[House Report 107-417]
[From the U.S. Government Publishing Office]



107th Congress                                            Rept. 107-417
                        HOUSE OF REPRESENTATIVES
 2d Session                                                      Part 2

======================================================================



 
CLARIFICATION OF TAX TREATMENT OF BONDS AND OTHER OBLIGATIONS ISSUED BY 
                      GOVERNMENT OF AMERICAN SAMOA

                                _______
                                

  May 20, 2002.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

 Mr. Sensenbrenner, from the Committee on the Judiciary, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 1448]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to whom was referred the 
bill (H.R. 1448) to clarify the tax treatment of bonds and 
other obligations issued by the Government of American Samoa, 
having considered the same, reports favorably thereon with an 
amendment and recommends that the bill as amended do pass.

                                CONTENTS

                                                                   Page
The Amendment....................................................     1
Purpose and Summary..............................................     2
Background and Need for the Legislation..........................     2
Hearings.........................................................     3
Committee Consideration..........................................     3
Vote of the Committee............................................     3
Committee Oversight Findings.....................................     3
Performance Goals and Objectives.................................     4
New Budget Authority and Tax Expenditures........................     4
Congressional Budget Office Cost Estimate........................     4
Constitutional Authority Statement...............................     5
Section-by-Section Analysis and Discussion.......................     5
Changes in Existing Law Made by the Bill, as Reported............     5
Markup Transcript................................................     6

    The amendment is as follows:
    Strike all after the enacting clause and insert the 
following:

SECTION 1. CLARIFICATION OF TAX TREATMENT OF BONDS AND OTHER 
                    OBLIGATIONS ISSUED BY GOVERNMENT OF AMERICAN SAMOA.

    (a) Exemption of All Bonds from Income Taxation by State and Local 
Governments.--Subsection (b) of section 202 of Public Law 98-454 (48 
U.S.C. 1670) is amended to read as follows:
    ``(b) Exemption of All Bonds from Income Taxation by State and 
Local Governments.--
            ``(1) In general.--The interest on any bond or other 
        obligation issued by or on behalf of the Government of American 
        Samoa shall be exempt from taxation by the Government of 
        American Samoa and the governments of any of the several 
        States, the District of Columbia, any territory or possession 
        of the United States, and any subdivision thereof.
            ``(2) Exemption applicable only to income taxes.--The 
        exemption provided by paragraph (1) shall not apply to gift, 
        estate, inheritance, legacy, succession, or other wealth 
        transfer taxes.''.
    (b) Effective Date.--This Act shall apply to obligations issued 
after the date of the enactment of this Act.

                          Purpose and Summary

    H.R. 1448, ``To clarify the tax treatment of bonds and 
other obligations issued by the Government of American Samoa,'' 
amends current law to exempt bonds issued by the Government of 
American Samoa from local, State, and Federal income taxes. 
Currently, Federal law exempts government bonds issued by 
States, territories and possessions from these taxes.

                Background and Need for the Legislation

                 Federal Laws Governing American Samoa

    American Samoa was defined by a treaty signed by the United 
States, Britain, and Germany in 1899.\1\ Unlike other U.S. 
Territories such as Guam, the Virgin Islands and Puerto Rico, 
Congress has not provided American Samoa with an organic act 
establishing its governmental institutions. Rather, American 
Samoa is an ``unincorporated'' territory whose administration 
was transferred from the Department of the Navy to the 
Department of the Interior in 1951. The Interior Secretary 
subsequently delegated authority to American Samoa to organize 
its own governmental institutions. While American Samoa 
ratified its own Constitution in 1966,\2\ the Department of the 
Interior retains ultimate oversight over the territory.
---------------------------------------------------------------------------
    \1\ CIA: The World Factbook, American Samoa. http://www.cia.gov/
cia/publications/factbook/geos/aq.html. [Visited February 26, 2002].
    \2\ 48 U.S.C. Sec. 1661-1670 (2001).
---------------------------------------------------------------------------

                        Samoan Government Bonds

    Like most States and localities, American Samoa issues 
government bonds to fund a variety of public projects. However, 
its bond raising activities are very limited. American Samoa's 
last major bonding project was in 1988, when it raised $22 
million for a governmental office building.\3\ Currently, the 
Government of American Samoa owes about $18 million in 
outstanding bonds.\4\ Relevant sections of the Internal Revenue 
Code exclude interest from State and local bonds from Federal 
taxation. This exemption specifically applies to the ``District 
of Columbia and any possession of the United States.'' \5\ This 
definition, however, does not explicitly encompass United 
States territories.
---------------------------------------------------------------------------
    \3\ Samoa Seeks Further Debt Authorization, Bond Buyer, vol. 336, 
no. 31122, Friday, April 20, 2001.
    \4\ American Samoan Governor Negotiates Refinancing of Loan, PAC. 
Islands Broad. Ass'n News Serv., Monday, December 27, 1999.
    \5\ 48 U.S.C. Sec. 103 (c)(2) (2001).
---------------------------------------------------------------------------

  Legislation Pertaining to the Tax Treatment of Bonds Issued by U.S. 
                 Territories Other Than American Samoa

    Bonds issued by almost all U.S. territories are exempt from 
Federal, State, and local taxes. For example, Federal statute 
provides that ``all bonds issued by the government of Guam or 
by its authority shall be exempt . . . from taxation by the 
Government of the United States or by the government of Guam, 
or by any State or Territory of any political subdivision 
thereof, or by the District of Columbia.'' \6\ Bonds issued by 
the Government of the Northern Mariana Islands are also 
``exempt, as to principal and interest, from taxation by the 
United States, or by any State [or locality] . . . or the 
District of Columbia.'' \7\ In addition, Federal law provides 
that bonds issued by the Government of the Virgin Islands or 
any of its municipalities are exempt from State and local 
taxes.\8\ Finally, interest on bonds issued by the government 
of Puerto Rico are immune from State and Federal taxation.\9\ 
H.R. 1448 was introduced by Representative Eni Faleomovaega to 
harmonize the taxing status of Samoan government bonds with 
other States, territories, and possessions.
---------------------------------------------------------------------------
    \6\ 48 U.S.C. Sec. 1423(a) (2000).
    \7\ Id. Sec. 1801.
    \8\ Id. Sec. 1403.
    \9\ Id. at Sec. 745.
---------------------------------------------------------------------------

                                Hearings

    The Committee's Subcommittee on Commercial and 
Administrative Law held a hearing on H.R. 1448 on March 6, 
2002.

                        Committee Consideration

    On March 6, 2002, the Subcommittee on Commercial and 
Administrative Law met in open session and ordered favorably 
reported the bill H.R. 1448 by voice vote, a quorum being 
present. On May 8, 2002, the Committee met in open session and 
ordered favorably reported the bill H.R. 1448, with amendment 
by voice vote, a quorum being present.

                         Vote of the Committee

    There were no recorded votes on H.R. 1448.

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee reports that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

                    Performance Goals and Objectives

    H.R. 1448 does not authorize funding. Therefore, clause 
3(c) of rule XIII of the Rules of the House of Representatives 
is inapplicable.

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of House rule XIII is inapplicable because 
this legislation does not provide new budgetary authority or 
increased tax expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, the Committee sets forth, with 
respect to the H.R. 3180, the following estimate and comparison 
prepared by the Director of the Congressional Budget Office 
under section 402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, May 10, 2002.
Hon. F. James Sensenbrenner, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1448, a bill to 
clarify the tax treatment of bonds and other obligations issued 
by the government of American Samoa.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Matthew 
Pickford (for Federal costs), who can be reached at 226-2860, 
and Marjorie Miller (for the State and local impact), who can 
be reached at 225-3220.
            Sincerely,
                                  Dan L. Crippen, Director.

Enclosure

cc:
        Honorable John Conyers, Jr.
        Ranking Member
H.R. 1448--A bill to clarify the tax treatment of bonds and other 
        obligations issued by the government of American Samoa.
    H.R. 1448 would amend current law to make bonds issued by 
the government of American Samoa exempt from State, local, and 
territorial income tax. The bill would not affect Federal 
taxes, and CBO estimates that implementing H.R. 1448 would have 
no impact on the Federal budget. Because the bill would not 
affect direct spending or governmental receipts, pay-as-you-go 
procedures would not apply. The bill contains no private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA).
    H.R. 1448 contains an intergovernmental mandate as defined 
in UMRA, but CBO estimates that the cost of the mandate would 
be well below the threshold established in that act ($58 
million in 2002, adjusted annually for inflation). This mandate 
is a preemption of State and local taxing authority. The bill 
would exempt the interest on any bond issued by the government 
of American Samoa from State, local, and territorial taxes. 
Because American Samoa generally has only a few million dollars 
in bonds outstanding at any time, this preemption would not 
have a significant cost for State, local, or territorial 
governments. Enacting this bill would benefit the government of 
American Samoa by reducing its borrowing costs.
    On April 5, 2002, CBO transmitted a cost estimate for H.R. 
1448 as ordered reported by the House Committee on Resources on 
March 20, 2002. The two versions of the legislation are 
identical, as are the cost estimates.
    The CBO staff contacts for this estimate are Matthew 
Pickford (for Federal costs), who can be reached at 226-2860, 
and Marjorie Miller (for the State and local impact), who can 
be reached at 225-3220. This estimate was approved by Peter H. 
Fontaine, Deputy Assistant Director for Budget Analysis.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in article I, section 8 of the Constitution.

               Section-by-Section Analysis and Discussion

    Section 1. Clarification of Tax Treatment of Bonds and 
Other Obligations Issued by Government of American Samoa.
    This section exempts bonds issued by the Government of 
American Samoa from Federal, State, and local taxes income 
taxes. This exemption does not apply to gift, estate, 
inheritance, legacy, succession, or other wealth transfer 
taxes.
    Finally, this section repeals section 202 of Public Law 98-
454 (48 U.S.C. 1670) and makes the legislation effective upon 
its enactment into law.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):

               SECTION 202 OF THE ACT OF OCTOBER 5, 1984

                          (Public Law 98-454)

AN ACT To enhance the economic development of Guam, the Virgin Islands, 
 American Samoa, the Northern Mariana Islands, and for other purposes.

    Sec. 202. (a)  * * *
    [(b)(1) Except as provided in paragraph (2), any obligation 
shall be exempt from all State and local taxation in effect on 
or after October 1, 1984.
    [(2) Any obligation issued under subsection (a) shall not 
be exempt from State of local gift, estate, inheritance, 
legacy, succession, or other wealth transfer taxes.
    [(3) For purposes of this subsection--
            [(A) The term ``State'' includes the District of 
        Columbia.
            [(B) The taxes imposed by counties, municipalities, 
        or any territory, dependency, or possession of the 
        United States shall be treated as local taxes.]
    (b) Exemption of All Bonds from Income Taxation by State 
and Local Governments.--
            (1) In general.--The interest on any bond or other 
        obligation issued by or on behalf of the Government of 
        American Samoa shall be exempt from taxation by the 
        Government of American Samoa and the governments of any 
        of the several States, the District of Columbia, any 
        territory or possession of the United States, and any 
        subdivision thereof.
            (2) Exemption applicable only to income taxes.--The 
        exemption provided by paragraph (1) shall not apply to 
        gift, estate, inheritance, legacy, succession, or other 
        wealth transfer taxes.

                           Markup Transcript



                            BUSINESS MEETING

                         WEDNESDAY, MAY 8, 2002

                  House of Representatives,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:03 a.m., in 
Room 2141, Rayburn House Office Building, Hon. F. James 
Sensenbrenner, Jr. [Chairman of the Committee] presiding.
    Chairman Sensenbrenner. [Presiding.] The Committee will be 
in order.
    [Intervening business.]
    The next item on the agenda is H.R. 1448 to clarify the tax 
treatment of bonds and other obligations issued by the 
government of American Samoa. The Chair recognizes the 
gentleman from Georgia, Mr. Barr, Chairman of the Subcommittee 
on Commercial and Administrative Law, for a motion.
    Mr. Barr. Mr. Chairman, the Subcommittee on Commercial and 
Administrative Law reports favorably the bill H.R. 1448 with a 
single amendment in the nature of a substitute and moves its 
favorable recommendation to the full House.
    Chairman Sensenbrenner. Without objection, the bill be 
considered as read and open for amendment at any point. And the 
Subcommittee amendment in the nature of a substitute, which the 
Members have before them, will be considered as read and be 
considered as the original text for purposes of amendment.
    [The amendment follows:]
      
      

  


      
      

  


    Chairman Sensenbrenner. The Chair recognizes the gentleman 
from Georgia, Mr. Barr, to strike the last word.
    Mr. Barr. Thank you, Mr. Chairman.
    Introduced by Representative Faleomavaega of American 
Samoa, H.R. 1448 amends Federal law to exempt bonds issued by 
the government of American Samoa from Federal, State, and local 
taxation.
    Government bonds issued by States and U.S. territories, 
such as Guam, Puerto Rico, and the U.S. Virgin Islands, 
currently enjoy this exemption. Thus, the purpose of H.R. 1448 
is not to craft a special exception to a general rule but to 
harmonize the tax treatment of American Samoan bonds and 
thereby enable the Samoan government to better attend to the 
public needs of its residents.
    An amendment to limit this exemption strictly to 
government-issued bonds was reported by the Subcommittee. The 
House Resources Committee has reported identical legislation, 
and I urge support of this noncontroversial but necessary 
measure today.
    Chairman Sensenbrenner. Does the gentleman yield back?
    Mr. Barr. I yield back.
    Chairman Sensenbrenner. Does the gentleman from North 
Carolina wish to say anything? Good.
    Without objection----
    Mr. Watt. Let the record reflect my thumbs-up, Mr. 
Chairman.
    Chairman Sensenbrenner.--all Members by insert opening 
statements at this point in time.
    Are there amendments?
    The gentleman from California.
    Mr. Issa. I have no amendment. I have a statement and would 
like to put it in the record.
    Chairman Sensenbrenner. And move to strike the last word.
    Mr. Issa. I move to strike the last word.
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Issa. Thank you, Mr. Chairman.
    I'd like to thank you and the Ranking Member for holding 
this markup of H.R. 1448. I welcome the opportunity to discuss 
the financial obligations as they relate to the government of 
American Samoa.
    In January 1997, my constituent, Robert Shaffer, signed a 
special services employment contract with the government of 
American Samoa and as executive director of the Centennial 2000 
program.
    In August 2000, Mr. Shaffer was informed by the Governor's 
office that his employment contract had been terminated. As a 
result, reimbursements, per diem, travel expense, and salary 
were never fully paid under the terms of this contract. To 
date, Mr. Shaffer is still owed approximately $90,000 by the 
government of American Samoa for services rendered.
    On February 4th of this year, I sent a letter to the 
Governor, requesting assistance on behalf of Mr. Shaffer. Two 
months later, I received a letter from the Governor that cited 
various settlement offers that are significantly less that the 
$90,000 owed, although there was no claim of a lesser amount 
actually owed.
    Additionally, the settlement offer suggested that Mr. 
Shaffer keep the 3,000 centennial books that remained in his 
possession. Let me tell you, the market for the American Samoa 
centennial book in southern California is small at best. In 
other words, this offer was clearly unacceptable and not in 
good faith.
    Mr. Chairman, I have a problem with this Committee 
supporting legislation that will benefit this island territory 
when they are unable or unwilling to meet their financial 
obligation with their vendors.
    I will support passage of 1448. However, I want the 
Governor to know that, regardless of the distance from the 
United States, he is still accountable for his actions. And I 
want him to know that this Congressman is putting him on 
notice.
    Mr. Chairman, thank you for this opportunity to make an 
opening statement. And I look forward to the bill's passage.
    [The prepared statement of Mr. Issa follows:]
 Prepared Statement of the Honorable Darrell Issa, a Representative in 

                 Congress From the State of California

    Mr. Chairman and Ranking Member Conyers, I thank you for holding a 
markup on H.R. 1448. I welcome the opportunity to discus the financial 
obligations as they relate to government of American Samoa.
    In January of 1997, my constituent, Robert Shaffer signed a special 
services employment contract with the government of America Samoa as 
Executive Director of the Centennial 2000 program. In August of 2000, 
Mr. Shaffer was informed by the Governor's office that his employment 
and contract had been terminated. As a result, reimbursements, per 
diem, travel expenses, and salary were never fully paid under the terms 
of the contract. To date, Mr. Shaffer is still owed approximately 
$90,000 by the government of America Samoa for services rendered.
    On February 4th of this year, I sent a letter to the Governor of 
American Samoa, Tauese Sunia, requesting his assistance on behalf of 
Mr. Shaffer. Two months later, I received a letter from the Governor 
that cited various settlement offers that are significantly less than 
the $90,000 owed to Mr. Shaffer, including a preposterous proposal that 
compensation should come from the proceeds of the sale of over 3,000 
Centennial books that remain in Robert Shaffer's possession. Let me 
tell you, the market for American Samoa Centennial books in Southern 
California is very small. In other words, this offer is unacceptable.
    Mr. Chairman, I have a problem with this committee supporting 
legislation that will benefit this island territory when they are 
unable to meet their financial obligations with their vendors. I will 
support passage of H.R. 1448. However, I want Governor Sunia to know 
that regardless of the distance to the United States, he is still 
accountable for his actions, and I want him to know that this 
Congressman is putting him on notice.
    Thank you Mr. Chairman for holding this markup.

    Chairman Sensenbrenner. Are there amendments? If there are 
no amendments, the question is on the amendment in the nature 
of a substitute as reported by the Subcommittee.
    Those in favor will say aye.
    Opposed, no.
    The ayes appear to have it. The ayes have it, and the 
Subcommittee amendment in the nature of a substitute is agreed 
to.
    The Chair notes the presence of a reporting quorum.
    The question now occurs on the motion to report the bill 
H.R. 1448 favorably, as amended by the amendment in the nature 
of a substitute.
    Those in favor will say aye.
    Opposed, no.
    The ayes appear to have it. The ayes have it. The motion to 
report favorably is agreed to.
    Without objection, the Chairman is authorized to move to go 
to conference pursuant to House rules. Without objection, the 
staff is directed to make any technical and conforming changes. 
And all Members will be given 2 days, as provided by House 
rules, in which to submit additional, dissenting, supplemental, 
or minority views.

                                  
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