[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[S. 2733 Introduced in Senate (IS)]







108th CONGRESS
  2d Session
                                S. 2733

To promote freedom, fairness, and economic opportunity by establishing 
a National Enterprise Zone system to promote prosperity in economically 
                            depressed areas.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 22, 2004

 Mr. Brownback introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To promote freedom, fairness, and economic opportunity by establishing 
a National Enterprise Zone system to promote prosperity in economically 
                            depressed areas.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``National 
Enterprise Zone Act of 2004''.
    (b) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Findings.
Sec. 3. National Enterprise Zones.

SEC. 2. FINDINGS.

    The Congress finds--
            (1) a higher level of private sector economic activity is 
        necessary to alleviate poverty and unemployment in economically 
        depressed regions of the United States;
            (2) removing tax disincentives to reside or do business in 
        economically depressed areas is an effective means of promoting 
        economic growth, development, employment, a higher standard of 
        living, and a higher qualify of life in economically depressed 
        areas;
            (3) lower marginal tax rates on work, savings, and 
        investment in economically depressed regions will promote 
        employment, business activity, and development in economically 
        depressed areas; and
            (4) improved taxation of business investment in plants, 
        equipment, and inventories in economically depressed areas will 
        encourage business to operate in those areas.

SEC. 3. NATIONAL ENTERPRISE ZONES.

    (a) In General.--Chapter 1 of the Internal Revenue Code of 1986 is 
amended by inserting after subchapter Y the following new subchapter:

               ``Subchapter Z--National Enterprise Zones

                              ``Sec. 1400M. National Enterprise Zone 
                                        designation procedure.
                              ``Sec. 1400N. National Enterprise Zone 
                                        eligibility criteria.
                              ``Sec. 1400O. Effect of National 
                                        Enterprise Zone designation on 
                                        individuals, estates, and 
                                        trusts.
                              ``Sec. 1400P. National Enterprise Zone 
                                        individual taxable income.
                              ``Sec. 1400Q. Effect of National 
                                        Enterprise Zone designation on 
                                        corporations.
                              ``Sec. 1400R. National Enterprise Zone 
                                        corporate taxable income.
                              ``Sec. 1400S. Conduct of an active trade 
                                        or business within a National 
                                        Enterprise Zone by 
                                        corporations, partnerships, and 
                                        sole proprietors.
                              ``Sec. 1400T. Definitions and special 
                                        rules.

``SEC. 1400M. NATIONAL ENTERPRISE ZONE DESIGNATION PROCEDURE.

    ``(a) Nominated Zone.--The governor of a State or United States 
Territory or the Mayor of the District of Columbia may nominate one or 
more zones for consideration by the Secretary. This nomination shall 
take the form of a written application submitted in the manner and form 
prescribed by the Secretary. Such application shall contain all of the 
information necessary to determine whether a nominated zone meets the 
National Enterprise Zone eligibility criteria.
    ``(b) Application Deadline.--The nomination application shall be 
submitted after January 1 and before February 28 of the year prior to 
the proposed effective date of the zone.
    ``(c) Deficiencies Deadline.--The Secretary shall inform the 
nominator of any procedural noncompliance by the nominator with the 
application procedures or of any needed information that may be missing 
from the application by issuing a deficiency notice no later than April 
30 of the year that the application was submitted.
    ``(d) Curing Deadline.--The nominator shall cure any deficiencies 
set forth in the Secretary's deficiency notice by May 31 of the year in 
which the deficiency notice was issued. Failure to timely cure such 
deficiencies shall constitute the withdraw of the nomination 
application.
    ``(e) Designation Deadline.--The Secretary shall make a 
determination with respect to any nomination application no later than 
September 30 of the year in which the application was received. If the 
Secretary finds that a nominated zone meets the National Enterprise 
Zone eligibility criteria set forth in section 1400N, then the 
Secretary shall designate such zone as a National Enterprise Zone no 
later than September 30 of the year that the application was submitted. 
If the Secretary finds that a nominated zone does not meet the National 
Enterprise Zone eligibility criteria set forth in section 1400N or that 
the application does not contain sufficient information to determine 
whether a nominated zone meets the National Enterprise Zone eligibility 
criteria set forth in section 1400N, then the Secretary shall decline 
to designate such zone as a National Enterprise Zone and shall, not 
later than October 31 of the year the application was submitted, 
provide to the nominator a rejection notice setting forth with 
particularly the reasons why the application was rejected.
    ``(f) No Prejudice With Respect to Previously Nominated Zones.--
Whether a zone or a substantially similar zone has been nominated in 
previous years shall not be regarded by the Secretary as relevant when 
evaluating whether to designate a nominated zone as a National 
Enterprise Zone.
    ``(g) Application Contents.--The application submitted by the 
nominator shall contain--
            ``(1) an enumeration of all of the census tracts to be 
        included in the zone;
            ``(2) census data for each tract with respect to median 
        household income in that tract;
            ``(3) census data for each tract with respect to the 
        poverty rate in that tract;
            ``(4) the laws of the State or Territory that conforms to 
        the requirements of section 1400N; and
            ``(5) such other information as the Secretary may require.
    ``(h) Effective Date of Zone Designation.--The effective date of 
the designation of any zone as a National Enterprise Zone pursuant to 
this section shall be January 1 of the year following its designation. 
A designation shall continue indefinitely, subject to annual 
eligibility reviews under subsection (i).
    ``(i) Annual Eligibility Review.--Between January 1 and April 30 of 
the sixth year of a National Enterprise Zone's initial effective date 
and each year thereafter, the Secretary shall undertake a review of 
each National Enterprise Zone designation whereby the Secretary shall 
determine whether the zone continues to meet the National Enterprise 
Zone Eligibility Criteria established by section 1400N. If this review 
determines that a National Enterprise Zone no longer meets the National 
Enterprise Zone Eligibility Criteria established by section 1400N, then 
the Secretary shall revoke the designation effective the end of the 
calendar year. No later than June 30 after such determination, the 
Secretary shall issue a notice to the nominator and to all taxpayers 
making National Enterprise Zone elections with respect to such zone in 
the taxpayer's previous taxable year that the designation will be 
revoked at the end of the calendar year for such National Enterprise 
Zone. The Secretary shall publish the annual eligibility review results 
for all National Enterprise Zones no later than June 30 of each year.

``SEC. 1400N. NATIONAL ENTERPRISE ZONE ELIGIBILITY CRITERIA.

    ``(a) National Enterprise Zone Eligibility Criteria.--A National 
Enterprise Zone must--
            ``(1) be composed of contiguous census tracts (none of 
        which may be part of an existing National Enterprise Zone);
            ``(2) have greater than 10,000 residents;
            ``(3) have a poverty rate 2 times the national poverty 
        rate;
            ``(4) have a median household income less than 60 percent 
        of the national median household income;
            ``(5) have an unemployment rate 2.5 times the national 
        average unemployment rate; and
            ``(6) be located entirely within a State or Territory that 
        the Secretary certifies has enacted conforming laws within the 
        meaning of subsection (e).
    ``(b) Special Rule for Small Incorporated Cities or Small 
Counties.--Paragraph (2) of subsection (a) shall not apply to a zone if 
the zone comprises an entire incorporated city or an entire county 
provided that such incorporated city or county existed on the date of 
enactment of this subchapter.
    ``(c) No Overlap With Existing Zones of Different Type.--No part of 
a National Enterprise Zone may also be a part of--
            ``(1) a zone designated under subchapter U as an 
        Empowerment Zone, an Enterprise Community, or a Rural 
        Development Investment Area; or
            ``(2) a zone designated as a District of Columbia 
        Enterprise Zone under subchapter W.
The nominator of a proposed National Enterprise Zone may indicate in 
his application that some or all of an existing zone described in the 
previous sentence shall lose its designation as an Empowerment Zone, 
Enterprise Community, Rural Development Investment Area, or District of 
Columbia Enterprise Zone upon its designation as all or part of a 
National Enterprise Zone. Such existing zone shall lose such 
designation upon its designation as all or part of a National 
Enterprise Zone in a manner prescribed by the Secretary.
    ``(d) Data.--No later than November 30 of each year, the Secretary 
shall designate which data as of which date shall be used by nominators 
to perform the calculations required in subsection (a) in applications 
made the following year.
    ``(e) Conforming Laws.--A State or Territory shall be deemed to 
have enacted conforming laws if--
            ``(1) it is in substantial compliance with the No Child 
        Left Behind Act of 2001; and
            ``(2) its tax laws provide for either--
                    ``(A)(i) a substantially similar income tax base 
                with respect to business income arising from the 
                conduct of an active trade or business within a 
                National Enterprise Zone as that provided for Federal 
                income tax purposes; and
                    ``(ii) tax rates no higher than that imposed on 
                businesses without a National Enterprise Zone; or
                    ``(B) the imposition of no income tax with respect 
                to business income arising from the conduct of an 
                active trade or business within a National Enterprise 
                Zone.

``SEC. 1400O. EFFECT OF NATIONAL ENTERPRISE ZONE DESIGNATION ON 
              INDIVIDUALS, ESTATES, AND TRUSTS.

    ``(a) Individual Alternative National Enterprise Zone Tax.--If for 
any taxable year, any individual taxpayer who is resident in a National 
Enterprise Zone for the entire taxable year has any National Enterprise 
Zone taxable income, then, in lieu of any tax imposed by section 1 or 
section 55, such individual taxpayer may elect, in a form prescribed by 
the Secretary, to pay a tax for such taxable year which shall consist 
of the sum of--
            ``(1) a tax computed on the taxable income of the 
        individual taxpayer for such taxable year reduced by the amount 
        of National Enterprise Zone tentative taxable income of such 
        individual taxpayer for such taxable year (if greater than 
        zero), at the rates and in the manner as if this subsection had 
        not been enacted; plus
            ``(2) a tax of 17 percent of the National Enterprise Zone 
        taxable income for the taxable year.
    ``(b) Individual Taxpayer.--For purposes of this section, an 
individual taxpayer shall include an--
            ``(1) individual;
            ``(2) married individual filing a joint return;
            ``(3) surviving spouse;
            ``(4) head of household;
            ``(5) married individual filing a separate return;
            ``(6) estate; or
            ``(7) trust.
    ``(c) Certain Individuals, Estates and Trusts.--
            ``(1) Joint filers.--In the case of married individuals 
        filing a joint return, both individuals must have been 
        residents in a National Enterprise Zone for their entire 
        taxable year in order to be eligible under this section.
            ``(2) Individuals resident in multiple zones.--Individuals 
        who are residents of 2 or more National Enterprise Zones during 
        their taxable year but are residents of a National Enterprise 
        Zone for their entire taxable year shall be eligible under this 
        section.
            ``(3) Estates and certain trusts.--The estate of an 
        individual and testamentary trusts of an individual shall be 
        eligible under this section if the decedent was a resident of a 
        National Enterprise Zone for at least two complete taxable 
        years prior to the individual's death.

``SEC. 1400P. NATIONAL ENTERPRISE ZONE INDIVIDUAL TAXABLE INCOME.

    ``(a) National Enterprise Zone Individual Tentative Taxable 
Income.--National Enterprise Zone tentative individual taxable income 
shall be equal to taxable income (as defined by section 63 and computed 
without regard to section 179(e)) plus the additions set forth in 
subsection (b) less the deductions set forth in subsection (c).
    ``(b) Additions to Taxable Income To Determine National Enterprise 
Individual Tentative Taxable Income.--The following amounts shall be 
added to taxable income for purposes of determining National Enterprise 
Zone individual tentative taxable income--
            ``(1) any amount excluded by section 103;
            ``(2) any amount excluded by section 105;
            ``(3) any amount excluded by section 106; and
            ``(4) any amount excluded by section 125.
    ``(c) Deductions From Taxable Income To Determine National 
Enterprise Individual Tentative Taxable Income.--The following amounts 
shall be deducted from taxable income for purposes of determining 
National Enterprise Zone individual tentative taxable income--
            ``(1) the taxpayer's distributive share of any partnership 
        item (within the meaning of section 702) that is not 
        attributable to the conduct of an active trade or business 
        within a National Enterprise Zone;
            ``(2) the taxpayer's pro rata share of any S corporation 
        item (within the meaning of section 1366) that is not 
        attributable to the conduct of an active trade or business 
        within a National Enterprise Zone; and
            ``(3) income derived from business that does not constitute 
        the conduct of an active trade or business within a National 
        Enterprise Zone.
    ``(d) National Enterprise Zone Individual Taxable Income.--National 
Enterprise Zone individual taxable income for any taxable year shall be 
National Enterprise Zone tentative individual taxable income for such 
taxable year less--
            ``(1) net savings (as defined in subsection (e)) for such 
        taxable year;
            ``(2) capital gains for such taxable year subject to tax 
        under section 1(h), but only if the property the disposition of 
        which gave rise to the gain was acquired by the taxpayer at a 
        time the taxpayer was a resident of a National Enterprise Zone;
            ``(3) expenditures made to acquire inventory property 
        during such taxable year;
            ``(4) the amount, if any, the taxpayer elects to deduct 
        pursuant to 179(e) for such taxable year that exceeds the 
        limitations in section 179(b);
            ``(5) deductions reduced pursuant to section 68; and
            ``(6) amounts by which the exemption was reduced pursuant 
        to section 151(d)(3).
    ``(e) Net Savings.--
            ``(1) General rule.--Net savings means deposits or 
        contributions to nonqualified financial accounts less withdraws 
        or distributions from nonqualified financial accounts held.
            ``(2) Nonqualified financial accounts.--A nonqualified 
        financial account means an account maintained with a bank 
        (other than a checking account), a regulated investment 
        company, an investment bank, or a brokerage firm that is not a 
        qualified trust or account within the meaning of subchapter D.
    ``(f) Tax Upon Leaving Zone.--The cumulative sum of net savings 
deducted pursuant to subsection (d)(1) (if greater than zero) shall be 
includible in gross income and taxed at a 17 percent rate upon a person 
becoming a non-resident of a National Enterprise Zone.

``SEC. 1400Q. EFFECT OF NATIONAL ENTERPRISE ZONE DESIGNATION ON 
              CORPORATIONS.

    ``(a) Corporate Alternative National Enterprise Zone Tax.--If for 
any taxable year, any corporation (other than an S corporation) has any 
National Enterprise Zone taxable income, then, in lieu of any tax 
imposed by section 11 or section 55, such corporation may elect, in a 
form prescribed by the Secretary, to pay a tax which shall consist of 
the sum of--
            ``(1) a tax computed on the taxable income of such 
        corporation for the taxable year reduced by the amount of 
        National Enterprise Zone tentative corporate taxable income for 
        such taxable year (if greater than zero), at the rates and in 
        the manner as if this subsection had not been enacted; plus
            ``(2) a tax of 17 percent of the National Enterprise Zone 
        taxable income for such taxable year.

``SEC. 1400R. NATIONAL ENTERPRISE ZONE CORPORATE TAXABLE INCOME.

    ``(a) In General.--National Enterprise Zone Corporate tentative 
taxable income for any taxable year shall be taxable income (computed 
without regard to section 179(e)) arising from the conduct of an active 
trade or business within one or more National Enterprise Zones during 
such taxable year.
    ``(b) Adjustments.--National Enterprise Zone Corporate taxable 
income for any taxable year shall be equal to National Enterprise Zone 
Corporate tentative taxable income for such taxable year less--
            ``(1) expenditures made to acquire inventory property held 
        in a National Enterprise Zone in such taxable year; and
            ``(2) the amount, if any, the taxpayer elects to deduct 
        pursuant to 179(e) for such taxable year that exceeds the 
        limitations under section 179(b).

``SEC. 1400S. CONDUCT OF AN ACTIVE TRADE OR BUSINESS WITHIN A NATIONAL 
              ENTERPRISE ZONE BY CORPORATIONS, PARTNERSHIPS, AND SOLE 
              PROPRIETORS.

    ``(a) Active Trade or Business.--For purposes of this subchapter, 
the conduct of active trade or business means the conduct of a trade or 
business that derives no more than 5 percent of its gross income from 
passive activities (as defined by section 469(c)).
    ``(b) Income and Expenses Within a National Enterprise Zone.--
            ``(1) Gross income.--Gross income from within a National 
        Enterprise Zone shall mean--
                    ``(A) compensation for labor or personal services 
                performed by a natural person who is based in a 
                National Enterprise Zone;
                    ``(B) rentals or royalties from property located in 
                a National Enterprise Zone;
                    ``(C) gains, profits, and income derived from the 
                sale of inventory property held within a National 
                Enterprise Zone; and
                    ``(D) income from the sale of property that is 
                produced, created, fabricated, manufactured, extracted, 
                processed, cured, aged, grown, or harvested within the 
                zone.
            ``(2) Expenses.--Expenses shall be allocated and 
        apportioned to the income producing activities to which they 
        are related. Expenses which are not allocable or apportioned to 
        any specific income producing activities shall be allocated on 
        the basis of gross income such that the ratio of the expense 
        allocated to the National Enterprise Zone is the same as the 
        ratio of gross income within the National Enterprise Zone to 
        all gross income within the United States of the taxpayer or, 
        in the case of a corporation that is a member of a controlled 
        group of corporations (within the meaning of section 1563), the 
        controlled group of such taxpayer.
    ``(c) Alternative Formulary Method.--
            ``(1) In general.--A corporation (or controlled group in 
        the case of a corporation that is a member of a controlled 
        group), partnership, or sole proprietor that so elects, in a 
        form and manner prescribed by the Secretary, may determine the 
        share of its income, expense, and other items attributable to 
        the conduct of an active trade or business within a National 
        Enterprise Zone by multiplying its apportionment ratio by the 
        amount of the income, expense, and other items for purposes of 
        determining its National Enterprise Zone Corporate taxable 
        income.
            ``(2) Apportionment ratio.--The apportionment ratio shall 
        be the ratio of--
                    ``(A) the sum of--
                            ``(i) the remaining basis in depreciable 
                        property held in zone for the entire taxable 
                        year;
                            ``(ii) the inventory held in a zone at the 
                        end of the taxable year; and
                            ``(iii) the compensation paid to zone-based 
                        employees during the taxable year; to
                    ``(B) the sum of--
                            ``(i) the remaining basis in depreciable 
                        property held in the United States for the 
                        entire taxable year;
                            ``(ii) the inventory held in the United 
                        States at the end of the taxable year; and
                            ``(iii) the compensation paid to employees 
                        within the United States during the taxable 
                        year.
            ``(3) Mandatory use of alternative formulary method.--If--
                    ``(A) a taxpayer derives greater than 10 percent of 
                its gross income from sales to related parties (as 
                defined in section 1313(c)); or
                    ``(B) expenses of a taxpayer attributable to 
                purchases from related parties (as defined in section 
                1313(c)) account for greater than 10 percent of its 
                expenses,
        then the taxpayer must use the alternative formulary method 
        described in paragraph (1).

``SEC. 1400T. DEFINITIONS AND SPECIAL RULES.

    ``(a) Based in a National Enterprise Zone.--A person is based in a 
National Enterprise Zone if that person works out of an office, 
factory, store, or other facility located in a National Enterprise Zone 
not less than 80 percent of the hours worked by such person in a 
calendar year. In the case of a person that works for an employer for 
less than the full calendar year or was engaged in the conduct of an 
active trade or business within a National Enterprise Zone for less 
than the full calendar year, then a person shall be deemed based in a 
National Enterprise Zone if that person worked out of an office, 
factory, store, or other facility located in a National Enterprise Zone 
not less than 80 percent of the hours worked by such person while 
employed by such employer or engaged in the conduct of an active trade 
or business within a National Enterprise Zone.
    ``(b) Inventory.--
            ``(1) Inventory property.--For purposes of sections 1400P 
        and 1400R, inventory property shall mean property described in 
        section 1221(a)(1) and any expenditures capitalized pursuant to 
        section 263A.
            ``(2) No double counting.--The deductions afforded by 
        section 1400P(d)(3) and 1400R(b)(1) are in lieu of the 
        deduction provided upon the sale of inventory property.
    ``(c) Nominator.--Nominator means the governor of a State or 
Territory or the Mayor of the District of Columbia who nominated a zone 
by application to be a National Enterprise Zone.
    ``(d) Residency.--For purposes of this subchapter, an individual is 
a resident in a National Enterprise Zone for an entire taxable year 
if--
            ``(1) such individual's principal residence (within the 
        meaning of section 121) is located within the National 
        Enterprise Zone; and
            ``(2) such individual was present (within the meaning of 
        section 7701(b)(3)) in the National Enterprise Zone no fewer 
        than 245 days during the taxable year.''.
    (b) Conforming Amendments.--
            (1) Section 179 of the Internal Revenue Code of 1986 is 
        amended by inserting at the end the following new subsection:
    ``(e) No Limitation on Amount in National Enterprise Zones.--
            ``(1) In general.--The limitations under subsection (b) 
        shall not apply with respect to property placed in service in a 
        National Enterprise Zone.
            ``(2) Property removed from national enterprise zones.--
        Property to which this subsection applies which is removed from 
        service within a National Enterprise Zone but not disposed of 
        by the taxpayer shall be treated as if it had been, as of the 
        date of the removal, disposed of by the taxpayer and 
        repurchased by the taxpayer at a price equal to what its 
        remaining basis would have been if the election under this 
        section had not been exercised with respect to the property.''.
            (2) Subsection (d) of section 243 of such Code is amended 
        by adding at the end the following new paragraph:
            ``(5) A domestic corporation which is subject to taxation 
        under this chapter shall include any corporation organized 
        under the laws of the Commonwealth of Puerto Rico for any 
        taxable year for which such corporation has made an election 
        under section 1400Q.''.
    (c) Clerical Amendment.--The table of subchapters for chapter 1 of 
such Code is amended by inserting after the item relating to subchapter 
Y the following new item:

                              ``Subchapter Z--National Enterprise 
                                        Zones.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after January 1, 2006.
                                 <all>