Puerto Rico Economic Activity Credit Improvement Act of 1997

Summary: Puerto Rico Economic Activity Credit Improvement Act of 1997 - Amends the Internal Revenue Code to modify the requirements for corporations to be eligible for the Puerto Rico economic activity credit.  Requires that, in determining the credit amount, the credit provisions be applied separately to each substantial line of business of the corporation.  Removes provisions limiting, in taxable years beginning after 2001, the aggregate taxable income taken into account in determining the amount of the credit.  Terminates the credit four years after Puerto Rico has, for three consecutive years, unemployment under and per capita income over specified percentages of the U.S. rates. 
(Sec. 3) Amends provisions relating to the Puerto Rico and other possession tax credit to modify, with respect to possessions other than Puerto Rico, corporate eligibility requirements.  Requires that, in determining the credit amount, the credit provisions be applied separately to each substantial line of business of the corporation. Modifies additional restricted credit requirements.  Sets forth the circumstances in which the credit is available with regard to Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands. Terminates the credit, for any possession other than Puerto Rico, four years after the possession has, for three consecutive years, unemployment under and per capita income over specified percentages of the U.S. rates and poverty under a specified level.

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``Puerto Rico 
Economic Activity Credit Improvement Act of 1997''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.

SEC. 2. MODIFICATIONS OF PUERTO RICO ECONOMIC ACTIVITY CREDIT.

    (a) Corporations Eligible To Claim Credit.--Section 30A(a)(2) 
(defining qualified domestic corporation) is amended to read as 
follows:
            ``(2) Qualified domestic corporation.--For purposes of 
        paragraph (1)--
                    ``(A) In general.--A domestic corporation shall be 
                treated as a qualified domestic corporation for a 
                taxable year if it is actively conducting within Puerto 
                Rico during the taxable year--
                            ``(i) a line of business with respect to 
                        which the domestic corporation is an existing 
                        credit claimant under section 936(j)(9), or
                            ``(ii) an eligible line of business not 
                        described in clause (i).
                    ``(B) Limitation to lines of business.--A domestic 
                corporation shall be treated as a qualified domestic 
                corporation under subparagraph (A) only with respect to 
                the lines of business described in subparagraph (A) 
                which it is actively conducting in Puerto Rico during 
                the taxable year.
                    ``(C) Exception for corporations electing reduced 
                credit.--A domestic corporation shall not be treated as 
                a qualified corporation if such corporation (or any 
                predecessor) had an election in effect under section 
                936(a)(4)(B)(iii) for any taxable year beginning after 
                December 31, 1996.''
    (b) Application on Separate Line of Business Basis; Eligible Line 
of Business.--Section 30A is amended by redesignating subsection (g) as 
subsection (h) and by inserting after subsection (f) the following new 
subsection:
    ``(g) Application on Line of Business Basis; Eligible Lines of 
Business.--For purposes of this section--
            ``(1) Application to separate line of business.--
                    ``(A) In general.--In determining the amount of the 
                credit under subsection (a), this section shall be 
                applied separately with respect to each substantial 
                line of business of the qualified domestic corporation.
                    ``(B) Exceptions for existing credit claimant.--
                This paragraph shall not apply to a substantial line of 
                business with respect to which the qualified domestic 
                corporation is an existing credit claimant under 
                section 936(j)(9).
                    ``(C) Allocation.--The Secretary shall prescribe 
                rules necessary to carry out the purposes of this 
                paragraph, including rules--
                            ``(i) for the allocation of items of 
                        income, gain, deduction, and loss for purposes 
                        of determining taxable income under subsection 
                        (a), and
                            ``(ii) for the allocation of wages, fringe 
                        benefit expenses, and depreciation allowances 
                        for purposes of applying the limitations under 
                        subsection (d).
            ``(2) Eligible line of business.--The term `eligible line 
        of business' means a substantial line of business in any of the 
        following trades or businesses:
                    ``(A) Manufacturing.
                    ``(B) Agriculture.
                    ``(C) Forestry.
                    ``(D) Fishing.
            ``(3) Substantial line of business.--For purposes of this 
        subsection, the determination of whether a line of business is 
        a substantial line of business shall be determined by reference 
        to 2-digit codes under the North American Industry 
        Classification System (62 Fed. Reg. 17288 et seq., formerly 
        known as `SIC codes').''
    (c) Repeal of Base Period Cap.--
            (1) In general.--Section 30A(a)(1) (relating to allowance 
        of credit) is amended by striking the last sentence.
            (2) Conforming amendment.--Section 30A(e)(1) is amended by 
        inserting ``but not including subsection (j)(3)(A)(ii) 
        thereof'' after ``thereunder''.
    (d) Application of Credit.--Section 30A(h) (relating to 
applicability of section), as redesignated by subsection (b), is 
amended to read as follows:
    ``(h) Application of Section.--
            ``(1) In general.--This section shall apply to taxable 
        years beginning after December 31, 1995, and before the 
        termination date.
            ``(2) Termination date.--For purposes of paragraph (1)--
                    ``(A) In general.--The termination date is the 
                first day of the 4th calendar year following the close 
                of the first period for which a certification is issued 
                by the Secretary under subparagraph (B).
                    ``(B) Certification.--
                            ``(i) In general.--The Secretary shall 
                        issue a certification under this subparagraph 
                        for the first 3-consecutive calendar year 
                        period beginning after December 31, 1997, for 
                        which the Secretary determines that Puerto Rico 
                        has met the requirements of clause (ii) for 
                        each calendar year within the period.
                            ``(ii) Requirements.--The requirements of 
                        this clause are met with respect to Puerto Rico 
                        for any calendar year if--
                                    ``(I) the average monthly rate of 
                                unemployment in Puerto Rico does not 
                                exceed 150 percent of the average 
                                monthly rate of unemployment for the 
                                United States for such year,
                                    ``(II) the per capita income of 
                                Puerto Rico is at least 66 percent of 
                                the per capita income of the United 
                                States, and
                                    ``(III) the poverty level within 
                                Puerto Rico does not exceed 30 
                                percent.''
    (e) Conforming Amendments.--
            (1) Section 30A(b) is amended by striking ``within a 
        possession'' each place it appears and inserting ``within 
        Puerto Rico''.
            (2) Section 30A(d) is amended by striking ``possession'' 
        each place it appears.
            (3) Section 30A(f) is amended to read as follows:
    ``(f) Definitions.--For purposes of this section--
            ``(1) Qualified income taxes.--The qualified income taxes 
        for any taxable year allocable to nonsheltered income shall be 
        determined in the same manner as under section 936(i)(3).
            ``(2) Qualified wages.--The qualified wages for any taxable 
        year shall be determined in the same manner as under section 
        936(i)(1).
            ``(3) Other terms.--Any term used in this section which is 
        also used in section 936 shall have the same meaning given such 
        term by section 936.''
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.

SEC. 3. COMPARABLE TREATMENT FOR OTHER ECONOMIC ACTIVITY CREDIT.

    (a) Corporations Eligible To Claim Credit.--Section 936(j)(2)(A) 
(relating to economic activity credit) is amended to read as follows:
                    ``(A) Economic activity credit.--
                            ``(i) In general.--In the case of a 
                        domestic corporation which, during the taxable 
                        year, is actively conducting within a 
                        possession other than Puerto Rico--
                                    ``(I) a line of business with 
                                respect to which the domestic 
                                corporation is an existing credit 
                                claimant under paragraph (9), or
                                    ``(II) an eligible line of business 
                                not described in subclause (I),
                        the credit determined under subsection 
                        (a)(1)(A) shall be allowed for taxable years 
                        beginning after December 31, 1995, and before 
                        January 1, 2002.
                            ``(ii) Limitation to lines of business.--
                        Clause (i) shall only apply with respect to the 
                        lines of business described in clause (i) which 
                        the domestic corporation is actively conducting 
                        in a possession other than Puerto Rico during 
                        the taxable year.
                            ``(iii) Exception for corporations electing 
                        reduced credit.--Clause (i) shall not apply to 
                        a domestic corporation if such corporation (or 
                        any predecessor) had an election in effect 
                        under subsection (a)(4)(B)(iii) for any taxable 
                        year beginning after December 31, 1996.''
    (b) Application on Separate Line of Business Basis; Eligible Line 
of Business.--
            (1) In general.--Section 936(j) is amended by adding at the 
        end the following new paragraph:
            ``(11) Application on line of business basis; eligible 
        lines of business.--For purposes of this section--
                    ``(A) Application to separate line of business.--
                            ``(i) In general.--In determining the 
                        amount of the credit under subsection (a)(1)(A) 
                        for a corporation to which paragraph (2)(A) 
                        applies, this section shall be applied 
                        separately with respect to each substantial 
                        line of business of the corporation.
                            ``(ii) Exceptions for existing credit 
                        claimant.--This paragraph shall not apply to a 
                        line of business with respect to which the 
                        qualified domestic corporation is an existing 
                        credit claimant under paragraph (9).
                            ``(iii) Allocation.--The Secretary shall 
                        prescribe rules necessary to carry out the 
                        purposes of this subparagraph, including 
                        rules--
                                    ``(I) for the allocation of items 
                                of income, gain, deduction, and loss 
                                for purposes of determining taxable 
                                income under subsection (a)(1)(A), and
                                    ``(II) for the allocation of wages, 
                                fringe benefit expenses, and 
                                depreciation allowances for purposes of 
                                applying the limitations under 
                                subsection (a)(4)(A).
                    ``(B) Eligible line of business.--For purposes of 
                this subsection, the term `eligible line of business' 
                means a substantial line of business in any of the 
                following trades or businesses:
                            ``(i) Manufacturing.
                            ``(ii) Agriculture.
                            ``(iii) Forestry.
                            ``(iv) Fishing.''
            (2) New lines of business.--Section 936(j)(9)(B) is amended 
        to read as follows:
                    ``(B) New lines of business.--A corporation shall 
                not be treated as an existing credit claimant with 
                respect to any substantial new line of business which 
                is added after October 13, 1995, unless such addition 
                is pursuant to an acquisition described in subparagraph 
                (A)(ii).''
            (3) Separate lines of business.--Section 936(j), as amended 
        by paragraph (1), is amended by adding at the end the following 
        new paragraph:
            ``(12) Substantial line of business.--For purposes of this 
        subsection (other than paragraph (9)(B) thereof), the 
        determination of whether a line of business is a substantial 
        line of business shall be determined by reference to 2-digit 
        codes under the North American Industry Classification System 
        (62 Fed. Reg. 17288 et seq., formerly known as `SIC codes').''
    (c) Repeal of Base Period Cap for Economic Activity Credit.--
            (1) In general.--Section 936(j)(3) is amended to read as 
        follows:
            ``(3) Additional restricted reduced credit.--
                    ``(A) In general.--In the case of an existing 
                credit claimant to which paragraph (2)(B) applies, the 
                credit determined under subsection (a)(1)(A) shall be 
                allowed for any taxable year beginning after December 
                31, 1997, and before January 1, 2006, except that the 
                aggregate amount of taxable income taken into account 
                under subsection (a)(1)(A) for such taxable year shall 
                not exceed the adjusted base period income of such 
                claimant.
                    ``(B) Coordination with subsection (a)(4)(B).--The 
                amount of income described in subsection (a)(1)(A) 
                which is taken into account in applying subsection 
                (a)(4)(B) shall be such income as reduced under this 
                paragraph.''
            (2) Conforming amendment.--Section 936(j)(2)(A), as amended 
        by subsection (a), is amended by striking ``2002'' and 
        inserting ``2006''.
    (d) Application of Credit.--
            (1) In general.--Section 936(j)(2)(A), as amended by this 
        section, is amended by striking ``January 1, 2006'' and 
        inserting ``the termination date''.
            (2) Special rules for applicable possessions.--Section 
        936(j)(8)(A) is amended to read as follows:
                    ``(A) In general.--In the case of an applicable 
                possession--
                            ``(i) this section (other than the 
                        preceding paragraphs of this subsection) shall 
                        not apply for taxable years beginning after 
                        December 31, 1995, and before January 1, 2006, 
                        with respect to any substantial line of 
                        business actively conducted in such possession 
                        by a domestic corporation which is an existing 
                        credit claimant with respect to such line of 
                        business, and
                            ``(ii) this section (including this 
                        subsection) shall apply--
                                    ``(I) with respect to any 
                                substantial line of business not 
                                described in clause (i) for taxable 
                                years beginning after December 31, 
                                1997, and before the termination date, 
                                and
                                    ``(II) with respect to any 
                                substantial line of business described 
                                in clause (i) for taxable years 
                                beginning after December 31, 2006, and 
                                before the termination date.''
            (3) Termination date.--Section 936(j), as amended by 
        subsection (b), is amended by adding at the end the following 
        new paragraph.
            ``(13) Termination date.--For purposes of this subsection--
                    ``(A) In general.--The termination date for any 
                possession other than Puerto Rico is the first day of 
                the 4th calendar year following the close of the first 
                period for which a certification is issued by the 
                Secretary under subparagraph (B).
                    ``(B) Certification.--
                            ``(i) In general.--The Secretary shall 
                        issue a certification for a possession under 
                        this subparagraph for the first 3-consecutive 
                        calendar year period beginning after December 
                        31, 1997, for which the Secretary determines 
                        that the possession has met the requirements of 
                        clause (ii) for each calendar year within the 
                        period.
                            ``(ii) Requirements.--The requirements of 
                        this clause are met with respect to a 
                        possession for any calendar year if--
                                    ``(I) the average monthly rate of 
                                unemployment in the possession does not 
                                exceed 150 percent of the average 
                                monthly rate of unemployment for the 
                                United States for such year,
                                    ``(II) the per capita income of the 
                                possession is at least 66 percent of 
                                the per capita income of the United 
                                States, and
                                    ``(III) the poverty level within 
                                the possession does not exceed 30 
                                percent.''
    (e) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 1997.
            (2) New lines of business.--The amendment made by 
        subsection (b)(2) shall apply to taxable years beginning after 
        December 31, 1995.