[Congressional Record Volume 153, Number 86 (Thursday, May 24, 2007)]
[Senate]
[Pages S6864-S6865]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. INOUYE (for himself and Mr. Wyden):
  S. 1495. A bill to amend the Internal Revenue Code of 1986 to modify 
the application of the tonnage tax on vessels operating in the dual 
United States domestic and foreign trades, and for other purposes; to 
the Committee on Finance.
  Mr. INOUYE. Mr. President, foreign registered ships now carry 97 
percent of the imports and exports moving in the U.S. international 
trade. These foreign vessels are held to lower standards than U.S. 
registered ships, and are, virtually, untaxed. Therefore, their costs 
of operation are lower than U.S. ship operating costs, which explains 
their 97 percent market share.
  Three years ago, in order to help level the playing field for U.S. 
flag ships that compete in international trade, Congress enacted, under 
the American Jobs Creation Act of 2004, Public Law 108-357, Subchapter 
R, a ``tonnage tax'' that is based on the tonnage of a vessel, rather 
than taxing the U.S. flag ship's international income at a 35 percent 
corporate income tax rate. However, during the House and the Senate 
conference, language was included, which states that a U.S. vessel 
cannot use the tonnage tax on international income if that vessel also 
operates in U.S. domestic commerce for more than 30 days per year.
  This 30-day limitation dramatically limits the availability of the 
tonnage tax for those U.S. ships that operate in both domestic and 
international trade and, accordingly, severely hinders their 
competitiveness in foreign commerce. It is important to recognize that 
ships operating in U.S. domestic trade already have significant cost 
disadvantages vis-a-vis U.S. ships operating in international trade. 
Specifically, U.S-flag ships that operate solely in international 
trade: 1. are built in foreign shipyards at one-third U.S. shipyard 
prices; 2. receive $2.6 million per ship per year in Federal maritime 
security payments in return for making these vessels available to the 
Department of Defense in time of national emergency; and 3. are owned 
by U.S. subsidiaries of foreign corporations. By contrast, U.S. flag 
ships that operate both in international trade a domestic trade are: 1. 
built in higher priced U.S. shipyards; 2. do not receive maritime 
security payments, even when operated in international trade, but have 
the same commitments to the Department of Defense; and 3. are owned by 
U.S.-based American corporations. Furthermore, the inability of these 
domestic operators to use the tonnage tax for their international 
service is an unnecessary burden on their competitive position in 
foreign commerce.
  When windows of opportunity present themselves in international 
trade, American tax policy and maritime policy should facilitate the 
participation of these American-built ships. Instead, the 30-day limit 
makes them ineligible to use the tonnage tax, and further handicaps 
American vessels when competing for international cargo. Denying the 
tonnage tax to coastwise qualified ships further stymies the operation 
of American built ships in international commerce, and further 
exacerbates America's 97 percent reliance on foreign ships to carry its 
international cargo.
  These concerns were of such sufficient importance that in December 
2006, the Congress repealed the 30-day limit on domestic trading but 
only for approximately 50 ships operating in the Great Lakes. These 
ships primarily operate in domestic trade on the Great Lakes, but also 
carry cargo between the United States and Canada in international trade 
Section 415 of P.L. 109-432, the Tax Relief and Health Care Act of 
2006.
  The identifiable universe of remaining ships other than the Great 
Lakes ships that operate in domestic trade, but that may also operate 
temporarily in international trade, totals 13 U.S. flag vessels. These 
13 ships normally

[[Page S6865]]

operate in domestic trades that involve Washington, Oregon, California, 
Hawaii, Alaska, Florida, Mississippi, and Louisiana. In the interest of 
providing equity to the U.S. corporations that own and operate these 13 
vessels, my bill would repeal the tonnage tax 30-day limit on domestic 
operations and enable these vessels to utilize the tonnage tax on their 
international income so they receive the same treatment as other U.S. 
flag international operators. I stress that, under my bill, these ships 
will continue to pay the normal 35 percent U.S. corporate tax rate on 
their domestic income.
  Repeal of the tonnage tax's 30-day limit on domestic operations is a 
necessary step toward providing tax equity between U.S. flag and 
foreign flag vessels. I strongly urge the tax writing committees of the 
Congress to give this legislation their expedited consideration and 
approval. I ask unanimous consent that the text of the bill be printed 
in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 1495

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

     SECTION 1. MODIFICATION OF THE APPLICATION OF THE TONNAGE TAX 
                   ON VESSELS OPERATING IN THE DUAL UNITED STATES 
                   DOMESTIC AND FOREIGN TRADES,.

       (a) In General.--Subsection (f) of section 1355 of the 
     Internal Revenue Code of 1986 (relating to definitions and 
     special rules) is amended to read as follows:
       ``(f) Effect of Operating a Qualifying Vessel in the Dual 
     United States Domestic and Foreign Trades.--For purposes of 
     this subchapter--
       ``(1) an electing corporation shall be treated as 
     continuing to use a qualifying vessel in the United States 
     foreign trade during any period of use in the United States 
     domestic trade, and
       ``(2) gross income from such United States domestic trade 
     shall not be excluded under section 1357(a), but shall not be 
     taken into account for purposes of section 1353(b)(1)(B) or 
     for purposes of section 1356 in connection with the 
     application of section 1357 or 1358.''.
       (b) Regulatory Authority for Allocation of Credits, Income, 
     and Deductions.--Section 1358 of the Internal Revenue Code of 
     1986 (relating to allocation of credits, income, and 
     deductions) is amended--
       (1) by striking ``in accordance with this subsection'' in 
     subsection (c) and inserting ``to the extent provided in such 
     regulations as may be prescribed by the Secretary'', and
       (2) by adding at the end the following new subsection:
       ``(d) Regulations.--The Secretary shall prescribe 
     regulations consistent with the provisions of this subchapter 
     for the purpose of allocating gross income, deductions, and 
     credits between or among qualifying shipping activities and 
     other activities of a taxpayer.''.
       (c) Conforming Amendments.--
       (1) Section 1355(a)(4) of the Internal Revenue Code of 1986 
     is amended by striking ``exclusively''.
       (2) Section 1355(b)(1)(B) of such Code is amended by 
     striking ``as a qualifying vessel'' and inserting ``in the 
     transportation of goods or passengers''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.
                                 ______