108th CONGRESS
1st Session
S. 970
To amend the Internal Revenue Code of 1986 to preserve jobs and production
activities in the United States.
IN THE SENATE OF THE UNITED STATES
May 1, 2003
Mr. HOLLINGS introduced the following bill; which was read twice and referred
to the Committee on Finance
A BILL
To amend the Internal Revenue Code of 1986 to preserve jobs and production
activities 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 `Job Protection Act of 2003'.
SEC. 2. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME.
(a) IN GENERAL- Section 114 of the Internal Revenue Code of 1986 is hereby
repealed.
(b) CONFORMING AMENDMENTS-
(1) Subpart E of part III of subchapter N of chapter 1 of such Code (relating
to qualifying foreign trade income) is hereby repealed.
(2) The table of subparts for such part III is amended by striking the item
relating to subpart E.
(3) The table of sections for part III of subchapter B of chapter 1 of such
Code is amended by striking the item relating to section 114.
(1) IN GENERAL- The amendments made by this section shall apply to transactions
occurring after the date of the enactment of this Act.
(2) BINDING CONTRACTS- The amendments made by this section shall not apply
to any transaction in the ordinary course of a trade or business which occurs
pursuant to a binding contract--
(A) which is between the taxpayer and a person who is not a related person
(as defined in section 943(b)(3) of such Code, as in effect on the day
before the date of the enactment of this Act), and
(B) which is in effect on April 11, 2003, and at all times thereafter.
For purposes of this paragraph, a binding contract shall include a purchase
option, renewal option, or replacement option which is included in such
contract.
(d) REVOCATION OF SECTION 943(e) ELECTIONS-
(1) IN GENERAL- In the case of a corporation that elected to be treated
as a domestic corporation under section 943(e) of the Internal Revenue Code
of 1986 (as in effect on the day before the date of the enactment of this
Act)--
(A) the corporation may revoke such election, effective as of the date
of the enactment of this Act, and
(B) if the corporation does revoke such election--
(i) such corporation shall be treated as a domestic corporation transferring
(as of the date of the enactment of this Act) all of its property to
a foreign corporation in connection with an exchange described in section
354 of the Internal Revenue Code of 1986, and
(ii) no gain or loss shall be recognized on such transfer.
(2) EXCEPTION- Subparagraph (B)(ii) of paragraph (1) shall not apply to
gain on any asset held by the revoking corporation if--
(A) the basis of such asset is determined in whole or in part by reference
to the basis of such asset in the hands of the person from whom the revoking
corporation acquired such asset,
(B) the asset was acquired by transfer (not as a result of the election
under section 943(e) of such Code) occurring on or after the 1st day on
which its election under section 943(e) of such Code was effective, and
(C) a principal purpose of the acquisition was the reduction or avoidance
of tax.
(1) IN GENERAL- In the case of a taxable year ending after the date of the
enactment of this Act and beginning before January 1, 2009, for purposes
of chapter 1 of such Code, each current FSC/ETI beneficiary shall be allowed
a deduction equal to the transition amount determined under this subsection
with respect to such beneficiary for such year.
(2) CURRENT FSC/ETI BENEFICIARY- The term `current FSC/ETI beneficiary'
means any corporation which entered into one or more transactions during
its taxable year beginning in calendar year
2001 with respect to which FSC/ETI benefits were allowable.
(3) TRANSITION AMOUNT- For purposes of this subsection--
(A) IN GENERAL- The transition amount applicable to any current FSC/ETI
beneficiary for any taxable year is the phaseout percentage of the adjusted
base period amount.
(i) IN GENERAL- In the case of a taxpayer using the calendar year as
its taxable year, the phaseout percentage shall be determined under
the following table:
The phaseout
`Years:
percentage is:
2004 and 2005
100
2006
75
2007
75
2008
50
2009 and thereafter
0.'
(ii) SPECIAL RULE FOR 2003- The phaseout percentage for 2003 shall be
the amount that bears the same ratio to 100
percent as the number of days after the date of the enactment of this Act
bears to 365.
(iii) SPECIAL RULE FOR FISCAL YEAR TAXPAYERS- In the case of a taxpayer
not using the calendar year as its taxable year, the phaseout percentage
is the weighted average of the phaseout percentages determined under
the preceding provisions of this paragraph with respect to calendar
years any portion of which is included in the taxpayer's taxable year.
The weighted average shall be determined on the basis of the respective
portions of the taxable year in each calendar year.
(4) ADJUSTED BASE PERIOD AMOUNT- For purposes of this subsection--
(A) IN GENERAL- In the case of a taxpayer using the calendar year as its
taxable year, the adjusted base period amount for any taxable year is
the base period amount multiplied by the applicable percentage, as determined
in the following table:
The applicable
`Years:
percentage is:
2003
100
2004
100
2005
105
2006
110
2007
115
2008
120
2009 and thereafter
0.'
(B) BASE PERIOD AMOUNT- The base period amount is the aggregate FSC/ETI
benefits for the taxpayer's taxable year beginning in calendar year 2001.
(C) SPECIAL RULES FOR FISCAL YEAR TAXPAYERS, ETC- Rules similar to rules
of clauses (ii) and (iii) of paragraph (3)(B) shall apply for purposes
of this paragraph.
(5) FSC/ETI BENEFIT- For purposes of this subsection, the term `FSC/ETI
benefit' means--
(A) amounts excludable from gross income under section 114 of such Code,
and
(B) the exempt foreign trade income of related foreign sales corporations
from property acquired from the taxpayer (determined without regard to
section 923(a)(5) of such Code (relating to special rule for military
property), as in effect on the day before the date of the enactment of
the FSC Repeal and Extraterritorial Income Exclusion Act of 2000).
In determining the FSC/ETI benefit there shall be excluded any amount attributable
to a transaction with respect to which the taxpayer is the lessor unless
the leased property was manufactured or produced in whole or in part by
the taxpayer.
(6) SPECIAL RULE FOR FARM COOPERATIVES- Under regulations prescribed by
the Secretary, determinations under this subsection with respect to an organization
described in section 943(g)(1) of such Code, as in effect on the day before
the date of the enactment of this Act, shall be made at the cooperative
level and the purposes of this subsection shall be carried out by excluding
amounts from the gross income of its patrons.
(7) CERTAIN RULES TO APPLY- Rules similar to the rules of section 41(f)
of such Code shall apply for purposes of this subsection.
(8) COORDINATION WITH BINDING CONTRACT RULE- The deduction determined under
paragraph (1) for any taxable year shall be reduced by the phaseout percentage
of any FSC/ETI benefit realized for the taxable year by reason of subsection
(c)(2). The preceding sentence shall not apply to any FSC/ETI benefit attributable
to a transaction described in the last sentence of paragraph (5).
(9) SPECIAL RULE FOR TAXABLE YEAR WHICH INCLUDES DATE OF ENACTMENT- In the
case of a taxable year which includes the date of the enactment of this
Act, the deduction allowed under this subsection to any current FSC/ETI
beneficiary shall in no event exceed--
(A) 100 percent of such beneficiary's adjusted base period amount for
calendar year 2003, reduced by
(B) the aggregate FSC/ETI benefits of such beneficiary with respect to
transactions occurring during the portion of the taxable year ending on
the date of the enactment of this Act.
SEC. 3. DEDUCTION RELATING TO INCOME ATTRIBUTABLE TO UNITED STATES PRODUCTION
ACTIVITIES.
(a) IN GENERAL- Part VIII of subchapter B of chapter 1 of the Internal Revenue
Code of 1986 (relating to special deductions for corporations) is amended
by adding at the end the following new section:
`SEC. 250. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION ACTIVITIES.
`(a) IN GENERAL- In the case of a corporation, there shall be allowed as a
deduction an amount equal to 10 percent of the qualified production activities
income of the corporation for the taxable year.
`(b) PHASEIN- In the case of taxable years beginning in 2006, 2007, 2008 or
2009, subsection (a) shall be applied by substituting for the percentage contained
therein the transition percentage determined under the following table:
`Taxable years
The transition
beginning in:
percentage is:
2006
1
2007
2
2008
4
2009
9
`(c) QUALIFIED PRODUCTION ACTIVITIES INCOME- For purposes of this section,
the term `qualified production activities income' means the product of--
`(1) the portion of the modified taxable income of the taxpayer which is
attributable to domestic production activities, and
`(2) the domestic/foreign fraction.
`(d) DETERMINATION OF INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION ACTIVITIES-
For purposes of this section--
`(1) IN GENERAL- The portion of the modified taxable income which is attributable
to domestic production activities is so much of the modified taxable income
for the taxable year as does not exceed--
`(A) the taxpayer's domestic production gross receipts for such taxable
year, reduced by
`(i) the costs of goods sold that are allocable to such receipts,
`(ii) other deductions, expenses, or losses directly allocable to such
receipts, and
`(iii) a ratable portion of other deductions, expenses, and losses that
are not directly allocable to such receipts or another class of income.
`(2) ALLOCATION METHOD- Except as provided in regulations, allocations under
clauses (ii) and (iii) of paragraph (1)(B) shall be made under the principles
used in determining the portion of taxable income from sources within and
without the United States.
`(A) For purposes of determining costs under clause (i) of paragraph (1)(B),
any item or service brought into the United States without a transfer
price meeting the requirements of section 482 shall be treated as acquired
by purchase, and its cost shall be treated as not less than its value
when it entered the United States. A similar rule shall apply in determining
the adjusted basis of leased or rented property where the lease or rental
gives rise to domestic production gross receipts.
`(B) In the case of any property described in subparagraph (A) that had
been exported by the taxpayer for further manufacture, the increase in
cost (or adjusted basis) under subparagraph (A) shall not exceed the difference
between the value of the property when exported and the value of the property
when brought back into the United States after the further manufacture.
`(4) MODIFIED TAXABLE INCOME- The term `modified taxable income' means taxable
income computed without regard to the deduction allowable under this section.
`(e) DOMESTIC PRODUCTION GROSS RECEIPTS- For purposes of this section--
`(1) IN GENERAL- The term `domestic production gross receipts' means the
gross receipts of the taxpayer which are derived from--
`(A) any sale, exchange, or other disposition of, or
`(B) any lease, rental or license of,
qualifying production property which was manufactured, produced, grown,
or extracted in whole or in significant part by the taxpayer within the
United States.
`(2) SPECIAL RULE- The term `domestic production gross receipts' includes
gross receipts of the taxpayer from the sale, exchange, or other disposition
of replacement parts if--
`(A) such parts are sold by the taxpayer as replacement parts for qualified
production property produced or manufactured in whole or significant part
by the taxpayer in the United States, and
`(B) the taxpayer (or a related party) owns the designs for such parts.
`(3) RELATED PARTY- The term `related party' means any corporation which
is a member of the taxpayer's expanded affiliated group.
`(f) QUALIFYING PRODUCTION PROPERTY- For purposes of this section--
`(1) IN GENERAL- Except as otherwise provided in this paragraph, the term
`qualifying production property' means--
`(A) any tangible personal property,
`(B) any computer software, and
`(C) any films, tapes, records, or similar reproductions.
`(2) EXCLUSIONS FROM QUALIFYING PRODUCTION PROPERTY- The term `qualifying
production property' shall not include--
`(A) consumable property that is sold, leased, or licensed by the taxpayer
as an integral part of the provision of services,
`(B) oil or gas (or any primary product thereof),
`(D) water supplied by pipeline to the consumer,
`(E) any unprocessed timber which is softwood,
`(F) utility services, or
`(G) any property (not described in paragraph (1)(B)) which is a film,
tape, recording, book, magazine, newspaper, or similar property the market
for which is primarily topical or otherwise essentially transitory in
nature.
For purposes of subparagraph (E), the term `unprocessed timber' means any
log, cant, or similar form of timber.
`(g) DOMESTIC/FOREIGN FRACTION- For purposes of this section--
`(1) IN GENERAL- The term `domestic/foreign fraction' means a fraction--
`(A) the numerator of which is the value of the domestic production of
the taxpayer, and
`(B) the denominator of which is the value of the worldwide production
of the taxpayer.
`(2) VALUE OF DOMESTIC PRODUCTION- The value of domestic production is the
excess of--
`(A) the domestic production gross receipts, over
`(B) the cost of purchased inputs allocable to such receipts that are
deductible under this chapter for the taxable year.
`(A) IN GENERAL- Purchased inputs are any of the following items acquired
by purchase:
`(i) Services (other than services of employees) used in manufacture,
production, growth, or extraction activities.
`(ii) Items consumed in connection with such activities.
`(iii) Items incorporated as part of the property being manufactured,
produced, grown, or extracted.
`(B) SPECIAL RULE- Rules similar to the rules of subsection (d)(3) shall
apply for purposes of this subsection.
`(4) VALUE OF WORLDWIDE PRODUCTION-
`(A) IN GENERAL- The value of worldwide production shall be determined
under the principles of paragraph (2), except that--
`(i) worldwide production gross receipts shall be taken into account,
and
`(ii) paragraph (3)(B) shall not apply.
`(B) WORLDWIDE PRODUCTION GROSS RECEIPTS- The worldwide production gross
receipts is the amount that would be determined under subsection (e) if
such subsection were applied without any reference to the United States.
`(5) SPECIAL RULE FOR AFFILIATED GROUPS-
`(A) IN GENERAL- In the case of a taxpayer that is a member of an expanded
affiliated group, the domestic/foreign fraction shall be the amount determined
under the preceding provisions of this subsection by treating all members
of such group as a single corporation.
`(B) EXPANDED AFFILIATED GROUP- The term `expanded affiliated group' means
an affiliated group as defined in section 1504(a), determined--
`(i) by substituting `50 percent' for `80 percent' each place it appears,
and
`(ii) without regard to paragraphs (2), (3), and (4) of section 1504(b).
`(h) DEFINITIONS AND SPECIAL RULES-
`(1) UNITED STATES- For purposes of this section, the term `United States'
includes the Commonwealth of Puerto Rico and any other possession of the
United States.
`(2) SPECIAL RULE FOR PARTNERSHIPS- For purposes of this section, a corporation's
distributive share of any partnership item shall be taken into account as
if directly realized by the corporation.
`(3) COORDINATION WITH MINIMUM TAX- The deduction under this section shall
be allowed for purposes of the tax imposed by section 55; except that for
purposes of section 55, alternative minimum taxable income shall be taken
into account in determining the deduction under this section.
`(4) ORDERING RULE- The amount of any other deduction allowable under this
chapter shall be determined as if this section had not been enacted.
`(5) COORDINATION WITH TRANSITION RULES- For purposes of this section--
`(A) domestic production gross receipts shall not include gross receipts
from any transaction if the binding contract transition relief of section
2(c)(2) of the Job Protection Act of 2003 applies to such transaction,
and
`(B) any deduction allowed under section 2(e) of such Act shall be disregarded
in determining the portion of the taxable income which is attributable
to domestic production gross receipts.'.
(b) CLERICAL AMENDMENT- The table of sections for part VIII of subchapter
B of chapter 1 of such Code is amended by adding at the end the following
new item:
`Sec. 250. Income attributable to domestic production activities.'.
(1) IN GENERAL- The amendments made by this section shall apply to taxable
years beginning after 2005.
(2) APPLICATION OF SECTION 15- Section 15 of the Internal Revenue Code of
1986 shall apply to the amendments made by this section as if they were
changes in a rate of tax.
END
