[Congressional Record Volume 157, Number 10 (Tuesday, January 25, 2011)]
[Senate]
[Pages S171-S172]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. INOUYE:
  S. 57. A bill to amend the Internal Revenue Code of 1986 to modify 
the application of the tonnage tax on certain vessels; to the Committee 
on Finance.
  Mr. INOUYE. Mr. President, foreign registered ships now carry 97 
percent of the imports and exports moving in United States 
international trade. These foreign vessels are held to lower standards 
than United States registered ships, and are virtually untaxed. Their 
costs of operation are, therefore, lower than United States ship 
operating costs, which explains their 97 percent market share.
  Seven years ago, in order to help level the playing field for United 
States-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 international income at a 35 percent 
corporate income tax rate. However, during the House and Senate 
conference, language was included, which states that a United States 
vessel cannot use the tonnage tax on international income if that 
vessel also operates in United States domestic commerce for more than 
30 days per year.
  This 30-day limitation dramatically limits the availability of the 
tonnage tax for those United States 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 United States domestic trade already have 
significant cost disadvantages. Specifically, they are built in higher 
priced United States shipyards; do not receive Maritime Security 
Payments, even when operated in international trade; and are owned by 
United States-based American corporations. The inability of these 
domestic operators to use the tonnage tax for their international 
service is a further, 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 sufficient importance that in December 2006 
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

[[Page S172]]

ships that operate in domestic trade, but that may also operate 
temporarily in international trade, totals 13 United States flag 
vessels. These 13 ships normally operate in domestic trades that 
involve Washington, Oregon, California, Hawaii, Alaska, Florida, 
Mississippi, and Louisiana. In the interest of providing tax equity to 
the United States 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 United 
States flag international operations. I stress that, under my bill, 
these ships will continue to pay the normal 35 percent United States 
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 United States flag 
and foreign flag vessels. I strongly urge the tax writing committees of 
the U.S. Congress to give this legislation their expedited 
consideration and approval.
  Mr. President, 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. 57

       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''.
       (3) Section 1355 of such Code is amended--
       (A) by striking subsection (g), and
       (B) by redesignating subsection (h) as subsection (g).
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.
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