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 busi-
ness 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.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Distorting Subsidies
Limitation Act of 1999’’.
SEC. 2. FINDINGS.
Congress finds the following:
(1) Competition among State and local govern-
ments for new and existing businesses has become
the rule rather than the exception.
(2) State and local governments are being
forced to compete against each other for businesses
with scarce tax dollars that would otherwise be used
for essential public goods and services.
(3) When State and local government competi-
tion takes the form of preferential treatment for spe-
cific businesses, it undermines our national economic
union by distorting the allocation of resources.
(4) There is a role for competition between
States and localities when it takes the form of gen-
eral tax policies, regulation structures, and public
services because such competition leads States and
localities to provide better service, cost effective reg-
ulation, sound tax policies, and more efficient alloca-
tion of public and private goods.
(5) Federal program grants have been used by
State and local governments to subsidize business lo-
cation decisions to attract businesses from other
States and localities.
(6) Proceeds from tax-exempt municipal bonds
have been used by one State or locality to attract
business from other States and localities.
(7) No single State or local government can
unilaterally withdraw from this competition. Only
Congress with its enumerated powers can end the
economic distortions and the public costs caused by
economic distortions.
SEC. 3. TAXATION OF VALUE OF TARGETED SUBSIDIES
PROVIDED BY STATE AND LOCAL GOVERN-
MENTS.
(a) IN GENERAL.—Subtitle D of the Internal Reve-
nue Code of 1986 (relating to miscellaneous excise taxes)
is amended by inserting after chapter 44 the following new
chapter:
‘‘CHAPTER 45—EXCISE TAX ON TARGETED
STATE OR LOCAL GOVERNMENT DE-
VELOPMENT SUBSIDIES
‘‘Sec. 4986. Targeted State or local government development sub-
sidies.
‘‘SEC. 4986. TARGETED STATE OR LOCAL GOVERNMENT DE-
VELOPMENT SUBSIDIES.
‘‘(a) GENERAL RULE.—There is hereby imposed for
each calendar year an excise tax on any person engaged
in a trade or business who derives any benefit during such
year from any targeted subsidy provided by any State or
local governmental unit.
‘‘(b) AMOUNT OF TAX.—The tax imposed by sub-
section (a) shall consist of a tax computed as provided in
section 11(b) as though the aggregate value (determined
under regulations prescribed by the Secretary) of benefits
referred to in subsection (a) accruing during the calendar
year were the taxable income referred to in section 11.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) TARGETED SUBSIDY.—
‘‘(A) IN
GENERAL.—The term ‘targeted
subsidy’ means, with respect to any person, any
subsidy—
‘‘(i) which is designed to encourage
any trade or business operation of such
person to locate in a particular govern-
mental jurisdiction or to remain in a par-
ticular governmental jurisdiction, or
‘‘(ii) which is reasonably expected to
have the effect of a subsidy described in
clause (i).
‘‘(B) CERTAIN MORE BROADLY AVAILABLE
SUBSIDIES
TREATED
AS
TARGETED
SUB-
SIDIES.—
‘‘(i) IN
GENERAL.—A subsidy shall
not fail to be a targeted subsidy by reason
of applying to (or being available to) more
than 1 trade or business operation if such
subsidy is determined (under regulations
prescribed by the Secretary) not to be part
of the general long-term taxing or spend-
ing policies of the governmental unit.
‘‘(ii) GENERAL
LONG-TERM
POLI-
CIES.—A subsidy shall be treated as part
of the general long-term taxing or spend-
ing policies of the governmental unit only
if the subsidy is available to all trade or
business operations within the jurisdiction
of such governmental unit without regard
to the period during which any operation
has been conducted within such jurisdic-
tion.
‘‘(2) SUBSIDY.—The term ‘subsidy’ includes—
‘‘(A) any grant,
‘‘(B) any contribution of property or serv-
ices,
‘‘(C) any right to use property or services,
or any loan, at rates below those commercially
available to the taxpayer,
‘‘(D) any reduction or deferral of any tax
or any fee (including any payment by any State
or local governmental unit of any tax or fee),
‘‘(E) any guarantee of any payment under
any loan, lease, or other obligation,
‘‘(F) any use of governmental facilities (in-
cluding roads, facilities for the furnishing of
water, sewage facilities, and solid waste disposal
facilities) to the extent that the amount paid by
(or assessed against the property of) the trade
or business for such use is less than the amount
it would pay were the charge for its use (or the
assessment) determined under the same for-
mula or other basis as is used by the State or
local government with respect to other com-
parable facilities used by other trades or busi-
nesses, and
‘‘(G) any other benefit specified in regula-
tions prescribed by the Secretary.
‘‘(d) EXCEPTION
FOR SUBSIDIES
FOR EMPLOYEE
TRAINING AND EDUCATION.—No tax shall be imposed by
this section on the value of any subsidy provided for em-
ployee training or for other education programs.
‘‘(e) SPECIAL RULES.—
‘‘(1) EXCEPTION FOR SUBSIDIES PROVIDED TO
GOVERNMENTAL
ENTITIES.—No tax shall be im-
posed by this section on the value of any subsidy
provided to—
‘‘(A) an agency or instrumentality of any
government or any political subdivision thereof,
or
‘‘(B) any entity which is owned and oper-
ated by a government or any political subdivi-
sion thereof or by any agency or instrumental-
ity of one or more governments or political sub-
divisions.
‘‘(2) AVOIDANCE OF DOUBLE TAX.—No amount
shall be includible in gross income for purposes of
subtitle A by reason of any targeted subsidy on
which tax is imposed under this section.
‘‘(3) ADMINISTRATIVE PROVISIONS.—For pur-
poses of subtitle F, any tax imposed by this section
shall be treated as a tax imposed by subtitle A.’’
(b) DENIAL
OF INCOME TAX DEDUCTION
FOR
TAX.—Paragraph (6) of section 275(a) of such Code is
amended by inserting ‘‘45,’’ after ‘‘44,’’.
(c) CLERICAL AMENDMENT.—The table of chapters
for subtitle D of such Code is amended by inserting after
the item relating to chapter 44 the following new item:
‘‘Chapter 45. Excise tax on targeted State or local government de-
velopment subsidies.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to any subsidy which is provided
pursuant to an agreement or arrangement entered into
more than 30 days after the date of the enactment of this
Act.
SEC. 4. DENIAL OF EXEMPTION FROM TAX FOR INTEREST
ON BONDS PROVIDING TARGETED STATE OR
LOCAL GOVERNMENT DEVELOPMENT SUB-
SIDIES.
(a) IN GENERAL.—Subsection (b) of section 103 of
the Internal Revenue Code of 1986 (relating to interest
on State and local bonds) is amended by adding at the
end the following new paragraph:
‘‘(4) BONDS PROVIDING TARGETED DEVELOP-
MENT SUBSIDIES.—Any bond if any portion of the
proceeds of such bond is to be used to provide any
targeted subsidy (as defined in section 4986(c)).’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to obligations issued after the
date of the enactment of this Act.
SEC. 5. PROHIBITION OF USE OF FEDERAL FUNDS FOR
TARGETED SUBSIDIES.
(a) IN GENERAL.—Notwithstanding any other provi-
sion of law, none of the Federal funds provided to any
State or local government may be used to provide any tar-
geted subsidy (as defined in section 4986(c) of the Inter-
nal Revenue Code of 1986).
(b) RECOVERY OF FUNDS USED TO PROVIDE TAR-
GETED SUBSIDIES.—If the Secretary of the Treasury or
the Secretary’s delegate finds after reasonable notice and
opportunity for hearing that any State or local govern-
ment used Federal funds in violation of subsection (a),
the Secretary or the Secretary’s delegate shall take such
actions as are necessary (including referring the matter
to the Attorney General of the United States with a rec-
ommendation that an appropriate civil action be insti-
tuted) to recover the amount so used from the State or
local government or the trade or business, whichever the
Secretary determines to be appropriate.
(c) EFFECTIVE DATE.—This section shall apply to
funds provided after the date of the enactment of this Act.
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