388
‘‘(2) the insurance premiums shall be subject to
the import tax, and
‘‘(3) payments of insurance benefits shall not be
treated as imported.
‘‘(c) 
INSURED
RISK
OUTSIDE
THE
UNITED
STATES.—If insurance services are provided inside the
United States and the insured risk is located outside the
United States—
‘‘(1) insurance services shall be treated as ex-
ported,
‘‘(2) payments of insurance benefits shall be
treated as payments for services outside the United
States, and shall not be deducted as business pur-
chases.
‘‘(d) INSURANCE
SERVICES.—Insurance services
means the provision of insurance and services related to
insurance other than insurance that is treated as a savings
asset.
‘‘SEC. 271. BANKING SERVICES.
‘‘The Secretary shall prescribe regulations on the lo-
cation of banking services and the extent to which such
services are to be treated as imported or exported.
‘‘Subchapter K—Business Conducted in a
Possession
‘‘Sec. 276. Treatment of possessions.
389
‘‘SEC. 276. TREATMENT OF POSSESSIONS.
‘‘(a) IN GENERAL.—For purposes of the business tax
imposed by this chapter, the U.S. possessions shall not
be treated as part of the United States.
‘‘(b) EFFECT ON PAYROLL TAX CREDIT.—A busi-
ness entity may not claim a payroll tax credit with respect
to any payroll taxes paid with respect to income of resi-
dents of the U.S. possessions.
‘‘(c) POSSESSION.—For purposes of this subchapter,
‘U.S. possession’ or ‘possession’ means a possession of the
United States and includes the Commonwealth of Puerto
Rico and the Virgin Islands.
‘‘Subchapter L—Payroll Tax Credit
‘‘Sec. 281. Amount of credit.
‘‘Sec. 282. Current-year payroll tax credit.
‘‘Sec. 283. Credit carryover.
‘‘SEC. 281. AMOUNT OF CREDIT.
‘‘(a) AMOUNT OF CREDIT.—The payroll tax credit for
a business entity for a taxable year is the lesser of—
‘‘(1) the sum of—
‘‘(A) the current-year payroll tax credit,
and
‘‘(B) the credit carryovers to the taxable
year, or
‘‘(2) the business entity’s business tax for the
taxable year (determined without regard to the pay-
roll tax credit).
390
‘‘(b) CONSOLIDATED RETURNS.—In the case of busi-
ness entities filing consolidated returns, the amount of the
credit shall be determined using the combined payroll tax
credits and credit carryovers of the business entities and
the combined business tax of the business entities.
‘‘SEC. 282. CURRENT-YEAR PAYROLL TAX CREDIT.
‘‘(a) IN GENERAL.—The ‘current-year payroll tax
credit’ is an amount equal to the sum of—
‘‘(1) the employer’s share of the FICA tax im-
posed on wages of its employees during the taxable
year,
‘‘(2) the employer’s share of the tier 1 railroad
retirement tax for its employees during the taxable
year,
‘‘(3) one-half of the allocable portion of the
SECA tax imposed on individuals (other than inde-
pendent contractors and other business entities) who
provide services to the business entity.
‘‘(b) DEFINITIONS.—
‘‘(1) EMPLOYER’S SHARE OF THE FICA TAX.—
‘Employer’s share of the FICA tax’ means the old-
age, survivors, disability and hospital insurance
taxes imposed by section 3111.
391
‘‘(2) EMPLOYER’S SHARE OF THE TIER 1 RAIL-
ROAD RETIREMENT TAX.—‘Employer’s share of the
tier 1 railroad retirement tax’ means—
‘‘(A) the tier 1 railroad retirement tax im-
posed by section 3221(a), and
‘‘(B) the portion of the tax imposed by sec-
tion 3211(a)(1) on employee representatives at-
tributable to the tax imposed by section 3111.
‘‘(3) ONE-HALF OF THE ALLOCABLE PORTION
OF THE SECA TAX.—
‘‘(A) SECA TAX.—‘SECA tax’ means the
self-employment tax imposed by section 1401.
‘‘(B) PARTNERSHIPS.—Until such time as
the SECA tax and the Federal Insurance Con-
tributions Acts are amended to treat partners
of partnerships as employees, if a partner des-
ignates a partnership as a principal source of
employment income for the taxable year, one-
half of the partnership’s allocable portion of the
SECA tax of such partner equals the FICA tax
that the employer would have been required to
pay under section 3111 with respect to such
partner if the partner’s self-employment income
as reported by the partnership were wages sub-
ject to the FICA tax. A partner and partner-
392
ship can agree to treat no portion of a partner’s
SECA tax as allocable to the partnership.
‘‘(C) PROPRIETORSHIP.—In the case of an
individual who is a proprietor or sole owner and
provider of service to a business entity, the indi-
vidual shall allocate the portion of one-half of
his SECA tax not allocated pursuant to sub-
paragraph (B) to his business entities in ac-
cordance with rules prescribed by the Secretary.
‘‘(c) SPECIAL RULE.—Under rules prescribed by the
Secretary, an individual subject to the self-employment tax
shall pay half of the self-employment tax on an amount
of self employment income not less than the amount of
the individual’s self-employment income taken into ac-
count by partnerships under subparagraph (B) of sub-
section (b)(3).
‘‘SEC. 283. CREDIT CARRYOVER.
‘‘(a) CARRYOVER.—A current-year credit that is not
applied in the taxable year in which earned shall constitute
a credit carryover until applied but for no more than 15
taxable years.
‘‘(b) ORDER OF USE.—For purposes of determining
which credits are applied under section 281, if the total
credit allowable in a taxable year is less than the sum of
the current-year payroll credit and the carryover credits,
393
the current-year payroll credit shall be considered applied
first and then credit carryovers shall be considered applied
in the order earned.
‘‘Subchapter M—Import Tax
‘‘Sec. 286. Imposition of tax on property.
‘‘Sec. 287. Imposition of tax on import of services.
‘‘Sec. 288. General rules for the import tax.
‘‘SEC. 286. IMPOSITION OF TAX ON PROPERTY.
‘‘(a) GENERAL RULE.—There is hereby imposed a
tax equal to 11 percent of the customs value of all prop-
erty entered into the United States for consumption, use
or warehousing.
‘‘(b) LIABILITY FOR TAX.—The tax imposed on the
import of property by subsection (a) shall be paid by the
person entering the property into the United States for
consumption, use or warehousing. Such tax shall be due
and payable at the time of import.
‘‘(c) IMPORTS
OF PREVIOUSLY EXPORTED PROP-
ERTY.—In the case of any article that is classified under
a heading or subheading of subchapter I or II of chapter
98 of the Tariff Schedules of the United States, the tax
under this section shall be imposed only on that portion
of the customs value of such article that is dutiable under
such heading or subheading.
‘‘(d) IMPORTS FOR PERSONAL CONSUMPTION.—The
import tax imposed by this section shall not apply to any
article entered into the United States duty free under sub-
394
chapters I through VII of chapter 98 of the Tariff Sched-
ules of the United States.
‘‘SEC. 287. IMPOSITION OF TAX ON IMPORT OF SERVICES.
‘‘(a) GENERAL RULE.—There is hereby imposed a
tax equal to 11 percent of the cost of all services treated
as imported into the United States during the taxable year
of the service recipient.
‘‘(b) LIABILITY FOR THE TAX.—The tax on the im-
port of services imposed by subsection (a) shall be paid
by the person who receives the imported services. The tax
shall be payable as if it were an addition to the business
tax imposed by section 201.
‘‘(c) IMPORTED SERVICES.—For purposes of this sec-
tion, services shall be treated as imported if they are treat-
ed as imported under section 267 (general rules on import
of services) or section 270 (related to insurance).
‘‘(d) SPECIAL RULE FOR INSURANCE.—The seller of
insurance that is treated as imported under section 270
shall be liable for the collection of the tax imposed by sub-
section (a) on the insurance and for paying such tax to
the Secretary. The first sentence of subsection (b) (relat-
ing to the person liable for the tax) shall apply to insur-
ance only to the extent that the seller of the insurance
services does not collect such tax.
396
‘‘(d) CATEGORIES.—
‘‘(1) CATEGORY I BASIS.—‘Category I basis’ is
the sum of the unrecovered bases as of January 1,
2002, of all depreciable property placed in service
prior to January 1, 2002, and the unamortized por-
tion of amortizable costs incurred before January 1,
2002, if—
‘‘(A) cost recovery or amortization began
before January 1, 2002, and
‘‘(B) the remaining recovery period or am-
ortization period as of January 1, 2002, is less
than 15 years.
‘‘(2) CATEGORY II BASIS.—‘Category II basis’
is the sum of the unrecovered bases as of January
1, 2002, of all depreciable property placed in service
prior to January 1, 2002, and the unamortized por-
tion of amortizable costs incurred before January 1,
2002, if—
‘‘(A) cost recovery or amortization began
before January 1, 2002, and
‘‘(B) the remaining recovery period or am-
ortization period as of January 1, 2002, is 15
years or more.
397
‘‘(3) CATEGORY III BASIS.—‘Category III basis’
is the sum of the adjusted basis of each asset satis-
fying the following requirements:
‘‘(A) The asset was placed in service prior
to January 1, 2002,
‘‘(B) The asset was used in a business ac-
tivity in 2002,
‘‘(C) The cost of the asset was capitalized
and not depreciable or otherwise recoverable
under the Internal Revenue Code of 1986, and
‘‘(D) The cost of the asset would have con-
stituted deductible expenses under the business
tax if such cost had been incurred after 2001.
‘‘(4) UNRECOVERED INVENTORY COSTS.—‘Un-
recovered inventory costs’ means the cost of goods
sold (as determined under the Internal Revenue
Code of 1986) if a business entity sold all of its in-
ventory (including inventory being produced) on the
effective date of the business tax.
‘‘(e) RULES OF APPLICATION.—
‘‘(1) REMAINING RECOVERY PERIOD.—
‘‘(A) TIME OF MEASURE.—The remaining
recovery period shall be determined as of De-
cember 31, 2001, and shall include each taxable
year ending after such date in which a deduc-
398
tion would have been allowed under the Internal
Revenue Code of 1986.
‘‘(B) ACCOUNTING METHOD.—The remain-
ing recovery period shall be determined using
the cost recovery method and rules applicable
for determining taxable income under the Inter-
nal Revenue Code of 1986.
‘‘(2) DEPLETABLE ASSETS.—Under rules pre-
scribed by the Secretary, this section shall apply to
the remaining cost basis of depletable property and
to other property for which a cost recovery method
other than one based on time is used.
‘‘SEC. 291. SALES OF TRANSITION BASIS PROPERTY.
‘‘(a) IN GENERAL.—Except as provided in subsection
(b), for purposes of determining the tax consequences of
a sale, retirement, casualty or conversion to personal use
of an asset whose basis or cost is taken into account under
section 90, the amount to be amortized shall be treated
as fully deducted upon the adoption of the business tax.
‘‘(b) SUBSTANTIAL SALES.—
‘‘(1) IN GENERAL.—In the case of a substantial
sale of assets to which the amortization rules of sec-
tion 90 apply, the purchaser and seller may jointly
elect to have the purchaser assume the amortization
399
deductions attributable to such assets, in which
case—
‘‘(A) the seller’s taxable receipts from such
sale shall be reduced by the amount of
unamortized basis or cost assumed by the pur-
chaser,
‘‘(B) the purchaser may treat as a cost of
a business purchase only the portion of the pur-
chase price in excess of the amount of
unamortized basis or cost assumed,
‘‘(C) the unamortized basis or cost as-
sumed shall continue to be amortized in the
manner amortized by the seller.
‘‘(2) SUBSTANTIAL SALE.—A sale of assets by
a business entity to another business entity is a sub-
stantial sale if—
‘‘(A) more than 20 percent (in fair market
value or in original cost) of the assets of the
seller are sold,
‘‘(B) the total consideration for the sale
exceeds $1 million or 20 percent of the taxable
receipts of the seller for the taxable year pre-
ceding the year of the sale, or
400
‘‘(C) the sale satisfies other criteria estab-
lished by the Secretary to prevent distortions in
gross profits resulting from asset sales.
‘‘SEC. 292. SAFE HARBOR LEASES.
‘‘(a) IN GENERAL.—In the case of a safe harbor
lease, rental payments deemed to occur under the lease
and interest payments deemed to be made under the leases
shall constitute costs of business purchases, and rental in-
come and interest income deemed to be earned under the
lease shall constitute taxable receipts. The transition basis
deduction rules shall apply to the lessor’s adjusted basis
in assets subject to a safe harbor lease.
‘‘(b) SAFE HARBOR LEASE.—‘Safe harbor lease’
means a sale and leaseback transaction entered into pur-
suant to section 168(f)(8) of the Internal Revenue Code,
as added by the Economic Recovery Tax Act of 1981,
when such provision was in effect but only if such trans-
action would not be treated as a sale and leaseback for
tax purposes but for that provision.
‘‘SEC. 293. CARRYOVERS.
‘‘(a) NO LOSS CARRYOVERS.—No deduction shall be
allowed under the business tax for net operating loss
carryovers, capital loss carryovers, or any other loss
carryovers from the income tax under the Internal Rev-
enue Code of 1986.