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104TH CONGRESS

1ST SESSION H. R. 1953

To amend the Internal Revenue Code of 1986 to encourage the development

of a commercial space industry in the United States.

IN THE HOUSE OF REPRESENTATIVES

JUNE 28, 1995

Mr. WALKER (for himself, Mr. ZIMMER, Mr. ENGLISH of Pennsylvania, Mr.

ROHRABACHER, Mrs. SEASTRAND, Mr. WELDON of Florida, and Mr.

SENSENBRENNER) introduced the following bill; which was referred to the

Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to encourage

the development of a commercial space industry in the

United States.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Space Business Incen5 tives Act of 1995’’.

6 SEC. 2. DEDUCTION FOR PURCHASE OF COMMERCIAL

7 SPACE CENTER STOCK.

8 (a) IN GENERAL.—Part VI of subchapter B of chap9 ter 1 of the Internal Revenue Code of 1986 (relating to
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1 itemized deductions for individuals and corporations) is

2 amended by adding at the end the following new section:

3 ‘‘SEC. 198. DEDUCTION FOR PURCHASE OF COMMERCIAL

4 SPACE CENTER STOCK.

5 ‘‘(a) IN GENERAL.—At the election of the taxpayer,

6 there shall be allowed as a deduction an amount equal to

7 the aggregate amount paid during the taxable year for the

8 purchase of qualified Commercial Space Center stock.

9 ‘‘(b) MAXIMUM DEDUCTION.—

10 ‘‘(1) IN GENERAL.—The maximum amount al11 lowed as a deduction under subsection (a) to a tax12 payer for the taxable year shall not exceed $100,000

13 ($50,000 in the case of a married individual filing

14 a separate return).

15 ‘‘(2) CONTROLLED GROUPS.—

16 ‘‘(A) IN GENERAL.—All corporations which

17 are members of the same parent-subsidiary con18 trolled group shall be treated as 1 corporation

19 for purposes of paragraph (1), and the dollar

20 amount applicable under paragraph (1) shall be

21 allocated among the members of such group in

22 proportion to their respective purchases of stock

23 during the taxable year for which the deduction

24 is allowable by this section.
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1 ‘‘(B) PARENT-SUBSIDIARY CONTROLLED

2 GROUP.—For purposes of subparagraph (A),

3 the term ‘parent-subsidiary controlled group’

4 means any controlled group of corporations as

5 defined in section 1563(a)(1), except that—

6 ‘‘(i) ‘more than 50 percent’ shall be

7 substituted for ‘at least 80 percent’ each

8 place it appears in section 1563(a)(1), and

9 ‘‘(ii) section 1563(a)(4) shall not

10 apply.

11 ‘‘(3) ALLOCATION OF DEDUCTION WHERE

12 STOCK PURCHASED EXCEEDS LIMITATION.—If the

13 amount of stock purchased by any person exceeds

14 the limitation under this subsection with respect to

15 such person, the deduction allowed under this sec16 tion shall be allocated pro rata among the stock so

17 purchased in accordance with the purchase price per

18 share.

19 ‘‘(c) QUALIFIED COMMERCIAL SPACE CENTER

20 STOCK.—For purposes of this section—

21 ‘‘(1) IN GENERAL.—The term ‘qualified Com22 mercial Space Center stock’ means any common

23 stock in a C corporation if—

24 ‘‘(A) as of the date of issuance, such cor25 poration is a qualified Commercial Space Cen-
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1 ter business (or, in the case of a new corpora2 tion, is being organized for purposes of being a

3 qualified Commercial Space Center business),

4 ‘‘(B) such stock is acquired by the tax5 payer at its original issue (directly or through

6 an underwriter)—

7 ‘‘(i) in exchange for money or other

8 property (not including stock), or

9 ‘‘(ii) as compensation for services pro10 vided to such corporation (other than serv11 ices performed as an underwriter of such

12 stock), and

13 ‘‘(C) the proceeds of such issue are used

14 by such issuer during the 36-month period be15 ginning on the date of issuance to establish or

16 operate a Commercial Space Center or for oper17 ations within such a Center.

18 ‘‘(2) QUALIFIED COMMERCIAL SPACE CENTER

19 BUSINESS.—The term ‘qualified Commercial Space

20 Center business’ means any domestic corporation

21 which, at the time of issuance of the stock involved,

22 is conducting a business at least 75 percent of the

23 gross receipts of which for the taxable year are at24 tributable to—
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1 ‘‘(A) operations within a Commercial

2 Space Center, or

3 ‘‘(B) the establishment or operation of a

4 Commercial Space Center,

5 in the active conduct of a trade or business.

6 ‘‘(3) COMMERCIAL SPACE CENTER.—The term

7 ‘Commercial Space Center’ means any facility des8 ignated as such for purposes of this section by the

9 Secretary of Transportation.

10 ‘‘(4) CERTAIN PURCHASES BY CORPORATION OF

11 ITS OWN STOCK.—A rule similar to the rule of sec12 tion 1202(c)(3) shall apply for purposes of this sub13 section.

14 ‘‘(d) DISPOSITIONS OF STOCK.—

15 ‘‘(1) BASIS REDUCTION.—For purposes of this

16 title, the basis of any qualified Commercial Space

17 Center stock shall be reduced by the amount of the

18 deduction allowed under this section with respect to

19 such stock.

20 ‘‘(2) DEDUCTION RECAPTURED AS ORDINARY

21 INCOME.—For purposes of section 1245—

22 ‘‘(A) any stock the basis of which is re23 duced under paragraph (1) (and any other

24 property the basis of which is determined in

25 whole or in part by reference to the adjusted
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1 basis of such stock) shall be treated as section

2 1245 property, and

3 ‘‘(B) any reduction under paragraph (1)

4 shall be treated as a deduction allowed for de5 preciation.

6 If an exchange of any stock described in paragraph

7 (1) qualifies under section 354(a), 355(a), or

8 356(a), the amount of gain recognized under section

9 1245 by reason of this paragraph shall not exceed

10 the amount of gain recognized in the exchange (de11 termined without regard to this paragraph).

12 ‘‘(3) CERTAIN EVENTS TREATED AS DISPOSI13 TIONS.—For purposes of determining the amount

14 treated as ordinary income under section 1245 by

15 reason of paragraph (2), paragraph (3) of section

16 1245(b) (relating to certain tax-free transactions)

17 shall not apply.

18 ‘‘(4) INTEREST CHARGED IF DISPOSITION

19 WITHIN 3 YEARS OF PURCHASE.—

20 ‘‘(A) IN GENERAL.—If—

21 ‘‘(i) a taxpayer disposes of any quali22 fied Commercial Space Center stock with

23 respect to which a deduction was allowed

24 under subsection (a) (or any other prop25 erty the basis of which is determined in
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1 whole or in part by reference to the ad2 justed basis of such stock) before the end

3 of the 3-year period beginning on the date

4 such stock was purchased by the taxpayer,

5 and

6 ‘‘(ii) section 1245(a) applies to such

7 disposition by reason of paragraph (2),

8 then the tax imposed by this chapter for the

9 taxable year in which such disposition occurs

10 shall be increased by the Commercial Space

11 Center stock recapture amount.

12 ‘‘(B) COMMERCIAL SPACE CENTER STOCK

13 RECAPTURE AMOUNT.—For purposes of sub14 paragraph (A), the term ‘Commercial Space

15 Center stock recapture amount’ means an

16 amount equal to the amount of interest (deter17 mined at the underpayment rate applicable

18 under section 6621) which would accrue—

19 ‘‘(i) during the period beginning on

20 the date such stock was purchased by the

21 taxpayer and ending on the date such

22 stock was disposed of by the taxpayer,

23 ‘‘(ii) on an amount equal to the aggre24 gate decrease in tax of the taxpayer result25 ing from the deduction allowed under this
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1 section with respect to the stock so dis2 posed of.

3 ‘‘(C) SPECIAL RULE.—Any increase in tax

4 under subparagraph (A) shall not be treated as

5 a tax imposed by this chapter for purposes of—

6 ‘‘(i) determining the amount of any

7 credit allowable under this chapter, and

8 ‘‘(ii) determining the amount of the

9 tax imposed by section 55.

10 ‘‘(e) TREATMENT WHERE ISSUER CEASES TO BE

11 QUALIFIED.—

12 ‘‘(1) IN GENERAL.—If, during the 5-year period

13 beginning on the date qualified Commercial Space

14 Center stock was purchased by the taxpayer, the is15 suer of such stock ceases to meet the requirements

16 of subsection (c)(2)(A), then notwithstanding any

17 provision of this subtitle other than paragraph (2),

18 the taxpayer shall be treated for purposes of sub19 section (d) as disposing of such stock (and any other

20 property the basis of which is determined in whole

21 or in part by reference to the adjusted basis of such

22 stock) during the taxable year during which such

23 cessation occurs at its fair market value as of the

24 1st day of such taxable year.
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1 ‘‘(2) EXCEPTION FOR SMALL INVESTORS.—In

2 the case of an individual, paragraph (1) shall not

3 apply if the aggregate of the deductions allowed to

4 the taxpayer under this section with respect to stock

5 issued by such issuer for all taxable years ending be6 fore the issuer first ceased to meet the requirements

7 of subsection (c)(2)(A) does not exceed $5,000

8 ($10,000 in the case of a joint return).

9 ‘‘(f) SPECIAL RULES.—

10 ‘‘(1) AMOUNT PAID AFTER CLOSE OF TAXABLE

11 YEAR.—An amount paid after the close of the tax12 able year for the purchase of Commercial Space

13 Center stock shall be treated for purposes of sub14 section (a) as paid during such year if—

15 ‘‘(A) such amount is so paid not later than

16 the time prescribed by law for filing the return

17 for such taxable year (including extensions

18 thereof), and

19 ‘‘(B) the taxpayer was under a binding

20 contract as of the close of such taxable year to

21 purchase such stock.

22 ‘‘(2) LIMITATION ON AMOUNT OF DEDUC23 TION.—If—
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1 ‘‘(A) any Commercial Space Center stock

2 is issued in exchange for property (other than

3 money or stock),

4 ‘‘(B) the basis of such stock in the hands

5 of the taxpayer is determined by reference to

6 the basis of such property, and

7 ‘‘(C) the adjusted basis (for determining

8 gain) of such property immediately before the

9 exchange exceeded its fair market value at such

10 time,

11 then the deduction under this section, and such ad12 justed basis, shall both be reduced by the excess de13 scribed in subparagraph (C).

14 ‘‘(3) APPLICATION OF LIMITS TO PARTNER15 SHIPS AND S CORPORATIONS.—In the case of a part16 nership or an S corporation, the limitations under

17 subsection (b) shall apply at the partner and share18 holder level and shall not apply at the partnership

19 or corporation level.

20 ‘‘(g) APPLICATION OF SECTION.—This section shall

21 apply only to stock acquired after December 31, 1995, and

22 before January 1, 2011.’’

23 (b) TECHNICAL AMENDMENT.—Subsection (a) of

24 section 1016 of such Code (relating to adjustments to

25 basis) is amended by striking ‘‘and’’ at the end of para-
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1 graph (24), by striking the period at the end of paragraph

2 (25) and inserting ‘‘, and’’, and by adding at the end the

3 following new paragraph:

4 ‘‘(26) to the extent provided in section 198(d),

5 in the case of stock with respect to which a deduc6 tion was allowed under section 198.’’

7 (c) CLERICAL AMENDMENT.—The table of sections

8 for part VI of subchapter B of chapter 1 of such Code

9 is amended by adding at the end the following new item:

‘‘Sec. 198. Deduction for purchase of Commercial Space Center

stock.’’

10 (d) EFFECTIVE DATE.—The amendments made by

11 this section shall apply to taxable years ending after De12 cember 31, 1995.

13 SEC. 3. EXCLUSION OF GAIN ON SALE OF STOCK OF COR14 PORATION SUBSTANTIALLY ENGAGED IN

15 SPACE-RELATED ACTIVITIES.

16 (a) IN GENERAL.—Part I of subchapter P of chapter

17 1 of the Internal Revenue Code of 1986 (relating to treat18 ment of capital gains) is amended by adding at the end

19 the following new section:

20 ‘‘SEC. 1203. GAIN ON SPACE CORPORATION STOCK.

21 ‘‘(a) GENERAL RULE.—Gross income shall not in22 clude gain on the sale or exchange of qualified space cor23 poration stock held for more than 5 years.

24 ‘‘(b) LIMITATIONS.—
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1 ‘‘(1) MAXIMUM DOLLAR AMOUNT.—

2 ‘‘(A) IN GENERAL.—The maximum

3 amount excluded under subsection (a) to a tax4 payer for the taxable year shall not exceed

5 $100,000 ($50,000 in the case of a married in6 dividual filing a separate return).

7 ‘‘(B) CONTROLLED GROUPS.—For pur8 poses of subparagraph (A), all corporations

9 which are members of the same parent-subsidi10 ary controlled group (as defined in section

11 198(b)(2)) with respect to the taxpayer shall be

12 treated as 1 person, and the dollar amount ap13 plicable under subparagraph (A) shall be allo14 cated among the taxpayer and such persons in

15 proportion to their respective sales and ex16 changes of stock during the calendar year in

17 which the taxable year of the taxpayer begins.

18 ‘‘(2) EXCLUDED GAIN MUST BE LONG-TERM

19 CAPITAL GAIN.—Subsection (a) shall not apply to

20 any gain other than long-term capital gain.

21 ‘‘(c) QUALIFIED SPACE CORPORATION STOCK.—

22 ‘‘(1) IN GENERAL.—The term ‘qualified space

23 corporation stock’ means common stock in a C cor24 poration if—
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1 ‘‘(A) as of the date of issuance, such cor2 poration is a qualified space corporation (or, in

3 the case of a new corporation, is being orga4 nized for purposes of being a qualified space

5 corporation),

6 ‘‘(B) such stock is acquired by the tax7 payer at its original issue (directly or through

8 an underwriter)—

9 ‘‘(i) in exchange for money or other

10 property (not including stock), or

11 ‘‘(ii) as compensation for services pro12 vided to such corporation (other than serv13 ices performed as an underwriter of such

14 stock), and

15 ‘‘(C) during substantially all of the tax16 payer’s holding period for such stock, such cor17 poration qualified as a space corporation.

18 ‘‘(2) SPACE CORPORATION.—The term ‘space

19 corporation’ means, with respect to any taxable year,

20 any domestic corporation which is a C corporation if

21 at least 75 percent of its gross receipts for such tax22 able year are derived from the active conduct of a

23 trade or business involving the providing of space-re24 lated products or services. For purposes of the pre25 ceding sentence, gross receipts attributable to oper-
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1 ations within a Commercial Space Center, or to the

2 establishment or operation of a Commercial Space

3 Center, shall not be taken into account.

4 ‘‘(3) CERTAIN PURCHASES BY CORPORATION OF

5 ITS OWN STOCK.—A rule similar to the rule of sec6 tion 1202(c)(3) shall apply for purposes of this sub7 section.

8 ‘‘(d) SPECIAL RULES.—

9 ‘‘(1) 10-YEAR SAFE HARBOR.—If any stock

10 ceases to be qualified space corporation stock by rea11 son of subsection (c)(1)(C) after the 10-year period

12 beginning on the date the taxpayer acquired such

13 stock, such stock shall continue to be treated as

14 meeting the requirements of such subsection; except

15 that the amount of gain to which subsection (a) ap16 plies on any sale or exchange of such stock shall not

17 exceed the amount which would be qualified capital

18 gain had such stock been sold on the date of such

19 cessation.

20 ‘‘(2) OTHER RULES TO APPLY.—Rules similar

21 to the rules of subsections (f), (g), (h), (i), and (j)

22 of section 1202 shall apply for purposes of this sec23 tion.
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1 ‘‘(e) APPLICATION OF SECTION.—This section shall

2 apply only to stock acquired after December 31, 1995, and

3 before January 1, 2011.’’

4 (b) CLERICAL AMENDMENT.—The table of sections

5 for such part I is amended by adding at the end the follow6 ing new item:

‘‘Sec. 1203. Gain on space corporation stock.’’

7 (c) EFFECTIVE DATE.—The amendments made by

8 this section shall apply to taxable years ending after De9 cember 31, 1995.

10 SEC. 4. TREATMENT OF BONDS TO FINANCE SPACE

11 LAUNCH AND LAUNCH SUPPORT FACILITIES.

12 (a) IN GENERAL.—Subsection (a) of section 142 of

13 the Internal Revenue Code of 1986 (defining exempt facil14 ity bond) is amended by striking ‘‘or’’ at the end of para15 graph (11), by striking the period at the end of paragraph

16 (12) and inserting ‘‘, or’’, and by adding at the end the

17 following:

18 ‘‘(13) space launch and launch support

19 facilities.

20 Paragraph (13) shall not apply to any bond issued after

21 December 31, 2010.’’

22 (b) SPACE LAUNCH AND LAUNCH SUPPORT FACILI23 TIES.—Section 142 of such Code is amended by adding

24 at the end the following new subsection:
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1 ‘‘(k) SPACE LAUNCH AND LAUNCH SUPPORT FACILI2 TIES.—

3 ‘‘(1) IN GENERAL.—For purposes of subsection

4 (a)(13), the term ‘space launch and launch support

5 facilities’ means—

6 ‘‘(A) all facilities, equipment, and real

7 property used to prepare space transportation

8 vehicles and their payloads for transportation

9 to, from, or within outer space, or in suborbital

10 trajectory or to launch such vehicles, and

11 ‘‘(B) all facilities, equipment, and real

12 property used to conduct research and develop13 ment, manufacture, process, and service space

14 transportation vehicles and their payloads.

15 ‘‘(2) PAYLOAD.—For purposes of this sub16 section, the term ‘payload’ means anything that a

17 person undertakes to transport to, from, or within

18 outer space, or in suborbital trajectory, by means of

19 a space transportation vehicle, but does not include

20 the space transportation vehicle itself except for its

21 components which are specifically designed or adapt22 ed for that payload.

23 ‘‘(3) SPACE TRANSPORTATION VEHICLE.—For

24 purposes of this subsection, the term ‘space trans25 portation vehicle’ means any vehicle constructed for
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1 the purpose of operating in, or transporting a pay2 load to, from, or within, outer space, or in suborbital

3 trajectory, and includes any component of such vehi4 cle not specifically designed or adapted for a pay5 load.’’

6 (c) EXCEPTION FROM VOLUME CAP.—Paragraph (3)

7 of section 146(g) of such Code is amended—

8 (1) by striking ‘‘or (12)’’ and inserting ‘‘, (12),

9 or (13)’’, and

10 (2) by striking ‘‘and environmental enhance11 ments of hydroelectric generating facilities’’ and in12 serting ‘‘, environmental enhancements of hydro13 electric generating facilities, and space launch and

14 launch support facilities’’.

15 (d) CERTAIN ADDITIONAL REQUIREMENTS NOT TO

16 APPLY TO SPACE LAUNCH AND LAUNCH SUPPORT FA17 CILITIES BONDS.—

18 (1) Subsection (h) of section 147 of such Code

19 is amended by adding at the end the following new

20 paragraph:

21 ‘‘(3) SPACE LAUNCH AND LAUNCH SUPPORT

22 FACILITIES BONDS.—Subsections (a), (b), (c), and

23 (d) shall not apply to any exempt facility bond de24 scribed in section 142(a)(13).’’
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1 (2) The heading for subsection (h) of section

2 147 of such Code is amended by striking ‘‘AND

3 QUALIFIED 501(c)(3) BONDS’’ and inserting

4 ‘‘QUALIFIED 501(c)(3) BONDS, AND SPACE LAUNCH

5 AND LAUNCH SUPPORT FACILITIES BONDS’’.

6 (e) FEDERAL GUARANTEED SPACE LAUNCH AND

7 LAUNCH SUPPORT FACILITIES BONDS PERMITTED.—

8 Paragraph (3) of section 149(b) of such Code is amended

9 by adding at the end the following new subparagraph:

10 ‘‘(E) EXCEPTION FOR SPACE LAUNCH AND

11 LAUNCH SUPPORT FACILITIES BONDS.—Para12 graph (1) shall not apply to any exempt facility

13 bond described in section 142(a)(13) in situa14 tions where the guarantee of the United States

15 (or any agency or instrumentality thereof) is

16 the result of payment of rent, user fees, or

17 other charges by the United States (or any

18 agency or instrumentality thereof) for the use

19 of a facility financed with such a bond.’’

20 (f) EFFECTIVE DATE.—The amendments made by

21 this section shall apply to obligations issued after the date

22 of the enactment of this Act.

23 SEC. 5. SPACE MANUFACTURING INCENTIVE.

24 (a) IN GENERAL.—Part III of subchapter B of chap25 ter 1 of the Internal Revenue Code of 1986 (relating to
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1 items specifically excluded from gross income) is amended

2 by redesignating section 137 as section 138 and inserting

3 after section 136 the following new section:

4 ‘‘SEC. 137. SPACE MANUFACTURING INCOME.

5 ‘‘(a) GENERAL RULE.—Gross income shall not in6 clude space manufacturing income.

7 ‘‘(b) SPACE MANUFACTURING INCOME.—For pur8 poses of this section, the term ‘space manufacturing in9 come’ means—

10 ‘‘(1) income derived from the sale by the tax11 payer to an unrelated person of any product which

12 is manufactured by the taxpayer in outer space and

13 returned to Earth, and

14 ‘‘(2) income of an individual attributable to

15 services performed in outer space by such individual

16 in a trade or business.

17 ‘‘(c) EXCLUSION FROM TARIFFS, ETC.—Any prod18 uct—

19 ‘‘(1) which is manufactured in outer space, and

20 ‘‘(2) which was—

21 ‘‘(A) launched from, and returned to Earth

22 at, within the United States, or

23 ‘‘(B) manufactured at a facility in outer

24 space which is owned by 1 or more United

25 States persons,
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1 shall be exempt from all Federal excises, imposts, and du2 ties and any other Federal tariffs.

3 ‘‘(d) PHASEOUT OF BENEFITS.—In the case of a tax4 able year beginning after December 31, 2025, the amount

5 excluded under subsection (a) shall be reduced (but not

6 below zero) by x/20th’s of the amount excludable without

7 regard to this subsection, where ‘x’ is the number of years

8 such taxable year is after the last taxable year beginning

9 before January 1, 2026. A similar rule shall apply to the

10 benefits under subsection (c).’’

11 (b) CLERICAL AMENDMENT.—The table of sections

12 for such part III is amended by striking the last item and

13 inserting the following new items:

‘‘Sec. 137. Space manufacturing income.

‘‘Sec. 138. Cross references to other Acts.’’

14 (c) EFFECTIVE DATE.—The amendments made by

15 this section shall apply to taxable years beginning after

16 December 31, 1995.

17 SEC. 6. STATE TAX BENEFITS FOR COMMERCIAL SPACE AC18 TIVITIES TO BE ENCOURAGED.

19 The President shall encourage State and local govern20 ments to offer tax and other incentives to encourage com21 mercial space activities.

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