II

106TH CONGRESS

1ST SESSION S. 212

To amend the Internal Revenue Code of 1986 to extend the economic activity

credit for Puerto Rico, and for other purposes.

IN THE SENATE OF THE UNITED STATES

JANUARY 19, 1999

Mr. MOYNIHAN (for himself and Mr. SCHUMER) introduced the following bill;

which was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to extend

the economic activity credit for Puerto Rico, 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; AMENDMENT OF 1986 CODE.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Puerto Rico Economic Activity Credit Improvement Act

6 of 1999’’.

7 (b) AMENDMENT OF 1986 CODE.—Except as other8 wise expressly provided, whenever in this Act an amend9 ment or repeal is expressed in terms of an amendment

10 to, or repeal of, a section or other provision, the reference
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1 shall be considered to be made to a section or other provi2 sion of the Internal Revenue Code of 1986.

3 SEC. 2. MODIFICATIONS OF PUERTO RICO ECONOMIC AC4 TIVITY CREDIT.

5 (a) CORPORATIONS ELIGIBLE TO CLAIM CREDIT.—

6 Section 30A(a)(2) (defining qualified domestic corpora7 tion) is amended to read as follows:

8 ‘‘(2) QUALIFIED DOMESTIC CORPORATION.—

9 For purposes of paragraph (1)—

10 ‘‘(A) IN GENERAL.—A domestic corpora11 tion shall be treated as a qualified domestic cor12 poration for a taxable year if it is actively con13 ducting within Puerto Rico during the taxable

14 year—

15 ‘‘(i) a line of business with respect to

16 which the domestic corporation is an exist17 ing credit claimant under section

18 936(j)(9), or

19 ‘‘(ii) an eligible line of business not

20 described in clause (i).

21 ‘‘(B) LIMITATION TO LINES OF BUSI22 NESS.—A domestic corporation shall be treated

23 as a qualified domestic corporation under sub24 paragraph (A) only with respect to the lines of

25 business described in subparagraph (A) which it
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1 is actively conducting in Puerto Rico during the

2 taxable year.

3 ‘‘(C) EXCEPTION FOR CORPORATIONS

4 ELECTING REDUCED CREDIT.—A domestic cor5 poration shall not be treated as a qualified do6 mestic corporation if such corporation (or any

7 predecessor) had an election in effect under sec8 tion 936(a)(4)(B)(iii) for any taxable year be9 ginning after December 31, 1996.’’

10 (b) APPLICATION ON SEPARATE LINE OF BUSINESS

11 BASIS; ELIGIBLE LINE OF BUSINESS.—Section 30A is

12 amended by redesignating subsection (g) as subsection (h)

13 and by inserting after subsection (f) the following new

14 subsection:

15 ‘‘(g) APPLICATION ON LINE OF BUSINESS BASIS; EL16 IGIBLE LINES OF BUSINESS.—For purposes of this

17 section—

18 ‘‘(1) APPLICATION TO SEPARATE LINE OF BUSI19 NESS.—

20 ‘‘(A) IN GENERAL.—In determining the

21 amount of the credit under subsection (a), this

22 section shall be applied separately with respect

23 to each substantial line of business of the quali24 fied domestic corporation.
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1 ‘‘(B) EXCEPTIONS FOR EXISTING CREDIT

2 CLAIMANT.—This paragraph shall not apply to

3 a substantial line of business with respect to

4 which the qualified domestic corporation is an

5 existing credit claimant under section 936(j)(9).

6 ‘‘(C) ALLOCATION.—The Secretary shall

7 prescribe rules necessary to carry out the pur8 poses of this paragraph, including rules—

9 ‘‘(i) for the allocation of items of in10 come, gain, deduction, and loss for pur11 poses of determining taxable income under

12 subsection (a), and

13 ‘‘(ii) for the allocation of wages, fringe

14 benefit expenses, and depreciation allow15 ances for purposes of applying the limita16 tions under subsection (d).

17 ‘‘(2) ELIGIBLE LINE OF BUSINESS.—The term

18 ‘eligible line of business’ means a substantial line of

19 business in any of the following trades or businesses:

20 ‘‘(A) Manufacturing.

21 ‘‘(B) Agriculture.

22 ‘‘(C) Forestry.

23 ‘‘(D) Fishing.

24 ‘‘(3) SUBSTANTIAL LINE OF BUSINESS.—For

25 purposes of this subsection, the determination of
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1 whether a line of business is a substantial line of

2 business shall be determined by reference to 2-digit

3 codes under the North American Industry Classifica4 tion System (62 Fed. Reg. 17288 et seq., formerly

5 known as ‘SIC codes’).’’

6 (c) REPEAL OF BASE PERIOD CAP.—

7 (1) IN GENERAL.—Section 30A(a)(1) (relating

8 to allowance of credit) is amended by striking the

9 last sentence.

10 (2) CONFORMING AMENDMENT.—Section

11 30A(e)(1) is amended by inserting ‘‘but not includ12 ing subsection (j)(3)(A)(ii) thereof’’ after ‘‘there13 under’’.

14 (d) APPLICATION OF CREDIT.—Section 30A(h) (re15 lating to applicability of section), as redesignated by sub16 section (b), is amended by striking ‘‘January 1, 2006’’ and

17 inserting ‘‘January 1, 2009’’.

18 (e) CONFORMING AMENDMENTS.—

19 (1) Section 30A(b) is amended by striking

20 ‘‘within a possession’’ each place it appears and in21 serting ‘‘within Puerto Rico’’.

22 (2) Section 30A(d) is amended by striking

23 ‘‘possession’’ each place it appears.

24 (3) Section 30A(f) is amended to read as fol25 lows:
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1 ‘‘(f) DEFINITIONS.—For purposes of this section—

2 ‘‘(1) QUALIFIED INCOME TAXES.—The qualified

3 income taxes for any taxable year allocable to non4 sheltered income shall be determined in the same

5 manner as under section 936(i)(3).

6 ‘‘(2) QUALIFIED WAGES.—The qualified wages

7 for any taxable year shall be determined in the same

8 manner as under section 936(i)(1).

9 ‘‘(3) OTHER TERMS.—Any term used in this

10 section which is also used in section 936 shall have

11 the same meaning given such term by section 936.’’

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

13 this section shall apply to taxable years beginning after

14 December 31, 1998.

15 SEC. 3. COMPARABLE TREATMENT FOR OTHER ECONOMIC

16 ACTIVITY CREDIT.

17 (a) CORPORATIONS ELIGIBLE TO CLAIM CREDIT.—

18 Section 936(j)(2)(A) (relating to economic activity credit)

19 is amended to read as follows:

20 ‘‘(A) ECONOMIC ACTIVITY CREDIT.—

21 ‘‘(i) IN GENERAL.—In the case of a

22 domestic corporation which, during the

23 taxable year, is actively conducting within

24 a possession other than Puerto Rico—
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1 ‘‘(I) a line of business with re2 spect to which the domestic corpora3 tion is an existing credit claimant

4 under paragraph (9), or

5 ‘‘(II) an eligible line of business

6 not described in subclause (I),

7 the credit determined under subsection

8 (a)(1)(A) shall be allowed for taxable years

9 beginning after December 31, 1995, and

10 before January 1, 2002.

11 ‘‘(ii) LIMITATION TO LINES OF BUSI12 NESS.—Clause (i) shall only apply with re13 spect to the lines of business described in

14 clause (i) which the domestic corporation is

15 actively conducting in a possession other

16 than Puerto Rico during the taxable year.

17 ‘‘(iii) EXCEPTION FOR CORPORATIONS

18 ELECTING REDUCED CREDIT.—Clause (i)

19 shall not apply to a domestic corporation if

20 such corporation (or any predecessor) had

21 an election in effect under subsection

22 (a)(4)(B)(iii) for any taxable year begin23 ning after December 31, 1996.’’

24 (b) APPLICATION ON SEPARATE LINE OF BUSINESS

25 BASIS; ELIGIBLE LINE OF BUSINESS.—
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1 (1) IN GENERAL.—Section 936(j) is amended

2 by adding at the end the following new paragraph:

3 ‘‘(11) APPLICATION ON LINE OF BUSINESS

4 BASIS; ELIGIBLE LINES OF BUSINESS.—For pur5 poses of this section—

6 ‘‘(A) APPLICATION TO SEPARATE LINE OF

7 BUSINESS.—

8 ‘‘(i) IN GENERAL.—In determining

9 the amount of the credit under subsection

10 (a)(1)(A) for a corporation to which para11 graph (2)(A) applies, this section shall be

12 applied separately with respect to each

13 substantial line of business of the corpora14 tion.

15 ‘‘(ii) EXCEPTIONS FOR EXISTING

16 CREDIT CLAIMANT.—This paragraph shall

17 not apply to a line of business with respect

18 to which the qualified domestic corporation

19 is an existing credit claimant under para20 graph (9).

21 ‘‘(iii) ALLOCATION.—The Secretary

22 shall prescribe rules necessary to carry out

23 the purposes of this subparagraph, includ24 ing rules—
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1 ‘‘(I) for the allocation of items of

2 income, gain, deduction, and loss for

3 purposes of determining taxable in4 come under subsection (a)(1)(A), and

5 ‘‘(II) for the allocation of wages,

6 fringe benefit expenses, and deprecia7 tion allowances for purposes of apply8 ing the limitations under subsection

9 (a)(4)(A).

10 ‘‘(B) ELIGIBLE LINE OF BUSINESS.—For

11 purposes of this subsection, the term ‘eligible

12 line of business’ means a substantial line of

13 business in any of the following trades or busi14 nesses:

15 ‘‘(i) Manufacturing.

16 ‘‘(ii) Agriculture.

17 ‘‘(iii) Forestry.

18 ‘‘(iv) Fishing.’’

19 (2) NEW LINES OF BUSINESS.—Section

20 936(j)(9)(B) is amended to read as follows:

21 ‘‘(B) NEW LINES OF BUSINESS.—A cor22 poration shall not be treated as an existing

23 credit claimant with respect to any substantial

24 new line of business which is added after Octo25 ber 13, 1995, unless such addition is pursuant
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1 to an acquisition described in subparagraph

2 (A)(ii).’’

3 (3) SEPARATE LINES OF BUSINESS.—Section

4 936(j), as amended by paragraph (1), is amended by

5 adding at the end the following new paragraph:

6 ‘‘(12) SUBSTANTIAL LINE OF BUSINESS.—For

7 purposes of this subsection (other than paragraph

8 (9)(B) thereof), the determination of whether a line

9 of business is a substantial line of business shall be

10 determined by reference to 2-digit codes under the

11 North American Industry Classification System (62

12 Fed. Reg. 17288 et seq., formerly known as ‘SIC

13 codes’).’’

14 (c) REPEAL OF BASE PERIOD CAP FOR ECONOMIC

15 ACTIVITY CREDIT.—

16 (1) IN GENERAL.—Section 936(j)(3) is amend17 ed to read as follows:

18 ‘‘(3) ADDITIONAL RESTRICTED REDUCED CRED19 IT.—

20 ‘‘(A) IN GENERAL.—In the case of an ex21 isting credit claimant to which paragraph

22 (2)(B) applies, the credit determined under sub23 section (a)(1)(A) shall be allowed for any tax24 able year beginning after December 31, 1998,

25 and before January 1, 2006, except that the ag-
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1 gregate amount of taxable income taken into

2 account under subsection (a)(1)(A) for such

3 taxable year shall not exceed the adjusted base

4 period income of such claimant.

5 ‘‘(B) COORDINATION WITH SUBSECTION

6 (a)(4)(B).—The amount of income described in

7 subsection (a)(1)(A) which is taken into ac8 count in applying subsection (a)(4)(B) shall be

9 such income as reduced under this paragraph.’’

10 (2) CONFORMING AMENDMENTS.—

11 (A) Section 936(j)(2)(A), as amended by

12 subsection (a), is amended by striking ‘‘2002’’

13 and inserting ‘‘2006’’.

14 (B) Section 30A(e)(1), as amended by sec15 tion 2(c)(2), is amended by striking ‘‘subsection

16 (j)(3)(A)(ii)’’ and inserting ‘‘the exception

17 under subsection (j)(3)(A)’’.

18 (d) APPLICATION OF CREDIT.—

19 (1) IN GENERAL.—Section 936(j)(2)(A), as

20 amended by this section, is amended by striking

21 ‘‘January 1, 2006’’ and inserting ‘‘January 1,

22 2009’’.

23 (2) SPECIAL RULES FOR APPLICABLE POSSES24 SIONS.—Section 936(j)(8)(A) is amended to read as

25 follows:
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1 ‘‘(A) IN GENERAL.—In the case of an ap2 plicable possession—

3 ‘‘(i) this section (other than the pre4 ceding paragraphs of this subsection) shall

5 not apply for taxable years beginning after

6 December 31, 1995, and before January 1,

7 2006, with respect to any substantial line

8 of business actively conducted in such pos9 session by a domestic corporation which is

10 an existing credit claimant with respect to

11 such line of business, and

12 ‘‘(ii) this section (including this sub13 section) shall apply—

14 ‘‘(I) with respect to any substan15 tial line of business not described in

16 clause (i) for taxable years beginning

17 after December 31, 1998, and before

18 January 1, 2009, and

19 ‘‘(II) with respect to any sub20 stantial line of business described in

21 clause (i) for taxable years beginning

22 after December 31, 2006, and before

23 January 1, 2009.’’

24 (e) EFFECTIVE DATES.—
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1 (1) IN GENERAL.—The amendments made by

2 this section shall apply to taxable years beginning

3 after December 31, 1998.

4 (2) NEW LINES OF BUSINESS.—The amend5 ment made by subsection (b)(2) shall apply to tax6 able years beginning after December 31, 1995.

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