Domestic manufacturing income exempt from tax

(a)

In general

Part VI of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to itemized deductions for individuals and corporations) is amended by adding at the end the following new section:

200.

Income attributable to domestic manufacturing activities

(a)

Allowance of deduction

There shall be allowed as a deduction an amount equal to 100 percent of the lesser of— (1)the qualified manufacturing activities income of the taxpayer for the taxable year, or (2)taxable income (determined without regard to this section) for the taxable year. (b)

Qualified manufacturing activities income

For purposes of this section— (1)

In general

The term qualified manufacturing activities income for any taxable year means an amount equal to the excess (if any) of— (A)the taxpayer's domestic manufacturing gross receipts for such taxable year, over (B)the sum of— (i)the cost of goods sold that are allocable to such receipts, and (ii)other expenses, losses, or deductions (other than the deduction allowed under this section), which are properly allocable to such receipts. (2)

Allocation method

The Secretary shall prescribe rules for the proper allocation of items described in paragraph (1) for purposes of determining qualified manufacturing activities income. Such rules shall provide for the proper allocation of items whether or not such items are directly allocable to domestic manufacturing gross receipts. (3)

Special rules for determining costs

Rules similar to the rules of section 199(c)(3) shall apply for purposes of this subsection. (4)

Domestic manufacturing gross receipts

(A)

In general

The term domestic manufacturing gross receipts means the gross receipts of the taxpayer which are derived from any lease, rental, license, sale, exchange, or other disposition of qualifying manufacturing property which was manufactured or produced by the taxpayer in whole or in significant part within the United States. (B)

Exception for inherently domestic activities

Such term shall not include gross receipts of the taxpayer which are derived from inherently domestic activities, including— (i)the raising or harvesting of any agricultural or horticultural commodity, (ii)the cutting of trees, (iii)the extraction of ores or minerals, (iv)the production of electricity, natural gas, or potable water, and (v)the construction of real property. (5)

Qualified manufacturing property

The term qualified manufacturing property means— (A)tangible personal property, (B)any computer software, (C)any qualified film (as defined in section 199(c)(6)), and (D)any property described in section 168(f)(4). (c)

Special rules

(1)

Application to individuals

In the case of an individual, subsection (a)(2) shall be applied by substituting adjusted gross income for taxable income. For purposes of the preceding sentence, adjusted gross income shall be determined— (A)after application of sections 86, 135, 137, 199, 219, 221, 222, and 469, and (B)without regard to this section. (2)

Certain rules to apply

Rules similar to the following rules shall apply for purposes of this section: (A)Subparagraphs (C) and (D) of section 199(c)(4) (relating to government contracts and certain partnerships). (B)Section 199(c)(7) (relating to related persons). (C)Section 199(d) (relating to definitions and special rules) other than paragraph (2).

(b)

Coordination with section 199

(1)Paragraph (4) of section 199(c) of such Code is amended by redesignating subparagraphs (B), (C), and (D) as subparagraphs (C), (D), and (E), respectively, and by inserting after subparagraph (A) the following new subparagraph:

(B)

Exception for domestic manufacturing gross receipts

Such term shall not include domestic manufacturing gross receipts (as defined in section 200(b)(4)).

(2)The heading for subparagraph (C) of section 199(c)(4) of such Code, as redesignated by paragraph (1), is amended by striking

Exceptions

and inserting

Other exceptions

. (c)

Minimum tax

Section 56(g)(4)(C) of such Code (relating to disallowance of items not deductible in computing earnings and profits) is amended by adding at the end the following new clause:

(vi)

Deduction for domestic manufacturing

Clause (i) shall not apply to any amount allowable as a deduction under section 200.

(d)

Technical amendments

(1)Sections 86(b)(2)(A), 135(c)(4)(A), 137(b)(3)(A), and 219(g)(3)(A)(ii) of such Code are each amended by inserting 200, before 221. (2)Clause (i) of section 221(b)(2)(C) of such Code is amended by inserting by inserting 200, before 222. (3)Clause (i) of section 222(b)(2)(C) of such Code is amended by inserting 199, before 911. (4)Paragraph (1) of section 246(b) of such Code is amended by inserting 200, after 199,. (5)Clause (iii) of section 469(i)(3)(F) of such Code is amended by inserting 200, before 219,. (6)Subsection (a) of section 613 of such Code is amended by striking the deduction under section 199 and inserting the deductions under section 199 and 200. (7)Paragraph (16) of section 1402(a) of such Code is amended by striking the deduction provided by section 199 and inserting the deductions provided by sections 199 and 200. (8)The table of sections for part VI of subchapter B of chapter 1 of such Code is amended by adding at the end the following new item:

Sec. 200. Income attributable to domestic manufacturing activities..

(e)

Effective date

The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.