporation, the term `ownership change' has the meaning given to such term by section 382. Rules similar to the rules applicable under the preceding sentence shall apply to a partnership.

`(3) PRORATION OF DEFICIENCY TO INSTALLMENTS- Rules similar to the rules of section 6166(e) shall apply for purposes of this section.

`(f) BRIDGE ACCOUNT- For purposes of this section--

`(1) IN GENERAL- The term `BRIDGE Account' means a trust created or organized in the United States for the exclusive benefit of an eligible small business, but only if the written governing instrument creating the trust meets the following requirements:

`(A) No contribution will be accepted for any taxable year in excess of the amount allowed as a deferral under subsection (b) for such year.

`(B) The trustee is a bank (as defined in section 408(n)) or another person who demonstrates to the satisfaction of the Secretary that the manner in which such person will administer the trust will be consistent with the requirements of this section.

`(C) The assets of the trust consist entirely of cash or of obligations which have adequate stated interest (as defined in section 1274(c)(2)) and which pay such interest not less often than annually.

`(D) The assets of the trust will not be commingled with other property except in a common trust fund or common investment fund.

`(E) Amounts in the trust may be used only--

`(i) as security for a loan to the business or for repayment of such loan, or

`(ii) to pay the installments under this section.

`(2) ACCOUNT TAXED AS GRANTOR TRUST- The grantor of a BRIDGE Account shall be treated for purposes of this title as the owner of such Account and shall be subject to tax thereon in accordance with subpart E of part I of subchapter J of this chapter (relating to grantors and others treated as substantial owners).

`(3) TIME WHEN PAYMENTS DEEMED MADE- For purposes of this section, a taxpayer shall be deemed to have made a payment to a BRIDGE Account on the last day of a taxable year if such payment is made on account of such taxable year and is made within 3 1/2 months after the close of such taxable year.

`(g) REPORTS- The Secretary may require such reporting as the Secretary determines to be appropriate to carry out this section.

`(h) APPLICATION OF SECTION- This section shall apply to taxes imposed for taxable years beginning after December 31, 2003, and before January 1, 2008.'.

(b) PRIORITY OF LENDER- Subsection (b) of section 6323 of the Internal Revenue Code of 1986 (relating to protection for certain interests even though notice filed) is amended by adding at the end the following new paragraph:

`(11) LOANS SECURED BY BRIDGE ACCOUNTS- With respect to a BRIDGE account (as defined in section 6168(f)) with any bank (as defined in section 408(n)), to the extent of any loan made by such bank without actual notice or knowledge of the existence of such lien, as against such bank, if such loan is secured by such account.'.

(c) CLERICAL AMENDMENT- The table of sections for subchapter B of chapter 62 of the Internal Revenue Code of 1986 is amended by adding at the end the following new item:

`Sec. 6168. Extension of time for payment of tax for certain small businesses.'.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2003.

(e) STUDY BY GENERAL ACCOUNTING OFFICE-

(1) STUDY- In consultation with the Secretary of the Treasury, the Comptroller General of the United States shall undertake a study to evaluate the applicability (including administrative aspects) and impact of the amendments made by section 4 of the Manufacturing Job Production Act of 2003, including how it affects the capital funding needs of businesses under the Act and number of businesses benefiting.

(2) REPORT- Not later than March 31, 2007, the Comptroller General shall transmit to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate a written report presenting the results of the study conducted pursuant to this subsection, together with such recommendations for legislative or administrative changes as the Comptroller General determines are appropriate.

SEC. 5. PERMANENT EXTENSION OF INCREASED EXPENSING FOR SMALL BUSINESSES.

(a) IN GENERAL- Paragraph (1) of section 179(b) of the Internal Revenue Code of 1986 (relating to dollar limitation) is amended by striking `$25,000 ($100,000 in the case of taxable years beginning after 2002 and before 2006)' and inserting `$100,000'.

(b) INCREASE IN QUALIFYING INVESTMENT AT WHICH PHASEOUT BEGINS- Paragraph (2) of section 179(b) of the Internal Revenue Code of 1986 (relating to reduction in limitation) is amended by striking `$200,000 ($400,000 in the case of taxable years beginning after 2002 and before 2006)' and inserting `$400,000'.

(c) OFF-THE-SHELF COMPUTER SOFTWARE- Paragraph (1) of section 179(d) of the Internal Revenue Code of 1986 (defining section 179 property) is amended by striking `, and which is placed in service in a taxable year beginning after 2002 and before 2006'.

(d) INFLATION ADJUSTMENT- Subparagraph (A) of section 179(b)(5) of the Internal Revenue Code of 1986 (relating to inflation adjustments) is amended by striking `and before 2006'.

(e) REVOCATION OF ELECTION- Paragraph (2) of section 179(c) of the Internal Revenue Code of 1986 is amended by striking the last sentence.

(f) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2003.

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