To allow States to own the entire interest of a real estate investment trust without tax consequences in order to assist the State in preserving its railroad infrastructure, and for other purposes.

SA 574. Mrs. DOLE (for herself and Mr. Burr) submitted an amendment
intended to be proposed by her to the bill H.R. 3, Reserved; which was
ordered to lie on the table; as follows:

At the appropriate place, insert the following:

SEC. __. TAX TREATMENT OF STATE OWNERSHIP OF RAILROAD REAL
ESTATE INVESTMENT TRUST.

(a) In General.--If a State owns all of the outstanding
stock of a corporation--
(1) which is a real estate investment trust on the date of
the enactment of this Act,
(2) which is a non-operating class III railroad, and
(3) substantially all of the activities of which consist of
the ownership, leasing, and operation by such corporation of
facilities, equipment, and other property used by the
corporation or other persons for railroad transportation and
for economic development purposes for the benefit of the
State and its citizens,

then, to the extent such activities are of a type which are
an essential governmental function within the meaning of
section 115 of the Internal Revenue Code of 1986, income
derived from such activities by the corporation shall be
treated as accruing to the State for purposes of section 115
of such Code.
(b) Gain or Loss Not Recognized on Conversion.--
Notwithstanding section 337(d) of the Internal Revenue Code
of 1986--
(1) no gain or loss shall be recognized under section 336
or 337 of such Code, and
(2) no change in basis of the property of such corporation
shall occur,

because of any change of status of a corporation to a tax-
exempt entity by reason of the application of subsection (a).
(c) Tax-Exempt Financing.--
(1) In general.--Any obligation issued by a corporation
described in subsection (a) at least 95 percent of the net
proceeds (as defined in section 150(a) of the Internal
Revenue Code of 1986) of which are to be used to provide for
the acquisition, construction, or improvement of railroad
transportation infrastructure (including railroad terminal
facilities)--
(A) shall be treated as a State or local bond (within the
meaning of section 103(c) of such Code), and
(B) shall not be treated as a private activity bond (within
the meaning of section 103(b)(1) of such Code) solely by
reason of the ownership or use of such railroad
transportation infrastructure by the corporation.
(2) No inference.--Except as provided in paragraph (1),
nothing in this subsection shall be construed to affect the
treatment of the private use of proceeds or property financed
with obligations issued by the corporation for purposes of
section 103 of the Internal Revenue Code of 1986 and part IV
of subchapter B of such Code.
(d) Definitions.--For purposes of this section:
(1) Real estate investment trust.--The term ``real estate
investment trust'' has the meaning given such term by section
856(a) of the Internal Revenue Code of 1986.
(2) Non-operating class iii railroad.--The term ``non-
operating class III railroad'' has the meaning given such
term by part A of subtitle IV of title 49, United States Code
(49 U.S.C. 10101 et seq.), and the regulations thereunder.
(3) State.--The term ``State'' includes--
(A) the District of Columbia and any possession of the
United States, and
(B) any authority, agency, or public corporation of a
State.
(e) Applicability.--
(1) In general.--Except as provided in paragraph (2), this
section shall apply on and after the date on which a State
becomes the owner of all of the outstanding stock of a
corporation described in subsection (a) through action of
such corporation's board of directors.
(2) Exception.--This section shall not apply to any State
which--
(A) becomes the owner of all of the voting stock of a
corporation described in subsection (a) after December 31,
2003, or
(B) becomes the owner of all of the outstanding stock of a
corporation described in subsection (a) after December 31,
2006.
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