```

[House Report 106-927]
[From the U.S. Government Publishing Office]

106th Congress                                            Rept. 106-927
                        HOUSE OF REPRESENTATIVES
 2d Session                                                      Part 1

======================================================================

 
           TRANSPORTATION EMPLOYEE FAIR TAXATION ACT OF 1999

                                _______
                                

October 3, 2000.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Gekas, from the Committee on the Judiciary, submitted the following

                              R E P O R T

                        [To accompany H.R. 1293]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to whom was referred the 
bill (H.R. 1293) amending title 46, United States Code, to 
provide equitable treatment with respect to State and local 
income taxes for certain individuals who perform duties on 
vessels, having considered the same, reports favorably thereon 
without amendment and recommends that the bill do pass.

                           TABLE OF CONTENTS

                                                                  

                                                                 Page
Purpose and Summary........................................           1
Background and Need for the Legislation....................           2
Hearings...................................................           4
Committee Consideration....................................           4
Committee Oversight Findings...............................           4
Committee on Government Reform Findings....................           4
New Budget Authority and Tax Expenditures..................           5
Congressional Budget Office Cost Estimate..................           5
Constitutional Authority Statement.........................           6
Section-by-Section Analysis and Discussion.................           6

                          Purpose and Summary

    H.R. 1293, the ``Transportation Employee Fair Taxation Act 
of 1999'' is designed to clarify the taxing status of certain 
types of interstate waterway workers, which under current law 
is ambiguous. This uncertainty in taxing status allows States 
to tax the income of interstate waterway workers in a worker's 
State of residence and in any State in which the worker earns 
50 percent or more of his or her annual income. H.R. 1293 
resolves this ambiguity by prohibiting any State from taxing 
the income of a nonresident interstate waterway worker.

                Background and Need for the Legislation

    The right of States to tax economic activities within their 
borders is a key aspect of Federalism rooted in the 
Constitution and long recognized by Congress. At the same time, 
the Supreme Court has recognized that ``a right to tax is a 
right to destroy.'' \1\ The authority of States to lay and 
collect taxes is thus subject to a number of constitutional 
limitations. First, the Commerce Clause prohibits States from 
assessing taxes which may burden interstate commerce.\2\ 
Second, the Due Process clause prohibits States from taxing 
those who lack a ``substantial nexus'' with the taxing 
State.\3\ Finally, the Privileges and Immunities clause 
prevents States from assessing taxes which discriminate against 
nonresidents.\4\
---------------------------------------------------------------------------
    \1\ McCulloch v. Maryland, 17 U.S. 316, 347 (1819).
    \2\ Quill v. North Dakota 504 U.S. 298 (1992). A State tax survives 
Commerce Clause challenge if it is:

      (1) applied to an activity with a substantial nexus with 
      the taxing State;
      (2) fairly apportioned;
      (3) does not discriminate against interstate commerce and;
      (4) is fairly related to services provided by the State.

Id. at 311; see also Ronald Rotunda, Modern Constitutional Law at 135 
(5th ed. 1998).
---------------------------------------------------------------------------
    \3\ Quill at 306.
    \4\ Ward v. Maryland, 79 U.S. 418 (1870).
---------------------------------------------------------------------------
    Almost all States levy personal income taxes.\5\ States may 
tax the income of in-State residents, even if this income is 
derived from sources outside the taxing State.\6\ It is also 
constitutionally permissible for States to levy taxes on 
nonresident income derived from economic activities within the 
State, as long as the nonresident is taxed in a manner similar 
to in State residents.\7\ To prevent the imposition of multiple 
and discriminatory taxes, most States provide their residents 
with credits to offset income taxes paid to other States on 
income also taxable by the State of residence.\8\ Other States, 
such as those with large commuting populations, protect 
residents from double taxation by entering into reciprocal 
agreements with neighboring States. Some of these agreements 
require that income be taxed solely by the State of residence, 
while others apportion taxes between neighboring States.\9\
---------------------------------------------------------------------------
    \5\ Forty-one States and the District of Columbia levy a broadly-
based personal income tax. Tennessee and New Hampshire impose more 
narrowly based income taxes on passive income derived from interest, 
dividends and capital gains. Alaska, Florida, Nevada, South Dakota, 
Texas, Washington and Wyoming do not collect personal income taxes. 
Jerome R. Hellerstein & Walter Hellerstein, State Taxation Sec. 20 
(1992).
    \6\ New York ex rel. Cohn v. Graves 300 U.S. 308 (1937).
    \7\ Shatter v. Carter, 252 U.S. 37 (1920).
    \8\ Hellerstein and Hellerstein, supra note 5, Sec. 20.
    \9\ See id.
---------------------------------------------------------------------------
Interstate Transportation Workers
    Workers employed by interstate railway, motor, water, and 
air carriers work in multiple States while conducting their 
regularly assigned duties. These interstate transportation 
workers are subject to a myriad of State tax regimes and are 
sometimes required to pay multiple State taxes on earned 
income. While most States allow residents to credit income 
taxes paid to other States, State efforts to protect residents 
from taxes collected by other States are complicated when the 
taxpayer's State of residence does not levy an income tax 
against which to credit taxes paid to other States.\10\ These 
difficulties are further compounded by the administrative 
challenges--such as monitoring the physical location of 
employees--associated with apportioning and collecting taxes on 
income that might be derived in multiple States in the course 
of regularly assigned employment responsibilities.
---------------------------------------------------------------------------
    \10\ See id.
---------------------------------------------------------------------------
Federal Legislation Affecting State Taxation of Interstate 
        Transportation Workers
    Congress has repeatedly attempted to provide a more uniform 
State taxing framework for interstate transportation workers. 
In 1970, Congress passed legislation \11\ to provide 
streamlined taxing principles for this class of workers. The 
legislation prohibited nonresident States from withholding 
taxes on the income of interstate transportation workers unless 
the worker earned 50 percent or more of his or her income in 
the nonresident State. This 50 percent taxing threshold is 
often referred to as the ``Fifty Percent Rule.'' The act 
specifically prohibited States from taxing the income of 
interstate rail, motor carrier and aircraft workers if they did 
not meet this taxing threshold. While interstate waterway 
workers were not exempted from having to pay income taxes to 
nonresident States, the statute did exempt interstate waterway 
workers from having to report income falling short of the Fifty 
Percent Rule to nonresident States.\12\
---------------------------------------------------------------------------
    \11\ Pub. L. No. 91-569, 84 Stat. 1499.
    \12\ See id., Sec. 324(a).
---------------------------------------------------------------------------
    While a promising first step toward tax equalization, the 
``50 Percent Rule'' proved to be administratively burdensome to 
States and interstate transportation workers alike. In response 
to these concerns, Congress incrementally rescinded the 50 
Percent Rule with respect to various classes of interstate 
transportation workers. In 1979, Congress prohibited States 
other than the taxpayer's State of residence from taxing 
interstate air carrier workers.\13\ Two decades later, Congress 
eliminated the 50 Percent Rule for interstate motor and railway 
carrier workers by prohibiting States other than the taxpayer's 
State of residence from taxing these workers.\14\
---------------------------------------------------------------------------
    \13\ Aviation Safety and Noise Abatement Act, Pub. L. No. 96-193, 
94 Stat. 50.
    \14\ Amtrak Reauthorization and Improvement Act of 1990, Pub. L. 
No. 101-322, 104 Stat. 295.
---------------------------------------------------------------------------
    The Interstate Commerce Commission Termination Act of 1995 
(ICCTA) \15\ brought further taxing clarity to railway and 
motor carrier workers. While the act reiterated the exemption 
of interstate railway, aviation, and motor carriers from paying 
State income taxes to a State other than their State of 
residence, it did not extend this protection to interstate 
water carriers. The legislation thus had the effect of 
preserving the 50 Percent Rule for interstate waterway workers. 
While the ICCTA maintained the 50 Percent Rule for interstate 
water workers, other Federal legislation expressly prohibits 
any State from withholding wages of masters or seaman engaged 
in interstate commerce.\16\ As a result of these overlapping 
and sometimes conflicting Federal statutes, interstate waterway 
carriers occupy an unsettled taxing status. This lack of taxing 
clarity is compounded by the monitoring and reporting 
difficulties that underlie the proper apportionment of income 
earned while navigating waterways that delineate interstate 
boundaries.
---------------------------------------------------------------------------
    \15\ Pub. L. No. 104-88, 109 Stat. 803.
    \16\ 46 U.S.C. Sec. 11108 (2000).
---------------------------------------------------------------------------
Interstate Water Carriers in the Pacific Northwest
    Interstate water carriers working along the Columbia River 
in the Pacific Northwest highlight the uncertain taxing 
position of interstate water carriers. The Columbia River 
serves as the boundary between Oregon and Washington. Oregon 
levies a broad based tax on personal income, while Washington 
does not. Over the last several years, Washington residents who 
work on the Columbia River as riverport pilots and barge 
operators have unexpectedly received tax assessments of 
hundreds of thousands of dollars in back taxes by Oregon taxing 
authorities.\17\ Since interstate water carriers along the 
Columbia River are unable to precisely ascertain how much time 
their workers spend in Oregon waters, Oregon taxing authorities 
have assumed that these workers spend half their time in Oregon 
and are thus taxable under the 50 Percent Rule.\18\ On March 
25, 1999, Representative Brian Baird (Wash. 3rd) introduced 
H.R. 1293, the ``Transportation Employee Fair Taxation Act of 
1999,'' to simplify the taxing status of interstate waterway 
workers.
---------------------------------------------------------------------------
    \17\ Foster Church, Waterway Tax Jolts Workers: Baird Files Bill, 
Portland Oregonian, Mar. 30, 1999, at B2.
    \18\ Jeff Mize, Lawmaker Goes to Bat for River Workers, The 
Columbian, Mar. 30, 1999, at B1.
---------------------------------------------------------------------------

                                Hearings

    The committee's Subcommittee on Commercial and 
Administrative Law held 1 day of hearings on H.R. 1293 on July 
17, 2000. Testimony was received from the following four 
witnesses: Representative Brian Baird, (Wash, 3rd District); 
Chris Eckhardt, Tugboat Captain, Shaver Transportation; and 
Mike Simonsen, Representative, International Organization of 
Masters, Mates and Pilots. Additional information was submitted 
by Elizabeth Harchenko, Director of the Oregon Department of 
Revenue, and Robert A. Nelson, Tugboat Captain (Ret.), Shaver 
Transportation.

                        Committee Consideration

    On September 12, 2000, the committee met in open session 
and ordered favorably reported the bill H.R. 1293, without 
amendment by unanimous consent, a quorum being present.

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the committee reports that the 
findings and recommendations of the committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

                Committee on Government Reform Findings

    No findings or recommendations of the Committee on 
Government Reform were received as referred to in clause 
3(c)(4) of rule XIII of the Rules of the House of 
Representatives.

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of House Rule XIII is inapplicable because 
this legislation does not provide new budgetary authority or 
increased tax expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, the committee sets forth, with 
respect to H.R. 1293, the following estimate and comparison 
prepared by the Director of the Congressional Budget Office 
under section 402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                Washington, DC, September 22, 2000.
Hon. Henry J. Hyde, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1293, a bill to 
amend title 46, United States Code, to provide equitable 
treatment with respect to state and local income taxes for 
certain individuals who perform duties on vessels.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Victoria 
Heid Hall (for the state and local impact), who can be reached 
at 225-3220, Deborah Reis (for federal costs), who can be 
reached at 226-2860, and Jean Wooster (for the private-sector 
impact), who can be reached at 226-2940.
            Sincerely,
                                  Dan L. Crippen, Director.

Enclosure

cc:
        Honorable John Conyers Jr.
        Ranking Democratic Member
H.R. 1293--A bill to amend title 46, United States Code, to provide 
        equitable treatment with respect to state and local income 
        taxes for certain individuals who perform duties on vessels.

                                SUMMARY

    H.R. 1293 would prohibit state and local governments from 
imposing income taxes on individuals working on vessels 
operating on the navigable waters of more than one state unless 
that individual resides in the jurisdiction assessing the tax. 
Such a prohibition is an intergovernmental mandate as defined 
in the Unfunded Mandates Reform Act (UMRA). CBO estimates that 
the costs of this mandate would be well below the threshold 
established in UMRA ($55 million in 2000, adjusted annually for 
inflation). H.R. 1293 would have no impact on the federal 
budget and contains no new private-sector mandates as defined 
in UMRA.
    According to the Federation of Tax Administrators (FTA), 
under current law the amount of state and local income taxes 
owed by the individuals affected by this bill is based on the 
jurisdiction with the highest applicable income tax rate: 
either the jurisdiction where the income is earned, or the 
jurisdiction where the worker resides. In contrast, under H.R. 
1293 state and local income taxes would be based solely on 
where a vessel worker resides. In that case, some individuals 
would pay lower income taxes than they would under current law, 
resulting in a net loss nationwide in state and local income 
tax revenues. Little data are available on the number of 
workers on vessels that operate on the navigable waters of more 
than one state and on where such workers reside. Consequently, 
CBO cannot precisely estimate those losses. Based on 
information from FTA, the U.S. Coast Guard's National Maritime 
Center, and the Bureau of Labor Statistics, however, CBO 
estimates that the revenues forgone by state and local 
governments would be small and would not exceed the threshold 
established in UMRA ($55 million in 2000, adjusted annually for 
inflation).
    On August 11, 2000, CBO prepared a cost estimate for S. 
893, a similar bill ordered reported by the Senate Committee on 
Commerce on June 15, 2000. The estimated impacts of the two 
bills on the federal government and on state and local 
government are the same.
    The CBO contacts are Victoria Heid Hall (for the state and 
local impact), who can be reached at 225-3220, Deborah Reis 
(for federal costs), who can be reached at 226-2860, and Jean 
Wooster (for the private-sector impact), who can be reached at 
226-2940. This estimate was approved by Robert A. Sunshine, 
Assistant Director for Budget Analysis.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the committee finds the authority for 
this legislation in Article I, section 8 clause 3 of the 
Constitution.

               Section-by-Section Analysis and Discussion

Section 1. Short Title.
    This section states that the act may be cited as the 
``Transportation Employee Fair Taxation Act of 1999.''
Section 2. Equitable Treatment for Individuals Employed on Vessels with 
        Respect to State and Local Income Taxes.
    Section 2 amends 46 U.S.C. Sec. 11108 to clarify the taxing 
status of interstate waterway workers. Specifically, the 
amendment provides that any person who performs assigned duties 
on a vessel in more than one State as a licensed pilot under 46 
U.S.C. Sec. 7101, or as a State-licensed or authorized pilot, 
shall not be subject to State income taxes in any State other 
than the individual's State of residence.
    Section 2 extends this exemption from multiple State income 
taxation to persons who perform regularly assigned duties while 
engaged as a master, officer, or crewman on a vessel operating 
on the navigable waters of more than one State.

                                  

```