107TH CONGRESS REPT. 107–417 " ! HOUSE OF REPRESENTATIVES 2d Session Part 2

CLARIFICATION OF TAX TREATMENT OF BONDS AND

OTHER OBLIGATIONS ISSUED BY GOVERNMENT OF

AMERICAN SAMOA

MAY 20, 2002.—Committed to the Committee of the Whole House on the State of

the Union and ordered to be printed

Mr. SENSENBRENNER, from the Committee on the Judiciary,

submitted the following

R E P O R T

[To accompany H.R. 1448]

[Including cost estimate of the Congressional Budget Office]

The Committee on the Judiciary, to whom was referred the bill

(H.R. 1448) to clarify the tax treatment of bonds and other obligations issued by the Government of American Samoa, having considered the same, reports favorably thereon with an amendment and

recommends that the bill as amended do pass.

CONTENTS

Page

The Amendment ...................................................................................................... 1

Purpose and Summary ............................................................................................ 2

Background and Need for the Legislation ............................................................. 2

Hearings ................................................................................................................... 3

Committee Consideration ........................................................................................ 3

Vote of the Committee ............................................................................................. 3

Committee Oversight Findings ............................................................................... 3

Performance Goals and Objectives ......................................................................... 4

New Budget Authority and Tax Expenditures ...................................................... 4

Congressional Budget Office Cost Estimate .......................................................... 4

Constitutional Authority Statement ...................................................................... 5

Section-by-Section Analysis and Discussion .......................................................... 5

Changes in Existing Law Made by the Bill, as Reported ..................................... 5

Markup Transcript .................................................................................................. 6

The amendment is as follows:

Strike all after the enacting clause and insert the following:
2

1 CIA: The World Factbook, American Samoa. http://www.cia.gov/cia/publications/factbook/geos/

aq.html. [Visited February 26, 2002]. 2 48 U.S.C. § 1661–1670 (2001). 3Samoa Seeks Further Debt Authorization, BOND BUYER, vol. 336, no. 31122, Friday, April 20,

2001. 4 American Samoan Governor Negotiates Refinancing of Loan, PAC. ISLANDS BROAD. ASS’N

NEWS SERV., Monday, December 27, 1999.

SECTION 1. CLARIFICATION OF TAX TREATMENT OF BONDS AND OTHER OBLIGATIONS

ISSUED BY GOVERNMENT OF AMERICAN SAMOA.

(a) EXEMPTION OF ALL BONDS FROM INCOME TAXATION BY STATE AND LOCAL

GOVERNMENTS.—Subsection (b) of section 202 of Public Law 98–454 (48 U.S.C. 1670)

is amended to read as follows: ‘‘(b) EXEMPTION OF ALL BONDS FROM INCOME TAXATION BY STATE AND LOCAL

GOVERNMENTS.— ‘‘(1) IN GENERAL.—The interest on any bond or other obligation issued by

or on behalf of the Government of American Samoa shall be exempt from taxation by the Government of American Samoa and the governments of any of the

several States, the District of Columbia, any territory or possession of the

United States, and any subdivision thereof. ‘‘(2) EXEMPTION APPLICABLE ONLY TO INCOME TAXES.—The exemption provided by paragraph (1) shall not apply to gift, estate, inheritance, legacy, succession, or other wealth transfer taxes.’’. (b) EFFECTIVE DATE.—This Act shall apply to obligations issued after the date

of the enactment of this Act.

PURPOSE AND SUMMARY

H.R. 1448, ‘‘To clarify the tax treatment of bonds and other obligations issued by the Government of American Samoa,’’ amends

current law to exempt bonds issued by the Government of American Samoa from local, State, and Federal income taxes. Currently,

Federal law exempts government bonds issued by States, territories and possessions from these taxes.

BACKGROUND AND NEED FOR THE LEGISLATION

FEDERAL LAWS GOVERNING AMERICAN SAMOA

American Samoa was defined by a treaty signed by the United

States, Britain, and Germany in 1899.1 Unlike other U.S. Territories such as Guam, the Virgin Islands and Puerto Rico, Congress

has not provided American Samoa with an organic act establishing

its governmental institutions. Rather, American Samoa is an ‘‘unincorporated’’ territory whose administration was transferred from

the Department of the Navy to the Department of the Interior in

1951. The Interior Secretary subsequently delegated authority to

American Samoa to organize its own governmental institutions.

While American Samoa ratified its own Constitution in 1966,2 the

Department of the Interior retains ultimate oversight over the territory.

SAMOAN GOVERNMENT BONDS

Like most States and localities, American Samoa issues government bonds to fund a variety of public projects. However, its bond

raising activities are very limited. American Samoa’s last major

bonding project was in 1988, when it raised $22 million for a governmental office building.3 Currently, the Government of American

Samoa owes about $18 million in outstanding bonds.4 Relevant sections of the Internal Revenue Code exclude interest from State and

local bonds from Federal taxation. This exemption specifically applies to the ‘‘District of Columbia and any possession of the United
3

5 48 U.S.C. § 103 (c)(2) (2001). 6 48 U.S.C. § 1423(a) (2000). 7 Id. § 1801. 8 Id. § 1403. 9 Id. at § 745.

States.’’ 5 This definition, however, does not explicitly encompass

United States territories.

LEGISLATION PERTAINING TO THE TAX TREATMENT OF BONDS ISSUED

BY U.S. TERRITORIES OTHER THAN AMERICAN SAMOA

Bonds issued by almost all U.S. territories are exempt from Federal, State, and local taxes. For example, Federal statute provides

that ‘‘all bonds issued by the government of Guam or by its authority shall be exempt . . . from taxation by the Government of the

United States or by the government of Guam, or by any State or

Territory of any political subdivision thereof, or by the District of

Columbia.’’ 6 Bonds issued by the Government of the Northern Mariana Islands are also ‘‘exempt, as to principal and interest, from

taxation by the United States, or by any State [or locality] . . . or

the District of Columbia.’’ 7 In addition, Federal law provides that

bonds issued by the Government of the Virgin Islands or any of its

municipalities are exempt from State and local taxes.8 Finally, interest on bonds issued by the government of Puerto Rico are immune from State and Federal taxation.9 H.R. 1448 was introduced

by Representative Eni Faleomovaega to harmonize the taxing status of Samoan government bonds with other States, territories, and

possessions.

HEARINGS

The Committee’s Subcommittee on Commercial and Administrative Law held a hearing on H.R. 1448 on March 6, 2002.

COMMITTEE CONSIDERATION

On March 6, 2002, the Subcommittee on Commercial and Administrative Law met in open session and ordered favorably reported

the bill H.R. 1448 by voice vote, a quorum being present. On May

8, 2002, the Committee met in open session and ordered favorably

reported the bill H.R. 1448, with amendment by voice vote, a

quorum being present.

VOTE OF THE COMMITTEE

There were no recorded votes on H.R. 1448.

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.
4

PERFORMANCE GOALS AND OBJECTIVES

H.R. 1448 does not authorize funding. Therefore, clause 3(c) of

rule XIII of the Rules of the House of Representatives is inapplicable.

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

the H.R. 3180, 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, May 10, 2002.

Hon. F. JAMES SENSENBRENNER, Jr., 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. 1448, a bill to clarify the

tax treatment of bonds and other obligations issued by the government of American Samoa.

If you wish further details on this estimate, we will be pleased

to provide them. The CBO staff contacts are Matthew Pickford (for

Federal costs), who can be reached at 226–2860, and Marjorie Miller (for the State and local impact), who can be reached at 225–

3220.

Sincerely,

DAN L. CRIPPEN, Director.

Enclosure

cc: Honorable John Conyers, Jr.

Ranking Member

H.R. 1448—A bill to clarify the tax treatment of bonds and other

obligations issued by the government of American Samoa.

H.R. 1448 would amend current law to make bonds issued by the

government of American Samoa exempt from State, local, and territorial income tax. The bill would not affect Federal taxes, and CBO

estimates that implementing H.R. 1448 would have no impact on

the Federal budget. Because the bill would not affect direct spending or governmental receipts, pay-as-you-go procedures would not

apply. The bill contains no private-sector mandates as defined in

the Unfunded Mandates Reform Act (UMRA).

H.R. 1448 contains an intergovernmental mandate as defined in

UMRA, but CBO estimates that the cost of the mandate would be

well below the threshold established in that act ($58 million in

2002, adjusted annually for inflation). This mandate is a preemption of State and local taxing authority. The bill would exempt the
5

interest on any bond issued by the government of American Samoa

from State, local, and territorial taxes. Because American Samoa

generally has only a few million dollars in bonds outstanding at

any time, this preemption would not have a significant cost for

State, local, or territorial governments. Enacting this bill would

benefit the government of American Samoa by reducing its borrowing costs.

On April 5, 2002, CBO transmitted a cost estimate for H.R. 1448

as ordered reported by the House Committee on Resources on

March 20, 2002. The two versions of the legislation are identical,

as are the cost estimates.

The CBO staff contacts for this estimate are Matthew Pickford

(for Federal costs), who can be reached at 226–2860, and Marjorie

Miller (for the State and local impact), who can be reached at 225– 3220. This estimate was approved by Peter H. Fontaine, Deputy

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 of the Constitution.

SECTION-BY-SECTION ANALYSIS AND DISCUSSION

Section 1. Clarification of Tax Treatment of Bonds and Other Obligations Issued by Government of American Samoa.

This section exempts bonds issued by the Government of American Samoa from Federal, State, and local taxes income taxes. This

exemption does not apply to gift, estate, inheritance, legacy, succession, or other wealth transfer taxes.

Finally, this section repeals section 202 of Public Law 98–454 (48

U.S.C. 1670) and makes the legislation effective upon its enactment

into law.

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the

House of Representatives, changes in existing law made by the bill,

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italics,

existing law in which no change is proposed is shown in roman):

SECTION 202 OF THE ACT OF OCTOBER 5, 1984

(Public Law 98–454)

AN ACT To enhance the economic development of Guam, the Virgin Islands,

American Samoa, the Northern Mariana Islands, and for other purposes.

SEC. 202. (a) * * *

ø(b)(1) Except as provided in paragraph (2), any obligation

shall be exempt from all State and local taxation in effect on or

after October 1, 1984.

ø(2) Any obligation issued under subsection (a) shall not be exempt from State of local gift, estate, inheritance, legacy, succession,

or other wealth transfer taxes.
6

ø(3) For purposes of this subsection— ø(A) The term ‘‘State’’ includes the District of Columbia.

ø(B) The taxes imposed by counties, municipalities, or any

territory, dependency, or possession of the United States shall

be treated as local taxes.¿

(b) EXEMPTION OF ALL BONDS FROM INCOME TAXATION BY

STATE AND LOCAL GOVERNMENTS.— (1) IN GENERAL.—The interest on any bond or other obligation issued by or on behalf of the Government of American

Samoa shall be exempt from taxation by the Government of

American Samoa and the governments of any of the several

States, the District of Columbia, any territory or possession of

the United States, and any subdivision thereof.

(2) EXEMPTION APPLICABLE ONLY TO INCOME TAXES.—The

exemption provided by paragraph (1) shall not apply to gift, estate, inheritance, legacy, succession, or other wealth transfer

taxes.

MARKUP TRANSCRIPT

BUSINESS MEETING

WEDNESDAY, MAY 8, 2002

HOUSE OF REPRESENTATIVES, COMMITTEE ON THE JUDICIARY, Washington, DC.

The Committee met, pursuant to notice, at 10:03 a.m., in Room

2141, Rayburn House Office Building, Hon. F. James Sensenbrenner, Jr. [Chairman of the Committee] presiding.

Chairman SENSENBRENNER. [Presiding.] The Committee will be

in order.

[Intervening business.]

The next item on the agenda is H.R. 1448 to clarify the tax treatment of bonds and other obligations issued by the government of

American Samoa. The Chair recognizes the gentleman from Georgia, Mr. Barr, Chairman of the Subcommittee on Commercial and

Administrative Law, for a motion.

Mr. BARR. Mr. Chairman, the Subcommittee on Commercial and

Administrative Law reports favorably the bill H.R. 1448 with a single amendment in the nature of a substitute and moves its favorable recommendation to the full House.

Chairman SENSENBRENNER. Without objection, the bill be considered as read and open for amendment at any point. And the Subcommittee amendment in the nature of a substitute, which the

Members have before them, will be considered as read and be considered as the original text for purposes of amendment.

[The amendment follows:]
7 H.L.C.

SUBCOMMITTEE AMENDMENT IN THE NATURE OF

A SUBSTITUTE TO H.R. 1448

(AS ORDERED REPORTED BY THE SUBCOMMITTEE

ON COMMERCIAL AND ADMINISTRATIVE LAW ON

MARCH 6, 2002)

Strike all after the enacting clause and insert the

following:

1 SECTION 1. CLARIFICATION OF TAX TREATMENT OF BONDS

2 AND OTHER OBLIGATIONS ISSUED BY GOV3 ERNMENT OF AMERICAN SAMOA.

4 (a) EXEMPTION OF ALL BONDS FROM INCOME TAX5 ATION BY STATE AND LOCAL GOVERNMENTS.—Sub6 section (b) of section 202 of Public Law 98-454 (48

7 U.S.C. 1670) is amended to read as follows:

8 ‘‘(b) EXEMPTION OF ALL BONDS FROM INCOME

9 TAXATION BY STATE AND LOCAL GOVERNMENTS.—

10 ‘‘(1) IN GENERAL.—The interest on any bond

11 or other obligation issued by or on behalf of the

12 Government of American Samoa shall be exempt

13 from taxation by the Government of American

14 Samoa and the governments of any of the several

15 States, the District of Columbia, any territory or

16 possession of the United States, and any subdivision

17 thereof.
8

2

H.L.C.

1 ‘‘(2) EXEMPTION APPLICABLE ONLY TO INCOME

2 TAXES.—The exemption provided by paragraph (1)

3 shall not apply to gift, estate, inheritance, legacy,

4 succession, or other wealth transfer taxes.’’.

5 (b) EFFECTIVE DATE.—This Act shall apply to obli6 gations issued after the date of the enactment of this Act.
9

Chairman SENSENBRENNER. The Chair recognizes the gentleman

from Georgia, Mr. Barr, to strike the last word.

Mr. BARR. Thank you, Mr. Chairman.

Introduced by Representative Faleomavaega of American Samoa,

H.R. 1448 amends Federal law to exempt bonds issued by the government of American Samoa from Federal, State, and local taxation.

Government bonds issued by States and U.S. territories, such as

Guam, Puerto Rico, and the U.S. Virgin Islands, currently enjoy

this exemption. Thus, the purpose of H.R. 1448 is not to craft a

special exception to a general rule but to harmonize the tax treatment of American Samoan bonds and thereby enable the Samoan

government to better attend to the public needs of its residents.

An amendment to limit this exemption strictly to governmentissued bonds was reported by the Subcommittee. The House Resources Committee has reported identical legislation, and I urge

support of this noncontroversial but necessary measure today.

Chairman SENSENBRENNER. Does the gentleman yield back?

Mr. BARR. I yield back.

Chairman SENSENBRENNER. Does the gentleman from North

Carolina wish to say anything? Good.

Without objection—— Mr. WATT. Let the record reflect my thumbs-up, Mr. Chairman.

Chairman SENSENBRENNER.—all Members by insert opening

statements at this point in time.

Are there amendments?

The gentleman from California.

Mr. ISSA. I have no amendment. I have a statement and would

like to put it in the record.

Chairman SENSENBRENNER. And move to strike the last word.

Mr. ISSA. I move to strike the last word.

Chairman SENSENBRENNER. The gentleman is recognized for 5

minutes.

Mr. ISSA. Thank you, Mr. Chairman.

I’d like to thank you and the Ranking Member for holding this

markup of H.R. 1448. I welcome the opportunity to discuss the financial obligations as they relate to the government of American

Samoa.

In January 1997, my constituent, Robert Shaffer, signed a special services employment contract with the government of American Samoa and as executive director of the Centennial 2000 program.

In August 2000, Mr. Shaffer was informed by the Governor’s office that his employment contract had been terminated. As a result,

reimbursements, per diem, travel expense, and salary were never

fully paid under the terms of this contract. To date, Mr. Shaffer is

still owed approximately $90,000 by the government of American

Samoa for services rendered.

On February 4th of this year, I sent a letter to the Governor, requesting assistance on behalf of Mr. Shaffer. Two months later, I

received a letter from the Governor that cited various settlement

offers that are significantly less that the $90,000 owed, although

there was no claim of a lesser amount actually owed.

Additionally, the settlement offer suggested that Mr. Shaffer

keep the 3,000 centennial books that remained in his possession.
10

Let me tell you, the market for the American Samoa centennial

book in southern California is small at best. In other words, this

offer was clearly unacceptable and not in good faith.

Mr. Chairman, I have a problem with this Committee supporting

legislation that will benefit this island territory when they are unable or unwilling to meet their financial obligation with their vendors.

I will support passage of 1448. However, I want the Governor to

know that, regardless of the distance from the United States, he

is still accountable for his actions. And I want him to know that

this Congressman is putting him on notice.

Mr. Chairman, thank you for this opportunity to make an opening statement. And I look forward to the bill’s passage.

[The prepared statement of Mr. Issa follows:]

PREPARED STATEMENT OF THE HONORABLE DARRELL ISSA, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF CALIFORNIA

Mr. Chairman and Ranking Member Conyers, I thank you for holding a markup

on H.R. 1448. I welcome the opportunity to discus the financial obligations as they

relate to government of American Samoa.

In January of 1997, my constituent, Robert Shaffer signed a special services employment contract with the government of America Samoa as Executive Director of

the Centennial 2000 program. In August of 2000, Mr. Shaffer was informed by the

Governor’s office that his employment and contract had been terminated. As a result, reimbursements, per diem, travel expenses, and salary were never fully paid

under the terms of the contract. To date, Mr. Shaffer is still owed approximately

$90,000 by the government of America Samoa for services rendered.

On February 4th of this year, I sent a letter to the Governor of American Samoa,

Tauese Sunia, requesting his assistance on behalf of Mr. Shaffer. Two months later,

I received a letter from the Governor that cited various settlement offers that are

significantly less than the $90,000 owed to Mr. Shaffer, including a preposterous

proposal that compensation should come from the proceeds of the sale of over 3,000

Centennial books that remain in Robert Shaffer’s possession. Let me tell you, the

market for American Samoa Centennial books in Southern California is very small.

In other words, this offer is unacceptable.

Mr. Chairman, I have a problem with this committee supporting legislation that

will benefit this island territory when they are unable to meet their financial obligations with their vendors. I will support passage of H.R. 1448. However, I want Governor Sunia to know that regardless of the distance to the United States, he is still

accountable for his actions, and I want him to know that this Congressman is putting him on notice.

Thank you Mr. Chairman for holding this markup.

Chairman SENSENBRENNER. Are there amendments? If there are

no amendments, the question is on the amendment in the nature

of a substitute as reported by the Subcommittee.

Those in favor will say aye.

Opposed, no.

The ayes appear to have it. The ayes have it, and the Subcommittee amendment in the nature of a substitute is agreed to.

The Chair notes the presence of a reporting quorum.

The question now occurs on the motion to report the bill H.R.

1448 favorably, as amended by the amendment in the nature of a

substitute.

Those in favor will say aye.

Opposed, no.

The ayes appear to have it. The ayes have it. The motion to report favorably is agreed to.

Without objection, the Chairman is authorized to move to go to

conference pursuant to House rules. Without objection, the staff is

directed to make any technical and conforming changes. And all
11

Members will be given 2 days, as provided by House rules, in

which to submit additional, dissenting, supplemental, or minority

views.

Æ