[Congressional Record Volume 145, Number 139 (Thursday, October 14, 1999)]
[Senate]
[Pages S12638-S12640]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. McCAIN (for himself, Mr. Campbell, Mr. Inouye):
  S. 1726. A bill to amend the Internal Revenue Code of 1986 to treat 
for unemployment compensation purposes Indian tribal governments the 
same as State or local units of government or as nonprofit 
organizations; to the Committee on Finance.


 the indian tribal government unemployment compensation act tax relief 
                           amendments of 1999

  Mr. McCAIN. Mr. President, I rise today on behalf of myself, Senator 
Campbell and Senator Inouye to introduce the Indian Tribal Government 
Unemployment Compensation Act Tax Relief Amendments of 1999.
  This bill would correct a serious oversight in the way the Internal 
Revenue Code treats Indian tribal governments for unemployment tax 
purposes under the unique, State-Federal program authorized by the 
Federal Unemployment Tax Act (FUTA). It would clarify existing tax 
statutes so that tribal governments are treated just as State and local 
units of governments are treated for unemployment tax purposes.
  It is well-settled that tribal governments are not taxable entities 
under the Federal Tax Code because of their governmental status. But in 
recent years, both the Internal Revenue service and the U.S. Department 
of Labor have begun to advance an interpretation of FUTA that is 
particularly burdensome to Indian tribal governments.
  The IRS has begun to insist on collecting the Federal portion of the 
FUTA tax from tribal governmental employers. The IRS rationale is that 
because the FUTA statute expressly exempts charitable organizations and 
all State and local units of government from paying the Federal portion 
of the FUTA tax, but does not expressly mention tribal governments, it 
must collect the Federal portion of the tax from tribal employers.
  The Labor Department, for its part, several years ago issued an 
opinion declaring that State unemployment funds may not treat tribal 
government employers like other governmental units and accord them 
``reimburser'' status. The Department's rationale was that FUTA statute 
does not expressly authorize tribal governments to participate on a 
reimbursable basis, and so State Unemployment Funds were prohibited 
from allowing them to do so.
  The Congressional Research Service conducted a study at my request in 
the early 1990s which revealed that FUTA was being applied to tribal 
government employers differently throughout our Nation. Some were 
allowed to participate, even as reimbursers. Others were denied 
participation but charged the full tax without getting any benefit 
whatsoever. The recent actions by the IRS and the Labor Department have 
only served to make the application of FUTA to tribal government 
employers even more confusing, contradictory, and unfair.
  FUTA involves a joint Federal-State taxation system that levies two 
taxes on most employers: an 0.8 percent unemployment tax and a State 
unemployment tax ranging up to more than 9 percent of a portion of an 
employer's payroll. Since its enactment in the 1930s, FUTA has treated 
foreign, Federal, State, and local government employers differently 
from private commercial business employers. It exempts all foreign, 
Federal, State, and local government employers from the 0.8 percent 
Federal FUTA tax. It exempts foreign and Federal government employers 
from State unemployment programs and allows State and local government 
employers to pay lower State unemployment taxes as reimbursers. FUTA 
also treats income tax-exempt charitable organizations the same as 
State and local governments. All other private sector employers pay 
both the Federal and State FUTA tax rates. The FUTA statute does not 
expressly include tribal government employers within the definition of 
governmental employers.

  This legislation will expressly authorize tribal governments, like 
State and local units of government and charitable organizations, to 
contribute to a State fund on a reimbursable basis for unemployment 
benefits actually

[[Page S12639]]

paid out. Private sector employers typically must pay an unemployment 
tax in advance. The rationale for reimburser status is that 
governmental employers, like tribes and States, have a far more stable 
employment environment than that of the private sector, and that 
governmental revenue should not be committed to such purposes in 
advance of when the obligation to pay arises.
  Let me be clear, this bill would ensure that tribes participate in 
the unemployment compensation system. Some now do not do so. Their 
participation would be on the same terms as other governments. Tribal 
government employers would pay for every dime that is paid out in 
benefits to workers they lay off. But the bill would clarify the law to 
ensure that tribal government employers do not pay more than what is 
paid, a ``reimburser'' status long accorded all other governmental 
employers and tax-exempt organization employers.
  The bill I am introducing today would permanently resolve this matter 
across the Nation for every Indian tribal government. Unless this 
problem is resolved, many former tribal government employees will 
continue to be denied benefits by State unemployment funds and many 
tribal government employers will be charged at much higher rates than 
are all other governmental and tax-exempt employers. I believe tribal 
governments should be treated no differently than all other governments 
under our tax code, and that Indian and non-Indian workers who are 
separated from tribal governmental employment should be included within 
our Nation's comprehensive unemployment benefit system. This bill will 
go a long way toward ensuring mandatory participation by tribal 
governments on a fair and equitable basis in the Federal-State 
unemployment fund system. I can think of nothing more fair than the 
approach clarified in this bill. I urge my colleagues to support this 
legislation.
  Mr. President, the Joint Committee on Taxation, through the 
Congressional Budget Office, estimates the cost of this bill to be 
minimal, about ten million dollars over a ten-year period. The cost to 
implement these provisions in the first few years will eventually be 
offset over the ten-year period, resulting in a negligible effect on 
the Federal treasury.
  I ask unanimous consent that the text of the legislation, as well as 
a September 27, 1999 letter from the Joint Committee on Taxation 
providing the revenue estimate on this bill, be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                S. 1726

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Indian Tribal Government 
     Unemployment Compensation Act Tax Relief Amendments of 
     1999''.

     SEC. 2. TREATMENT OF INDIAN TRIBAL GOVERNMENTS UNDER FEDERAL 
                   UNEMPLOYMENT TAX ACT.

       (a) In General.--Section 3306(c)(7) of the Internal Revenue 
     Code of 1986 (defining employment) is amended--
       (1) by inserting ``or in the employ of an Indian tribe,'' 
     after ``service performed in the employ of a State, or any 
     political subdivision thereof,''; and
       (2) by inserting ``or Indian tribes'' after ``wholly owned 
     by one or more States or political subdivisions''.
       (b) Payments in Lieu of Contributions.--Section 3309 of the 
     Internal Revenue Code of 1986 (relating to State law coverage 
     of services performed for nonprofit organizations or 
     governmental entities) is amended--
       (1) in subsection (a)(2), by inserting ``, including an 
     Indian tribe,'' after ``the State law shall provide that a 
     governmental entity'';
       (2) in subsection (b)(3)(B), by inserting ``, or of an 
     Indian tribe'' after ``of a State or political subdivision 
     thereof'';
       (3) in subsection (b)(3)(E), by inserting ``or the 
     tribe's'' after ``the State''; and
       (4) in subsection (b)(5) by inserting ``or of an Indian 
     tribe'' after ``an agency of a State or political subdivision 
     thereof''.
       (c) State Law Coverage.--Section 3309 of the Internal 
     Revenue Code of 1986 (relating to State law coverage of 
     services performed for nonprofit organizations or 
     governmental entities) is amended by adding at the end the 
     following:
       ``(d) Election by Indian Tribe.--The State law shall 
     provide that an Indian tribe may elect to make contributions 
     for employment as if the employment is within the meaning of 
     section 3306 or to make payments in lieu of contributions 
     under this section, and shall provide that an Indian tribe 
     may make separate elections for itself and each subdivision, 
     subsidiary, or business enterprise chartered and wholly owned 
     by such Indian tribe. State law may require an electing tribe 
     to post a reasonable payment bond or take other reasonable 
     measures to assure the making of payments in lieu of 
     contributions under this section. An election under this 
     subsection may not be made except by an Indian tribe within 
     the meaning of section 4(e) of the Indian Self-Determination 
     and Education Assistance Act (25 U.S.C. 450b(e)).''.
       (d) Definitions.--Section 3306 of the Internal Revenue Code 
     of 1986 (relating to definitions) is amended by adding at the 
     end the following:
       ``(u) Indian Tribe.--For purposes of this chapter, the term 
     `Indian tribe' has the meaning given to such term by section 
     4(e) of the Indian Self-Determination and Education 
     Assistance Act (25 U.S.C. 450b(e)), and includes any 
     subdivision, subsidiary, or business enterprise chartered and 
     wholly owned by such an Indian tribe.''.
       (e) Transition Rule.--For purposes of the Federal 
     Unemployment Tax Act, service performed in the employ of an 
     Indian tribe (as defined in section 3306(u) of the Internal 
     Revenue Code of 1986 (as added by this Act)) shall not be 
     treated as employment (within the meaning of section 3306 of 
     such Code) if--
       (1) it is service which is performed before the date of 
     enactment of this Act and with respect to which the tax 
     imposed under the Federal Unemployment Tax Act has not been 
     paid; and
       (2) such Indian tribe reimburses a State unemployment fund 
     for unemployment benefits paid for service attributable to 
     such tribe for such period.
                                  ____



                                  Joint Committee on Taxation,

                               Washington, DC, September 27, 1999.
     Hon. John McCain,
     United States Senate,
     Washington, DC.
       Dear Senator McCain: This letter is in response to your 
     request for an estimate of the revenue effects of the 
     ``Indian Tribal Government Unemployment Compensation Act Tax 
     Relief Amendments of 1999.''
       The proposal would treat tribal governments like State 
     governments for the purpose of defining their obligations 
     under the Federal Unemployment Tax Act (``FUTA''). 
     Specifically, tribal government employers would be exempt 
     from the Federal unemployment tax and would be authorized to 
     contribute to State unemployment funds on a reimbursement 
     basis. The proposal is assumed to be effective for services 
     performed on or after January 1, 2000.
       Because the provision affects contributions to the FUTA 
     trust fund, the Congressional Budget Office (``CBO'') 
     estimates its revenue effects. CBO estimates that the 
     provision would have the following effects for Federal fiscal 
     year budget receipts:

Fiscal years:                                                    Million
  2000........................................................      -$20
  2001........................................................       -11
  2002........................................................       -10
  2003........................................................        -9
  2004........................................................        36
  2000-2004...................................................       -14
  2000-2009...................................................       -10
 

       I hope this information is helpful to you. Please let me 
     know if we can be of further assistance in this matter.
           Sincerely,
                                                   Lindy L. Paull.

  Mr. CAMPBELL. Mr. President, today I am pleased to be joining Senator 
McCain in co-sponsoring the Indian Tribal Government Unemployment 
Compensation Act Tax Relief Amendments of 1999. If enacted, this 
legislation will modify the Federal Unemployment Tax Act of 1935 
(``FUTA'') to allow Indian tribal governments to receive the same 
unemployment compensation treatment as state and local governments.
  FUTA imposes a tax on the wages paid by employers to their employees. 
From these tax proceeds, unemployment insurance and benefits for out-
of-work citizens is provided. Under the bill introduced today, Indian 
tribal governments would be treated as state and local governments, and 
would be authorized to contribute to state unemployment funds on a 
reimbursable basis.
  The Congressional Budget Office (CBO) estimated that this bill would 
have a minimal impact, $10 million over 10 years, on the Federal 
budget.
  However, the impact that this amendment would have on Indian economic 
development is immeasurable. The development of strong tribal economies 
is fundamental for tribal self-sufficiency and self-determination.
  Private enterprise is often reluctant to do business and hire Indian 
workers if legal, tax, and regulatory regimes they face are confusing 
or unfriendly. This legislation would eliminate any confusion over the 
applicability of the FUTA tax and would create a level playing field 
for tribal governments and enhance their ability to attract and retain 
the best skilled employees.

[[Page S12640]]

  By providing equitable FUTA treatment to tribal government employers, 
this legislation will assist in the long-term growth and stability of 
tribal economies.
  I urge my colleagues to join Senator McCain and I in supporting this 
important legislation.
                                 ______