I

106TH CONGRESS

1ST SESSION H. R. 1060

To amend the Internal Revenue Code of 1986 to provide that economic

subsidies provided by a State or local government for a particular business to locate or remain within the government’s jurisdiction shall be

taxable to such business, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

MARCH 10, 1999

Mr. MINGE 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 provide

that economic subsidies provided by a State or local

government for a particular business to locate or remain

within the government’s jurisdiction shall be taxable to

such business, and for other purposes.

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 ‘‘Distorting Subsidies

5 Limitation Act of 1999’’.

6 SEC. 2. FINDINGS.

7 Congress finds the following:
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1 (1) Competition among State and local govern2 ments for new and existing businesses has become

3 the rule rather than the exception.

4 (2) State and local governments are being

5 forced to compete against each other for businesses

6 with scarce tax dollars that would otherwise be used

7 for essential public goods and services.

8 (3) When State and local government competi9 tion takes the form of preferential treatment for spe10 cific businesses, it undermines our national economic

11 union by distorting the allocation of resources.

12 (4) There is a role for competition between

13 States and localities when it takes the form of gen14 eral tax policies, regulation structures, and public

15 services because such competition leads States and

16 localities to provide better service, cost effective reg17 ulation, sound tax policies, and more efficient alloca18 tion of public and private goods.

19 (5) Federal program grants have been used by

20 State and local governments to subsidize business lo21 cation decisions to attract businesses from other

22 States and localities.

23 (6) Proceeds from tax-exempt municipal bonds

24 have been used by one State or locality to attract

25 business from other States and localities.
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1 (7) No single State or local government can

2 unilaterally withdraw from this competition. Only

3 Congress with its enumerated powers can end the

4 economic distortions and the public costs caused by

5 economic distortions.

6 SEC. 3. TAXATION OF VALUE OF TARGETED SUBSIDIES

7 PROVIDED BY STATE AND LOCAL GOVERN8 MENTS.

9 (a) IN GENERAL.—Subtitle D of the Internal Reve10 nue Code of 1986 (relating to miscellaneous excise taxes)

11 is amended by inserting after chapter 44 the following new

12 chapter:

13 ‘‘CHAPTER 45—EXCISE TAX ON TARGETED

14 STATE OR LOCAL GOVERNMENT DE15 VELOPMENT SUBSIDIES

‘‘Sec. 4986. Targeted State or local government development subsidies.

16 ‘‘SEC. 4986. TARGETED STATE OR LOCAL GOVERNMENT DE17 VELOPMENT SUBSIDIES.

18 ‘‘(a) GENERAL RULE.—There is hereby imposed for

19 each calendar year an excise tax on any person engaged

20 in a trade or business who derives any benefit during such

21 year from any targeted subsidy provided by any State or

22 local governmental unit.

23 ‘‘(b) AMOUNT OF TAX.—The tax imposed by sub24 section (a) shall consist of a tax computed as provided in
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1 section 11(b) as though the aggregate value (determined

2 under regulations prescribed by the Secretary) of benefits

3 referred to in subsection (a) accruing during the calendar

4 year were the taxable income referred to in section 11.

5 ‘‘(c) DEFINITIONS.—For purposes of this section—

6 ‘‘(1) TARGETED SUBSIDY.—

7 ‘‘(A) IN GENERAL.—The term ‘targeted

8 subsidy’ means, with respect to any person, any

9 subsidy—

10 ‘‘(i) which is designed to encourage

11 any trade or business operation of such

12 person to locate in a particular govern13 mental jurisdiction or to remain in a par14 ticular governmental jurisdiction, or

15 ‘‘(ii) which is reasonably expected to

16 have the effect of a subsidy described in

17 clause (i).

18 ‘‘(B) CERTAIN MORE BROADLY AVAILABLE

19 SUBSIDIES TREATED AS TARGETED SUB20 SIDIES.—

21 ‘‘(i) IN GENERAL.—A subsidy shall

22 not fail to be a targeted subsidy by reason

23 of applying to (or being available to) more

24 than 1 trade or business operation if such

25 subsidy is determined (under regulations
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1 prescribed by the Secretary) not to be part

2 of the general long-term taxing or spend3 ing policies of the governmental unit.

4 ‘‘(ii) GENERAL LONG-TERM POLI5 CIES.—A subsidy shall be treated as part

6 of the general long-term taxing or spend7 ing policies of the governmental unit only

8 if the subsidy is available to all trade or

9 business operations within the jurisdiction

10 of such governmental unit without regard

11 to the period during which any operation

12 has been conducted within such jurisdic13 tion.

14 ‘‘(2) SUBSIDY.—The term ‘subsidy’ includes—

15 ‘‘(A) any grant,

16 ‘‘(B) any contribution of property or serv17 ices,

18 ‘‘(C) any right to use property or services,

19 or any loan, at rates below those commercially

20 available to the taxpayer,

21 ‘‘(D) any reduction or deferral of any tax

22 or any fee (including any payment by any State

23 or local governmental unit of any tax or fee),

24 ‘‘(E) any guarantee of any payment under

25 any loan, lease, or other obligation,
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1 ‘‘(F) any use of governmental facilities (in2 cluding roads, facilities for the furnishing of

3 water, sewage facilities, and solid waste disposal

4 facilities) to the extent that the amount paid by

5 (or assessed against the property of) the trade

6 or business for such use is less than the amount

7 it would pay were the charge for its use (or the

8 assessment) determined under the same for9 mula or other basis as is used by the State or

10 local government with respect to other com11 parable facilities used by other trades or busi12 nesses, and

13 ‘‘(G) any other benefit specified in regula14 tions prescribed by the Secretary.

15 ‘‘(d) EXCEPTION FOR SUBSIDIES FOR EMPLOYEE

16 TRAINING AND EDUCATION.—No tax shall be imposed by

17 this section on the value of any subsidy provided for em18 ployee training or for other education programs.

19 ‘‘(e) SPECIAL RULES.—

20 ‘‘(1) EXCEPTION FOR SUBSIDIES PROVIDED TO

21 GOVERNMENTAL ENTITIES.—No tax shall be im22 posed by this section on the value of any subsidy

23 provided to—
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1 ‘‘(A) an agency or instrumentality of any

2 government or any political subdivision thereof,

3 or

4 ‘‘(B) any entity which is owned and oper5 ated by a government or any political subdivi6 sion thereof or by any agency or instrumental7 ity of one or more governments or political sub8 divisions.

9 ‘‘(2) AVOIDANCE OF DOUBLE TAX.—No amount

10 shall be includible in gross income for purposes of

11 subtitle A by reason of any targeted subsidy on

12 which tax is imposed under this section.

13 ‘‘(3) ADMINISTRATIVE PROVISIONS.—For pur14 poses of subtitle F, any tax imposed by this section

15 shall be treated as a tax imposed by subtitle A.’’

16 (b) DENIAL OF INCOME TAX DEDUCTION FOR

17 TAX.—Paragraph (6) of section 275(a) of such Code is

18 amended by inserting ‘‘45,’’ after ‘‘44,’’.

19 (c) CLERICAL AMENDMENT.—The table of chapters

20 for subtitle D of such Code is amended by inserting after

21 the item relating to chapter 44 the following new item:

‘‘Chapter 45. Excise tax on targeted State or local government development subsidies.’’

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

23 this section shall apply to any subsidy which is provided

24 pursuant to an agreement or arrangement entered into
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1 more than 30 days after the date of the enactment of this

2 Act.

3 SEC. 4. DENIAL OF EXEMPTION FROM TAX FOR INTEREST

4 ON BONDS PROVIDING TARGETED STATE OR

5 LOCAL GOVERNMENT DEVELOPMENT SUB6 SIDIES.

7 (a) IN GENERAL.—Subsection (b) of section 103 of

8 the Internal Revenue Code of 1986 (relating to interest

9 on State and local bonds) is amended by adding at the

10 end the following new paragraph:

11 ‘‘(4) BONDS PROVIDING TARGETED DEVELOP12 MENT SUBSIDIES.—Any bond if any portion of the

13 proceeds of such bond is to be used to provide any

14 targeted subsidy (as defined in section 4986(c)).’’

15 (b) EFFECTIVE DATE.—The amendment made by

16 subsection (a) shall apply to obligations issued after the

17 date of the enactment of this Act.

18 SEC. 5. PROHIBITION OF USE OF FEDERAL FUNDS FOR

19 TARGETED SUBSIDIES.

20 (a) IN GENERAL.—Notwithstanding any other provi21 sion of law, none of the Federal funds provided to any

22 State or local government may be used to provide any tar23 geted subsidy (as defined in section 4986(c) of the Inter24 nal Revenue Code of 1986).
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1 (b) RECOVERY OF FUNDS USED TO PROVIDE TAR2 GETED SUBSIDIES.—If the Secretary of the Treasury or

3 the Secretary’s delegate finds after reasonable notice and

4 opportunity for hearing that any State or local govern5 ment used Federal funds in violation of subsection (a),

6 the Secretary or the Secretary’s delegate shall take such

7 actions as are necessary (including referring the matter

8 to the Attorney General of the United States with a rec9 ommendation that an appropriate civil action be insti10 tuted) to recover the amount so used from the State or

11 local government or the trade or business, whichever the

12 Secretary determines to be appropriate.

13 (c) EFFECTIVE DATE.—This section shall apply to

14 funds provided after the date of the enactment of this Act.

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