S.Amdt. 2671

1. Rewrites page 71, line 10 through page 84, line 22

   ReplacesPrinted page

   Removes page 71, line 10 through page 84, line 22 of the printed bill. See that page

   Inserted: SEC. 199. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION ACTIVITIES.

   Inserted: (a) Allowance of Deduction.--

   Inserted: (1) In general.--There shall be allowed as a deduction an amount equal to 9 percent of the qualified production activities income of the taxpayer for the taxable year.

   Inserted: (2) Phasein.--In the case of taxable years beginning in 2003, 2004, 2005, 2006, 2007, or 2008, paragraph (1) shall be applied by substituting for the percentage contained therein the transition percentage determined under the following table:

   Inserted: Taxable years beginning in: The transition percentage is:

   Inserted: 2003 or 2004........................................................ 1 2005................................................................ 2 2006................................................................ 3 2007 or 2008........................................................ 6.

   Inserted: (b) Deduction Limited to Wages Paid.--

   Inserted: (1) In general.--The amount of the deduction allowable under subsection (a) for any taxable year shall not exceed 50 percent of the W-2 wages of the employer for the taxable year.

   Inserted: (2) W-2 wages.--For purposes of paragraph (1), the term 'W-2 wages' means the sum of the aggregate amounts the taxpayer is required to include on statements under paragraphs (3) and (8) of section 6051(a) with respect to employment of employees of the taxpayer during the taxpayer's taxable year.

   Inserted: (3) Special rules.--

   Inserted: (A) Pass-thru entities.--In the case of an S corporation, partnership, estate or trust, or other pass-thru entity, the limitation under this subsection shall apply at the entity level.

   Inserted: (B) Acquisitions and dispositions.--The Secretary shall provide for the application of this subsection in cases where the taxpayer acquires, or disposes of, the major portion of a trade or business or the major portion of a separate unit of a trade or business during the taxable year.

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   Inserted: (c) Qualified Production Activities Income.--For purposes of this section, the term 'qualified production activities income' means an amount equal to the portion of the modified taxable income of the taxpayer which is attributable to domestic production activities.

   Inserted: (d) Determination of Income Attributable to Domestic Production Activities.--For purposes of this section--

   Inserted: (1) In general.--The portion of the modified taxable income which is attributable to domestic production activities is so much of the modified taxable income for the taxable year as does not exceed--

   Inserted: (A) the taxpayer's domestic production gross receipts for such taxable year, reduced by

   Inserted: (B) the sum of--

   Inserted: (i) the costs of goods sold that are allocable to such receipts,

   Inserted: (ii) other deductions, expenses, or losses directly allocable to such receipts, and

   Inserted: (iii) a proper share of other deductions, expenses, and losses that are not directly allocable to such receipts or another class of income.

   Inserted: (2) Allocation method.--The Secretary shall prescribe rules for the proper allocation of items of income, deduction, expense, and loss for purposes of determining income attributable to domestic production activities.

   Inserted: (3) Special rules for determining costs.--

   Inserted: (A) In general.--For purposes of determining costs under clause (i) of paragraph (1)(B), any item or service brought into the United States shall be treated as acquired by purchase, and its cost shall be treated as not less than its fair market value immediately after it entered the United States. A similar rule shall apply in determining the adjusted basis of leased or rented property where the lease or rental gives rise to domestic production gross receipts.

   Inserted: (B) Exports for further manufacture.--In the case of any property described in subparagraph (A) that had been exported by the taxpayer for further manufacture, the increase in cost or adjusted basis under subparagraph (A) shall not exceed the difference between the value of the property when exported and the value of the property when brought back into the United States after the further manufacture.

   Inserted: (4) Modified taxable income.--The term 'modified taxable income' means taxable income computed without regard to the deduction allowable under this section.

   Inserted: (e) Domestic Production Gross Receipts.--For purposes of this section--

   Inserted: (1) In general.--The term 'domestic production gross receipts' means the gross receipts of the taxpayer which are derived from--

   Inserted: (A) any sale, exchange, or other disposition of, or

   Inserted: (B) any lease, rental, or license of, qualifying production property which was manufactured, produced, grown, or extracted in whole or in significant part by the taxpayer within the United States.

   Inserted: (2) Special rules for certain property.--In the case of any qualifying production property described in subsection (f)(1)(C)--

   Inserted: (A) such property shall be treated for purposes of paragraph (1) as produced in significant part by the taxpayer within the United States if more than 50 percent of the aggregate development and production costs are incurred by the taxpayer within the United States, and

   Inserted: (B) if a taxpayer acquires such property before such property begins to generate substantial gross receipts, any development or production costs incurred before the acquisition shall be treated as incurred by the taxpayer for purposes of subparagraph (A) and paragraph (1).

   Inserted: (f) Qualifying Production Property.--For purposes of this section--

   Inserted: (1) In general.--Except as otherwise provided in this paragraph, the term 'qualifying production property' means--

   Inserted: (A) any tangible personal property,

   Inserted: (B) any computer software, and

   Inserted: (C) any property described in section 168(f) (3) or (4), including any underlying copyright or trademark.

   Inserted: (2) Exclusions from qualifying production property.--The term 'qualifying production property' shall not include--

   Inserted: (A) consumable property that is sold, leased, or licensed by the taxpayer as an integral part of the provision of services,

   Inserted: (B) oil or gas,

   Inserted: (C) electricity,

   Inserted: (D) water supplied by pipeline to the consumer,

   Inserted: (E) utility services, or

   Inserted: (F) any film, tape, recording, book, magazine, newspaper, or similar property the market for which is primarily topical or otherwise essentially transitory in nature.

   Inserted: (g) Definitions and Special Rules.--

   Inserted: (1) Application of section to pass-thru entities.--In the case of an S corporation, partnership, estate or trust, or other pass-thru entity--

   Inserted: (A) subject to the provisions of paragraph (2) and subsection (b)(3)(A), this section shall be applied at the shareholder, partner, or similar level, and

   Inserted: (B) the Secretary shall prescribe rules for the application of this section, including rules relating to--

   Inserted: (i) restrictions on the allocation of the deduction to taxpayers at the partner or similar level, and

   Inserted: (ii) additional reporting requirements.

   Inserted: (2) Exclusion for patrons of agricultural and horticultural cooperatives.--

   Inserted: (A) In general.--If any amount described in paragraph (1) or (3) of section 1385(a)--

   Inserted: (i) is received by a person from an organization to which part I of subchapter T applies which is engaged in the marketing of agricultural or horticultural products, and

   Inserted: (ii) is allocable to the portion of the qualified production activities income of the organization which is deductible under subsection (a) and designated as such by the organization in a written notice mailed to its patrons during the payment period described in section 1382(d), then such person shall be allowed an exclusion from gross income with respect to such amount. The taxable income of the organization shall not be reduced under section 1382 by the portion of any such amount with respect to which an exclusion is allowable to a person by reason of this paragraph.

   Inserted: (B) Special rules.--For purposes of applying subparagraph (A), in determining the qualified production activities income of the organization under this section--

   Inserted: (i) there shall not be taken into account in computing the organization's modified taxable income any deduction allowable under subsection (b) or (c) of section 1382 (relating to patronage dividends, per-unit retain allocations, and nonpatronage distributions), and

   Inserted: (ii) the organization shall be treated as having manufactured, produced, grown, or extracted in whole or significant part any qualifying production property marketed by the organization which its patrons have so manufactured, produced, grown, or extracted.

   Inserted: (3) Special rule for affiliated groups.--

   Inserted: (A) In general.--All members of an expanded affiliated group shall be treated as a single corporation for purposes of this section.

   Inserted: (B) Expanded affiliated group.--The term 'expanded affiliated group' means an affiliated group as defined in section 1504(a), determined--

   Inserted: (i) by substituting '50 percent' for '80 percent' each place it appears, and

   Inserted: (ii) without regard to paragraphs (2) and (4) of section 1504(b).

   Inserted: (4) Coordination with minimum tax.--The deduction under this section shall be allowed for purposes of the tax imposed by section 55; except that for purposes of section 55, alternative minimum taxable income shall be taken into account in determining the deduction under this section.

   Inserted: (5) Ordering rule.--The amount of any other deduction allowable under this chapter shall be determined as if this section had not been enacted.

   Inserted: (6) Trade or business requirement.--This section shall be applied by only taking into account items which are attributable to the actual conduct of a trade or business.

   Inserted: (7) Possessions, etc.--

   Inserted: (A) In general.--For purposes of subsections (d) and (e), the term 'United States' includes the Commonwealth of Puerto Rico, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, and the Virgin Islands of the United States.

   Inserted: (B) Special rules for applying wage limitation.--For purposes of applying the limitation under subsection (b) for any taxable year--

   Inserted: (i) the determination of W-2 wages of a taxpayer shall be made without regard to any exclusion under section 3401(a)(8) for remuneration paid for services performed in a jurisdiction described in subparagraph (A), and

   Inserted: (ii) in determining the amount of any credit allowable under section 30A or 936 for the taxable year, there shall not be taken into account any wages which are taken into account in applying such limitation.

   Inserted: (8) Coordination with transition rules.--For purposes of this section--

   Inserted: (A) domestic production gross receipts shall not include gross receipts from any transaction if the binding contract transition relief of section 101(c)(2) of the Jumpstart Our Business Strength (JOBS) Act applies to such transaction, and

   Inserted: (B) any deduction allowed under section 101(e) of such Act shall be disregarded in determining the portion of the taxable income which is attributable to domestic production gross receipts.

   Original wording

   Beginning on page 71, strike line 10 through page 84, line 22, and insert the following:

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As printed