[House Report 108-102]
[From the U.S. Government Publishing Office]



108th Congress                                            Rept. 108-102
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 2
======================================================================
 
 CLARIFYING THE TAX TREATMENT OF BONDS AND OTHER OBLIGATIONS ISSUED BY 
                    THE GOVERNMENT OF AMERICAN SAMOA

                                _______
                                

October 7, 2003.--Committed to the Committee of the Whole House on the 
             State of the Union, and ordered to be printed

                                _______
                                

  Mr. Pombo, from the Committee on Resources, submitted the following

                              R E P O R T

                        [To accompany H.R. 982]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Resources, to whom was referred the bill 
(H.R. 982) to clarify the tax treatment of bonds and other 
obligations issued by the Government of American Samoa, having 
considered the same, report favorably thereon without amendment 
and recommend that the bill do pass.

                          Purpose of the Bill

    The purpose of H.R. 982 is to clarify the tax treatment of 
bonds and other obligations issued by the Government of 
American Samoa.

                  Background and Need for Legislation

    H.R. 982 amends Section 202(b) of Public Law 98-454 to 
permit the interest on any bond or other obligation issued by 
or on behalf of the American Samoan Government (ASG) to be 
exempt from both State and local taxation.
    American Samoa, an unincorporated and unorganized U.S. 
territory, is comprised of the South Pacific Polynesian islands 
of Tutuila, Aunuu, Ofu, Olosega, Tau, Rose, and the Swain 
islands. In April 1900, the traditional chiefs of Tutuila and 
Aunuu agreed to become a part of the U.S. by treaty of cession 
in return for protection of their land and culture. Congress 
ratified the treaty of cessions in 1929 (48 U.S.C. Sec. 1661-
1662) and created statutory authority for American Samoa's 
civil government. The Department of the Navy controlled 
American Samoa up until 1951, upon which jurisdiction was 
transferred to the Secretary of the Interior. In the mid-1950s, 
the people of American Samoa began drafting a constitution 
which was eventually completed in 1960 and approved by the 
Secretary of the Interior.
    The Samoan Constitution of 1960 created a bicameral 
legislature (the Fono), provided for judicial and executive 
branches, and contained an extensive bill of rights. The 
Constitution was revised and approved by the Samoan people in 
1966, and by the Secretary of the Interior the following year, 
to provide for increased powers to the Fono. The revised 
Constitution is the basis for the current government of 
American Samoa. In 1983, the Interior Secretary's authority 
over American Samoa was rescinded in the 1983 Omnibus 
Territories Act which also provided that any future changes to 
American Samoa's Constitution be made only by an act of the 
Congress.
    Article IV, section 3, clause 2 of the U.S. Constitution, 
known commonly as the Territorial Clause, gives Congress 
plenary authority over U.S. territories. Relying on this 
authority, the Congress has historically passed laws providing 
for a greater measure of self- government by territorial 
governments. For example, under article II, section 1 of the 
Revised American Samoan Constitution, the Fono was given broad 
authority to pass legislation with respect to subjects of local 
application. This authority provides the ASG the ability to 
issue qualified bonds under section 141 of the Internal Revenue 
Code.
    Historically, Congress has also passed legislation to 
facilitate economic development in U.S. territories by 
providing assistance and removing statutory impediments. For 
instance, under current law, bonds issued by Guam, the Virgin 
Islands, Puerto Rico, and the Commonwealth ofthe Northern 
Mariana Islands are exempted from taxation by State and local 
governments. While the authority to issue similar bonds has been 
provided to American Samoa, the interest earned from American Samoan 
bonds is subject to taxation by the several States, Washington D.C. and 
the other territories. The Committee sees such taxation as an obstacle 
to the continuing development of American Samoa's economy.
    The enactment of H.R. 982 will exempt bonds issued by 
American Samoa from taxation by State and local governments. 
H.R. 982 will provide parity for American Samoa.

                            Committee Action

    H.R. 982 was introduced on February 27, 2003, by Delegate 
Eni F.H. Faleomavaega (D-AS). The bill was referred to the 
Committee on Resources and additionally to the Committee on the 
Judiciary. On September 25, 2003, the Full Resources Committee 
met to consider the H.R. 982. No amendments were offered and 
the bill was then ordered favorably reported to the House of 
Representatives by unanimous consent.
    While there were no hearings on H.R. 982 in the 108th 
Congress, in the 107th Congress, a Subcommittee of the 
Committee on the Judiciary held a hearing on identical 
legislation (H.R. 1448) on March 6, 2002. Also in the 107th 
Congress, the Committee on Resources favorably reported H.R. 
1448 on March 3, 2002.

                      Section-by-Section Analysis


Section 1. Clarification of tax treatment of bonds and other 
        obligations issued by government of American Samoa

    Section 1 amends subsection 202 (b) of Public Law No. 98-
4545 (48 U.S.C. 1670) to exempt bonds issued by the government 
of American Samoa from State and local taxes. This exemption 
does not apply to gift, estate, inheritance, legacy, 
succession, or other wealth transfer taxes.

Section 2. Effective date

    Section 2 makes the legislation effective upon its 
enactment into law.

            Committee Oversight Findings and Recommendations

    Regarding clause 2(b)(1) of rule X and clause 3(c)(1) of 
rule XIII of the Rules of the House of Representatives, the 
Committee on Resources' oversight findings and recommendations 
are reflected in the body of this report.

                   Constitutional Authority Statement

    Article I, section 8 and article IV, section 3 of the 
Constitution of the United States grant Congress the authority 
to enact this bill.

                    Compliance With House Rule XIII

    1. Cost of Legislation. Clause 3(d)(2) of rule XIII of the 
Rules of the House of Representatives requires an estimate and 
a comparison by the Committee of the costs which would be 
incurred in carrying out this bill. However, clause 3(d)(3)(B) 
of that rule provides that this requirement does not apply when 
the Committee has included in its report a timely submitted 
cost estimate of the bill prepared by the Director of the 
Congressional Budget Office under section 402 of the 
Congressional Budget Act of 1974.
    2. Congressional Budget Act. As required by clause 3(c)(2) 
of rule XIII of the Rules of the House of Representatives and 
section 308(a) of the Congressional Budget Act of 1974, this 
bill does not contain any new budget authority, spending 
authority, credit authority, or an increase or decrease in 
revenues or tax expenditures.
    3. General Performance Goals and Objectives. This bill does 
not authorize funding and therefore, clause 3(c)(4) of rule 
XIII of the Rules of the House of Representatives does not 
apply.
    4. Congressional Budget Office Cost Estimate. Under clause 
3(c)(3) of rule XIII of the Rules of the House of 
Representatives and section 403 of the Congressional Budget Act 
of 1974, the Committee has received the following cost estimate 
for this bill from the Director of the Congressional Budget 
Office:

                                     U.S. Congress,
                               Congressional Budget Office,
                                Washington, DC, September 26, 2003.
Hon. Richard W. Pombo,
Chairman, Committee on Resources,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 982, 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) and Marjorie Miller (for the state 
and local impact).
            Sincerely,
                                       Douglas Holtz-Eakin,
                                                          Director.
    Enclosure.

H.R. 982--A bill to clarify the tax treatment of bonds and other 
        obligations issued by the government of American Samoa

    H.R. 982 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. 982 would have 
no impact on the federal budget.
    H.R. 982 contains an intergovernmental mandate as defined 
in the Unfunded Mandates Reform Act (UMRA), but CBO estimates 
that the cost of the mandate would be well below the threshold 
established in that act ($59 million in 2003, 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. The bill contains no private-sector mandates 
as defined in UMRA.
    On May 9, 2003, CBO transmitted a cost estimate for H.R. 
982 as ordered reported by the House Committee on the Judiciary 
on May 7, 2003. 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) and Marjorie Miller (for the state 
and local impact). This estimate was approved by Peter H. 
Fontaine, Deputy Assistant Director for Budget Analysis.

                    Compliance With Public Law 104-4

    This bill contains no unfunded mandates, as defined by 
Public Law 104-4.

                Preemption of State, Local or Tribal Law

    This bill is not intended to preempt any tribal law. It 
does preempt state and local taxing authority, but the 
Congressional Budget Office has concluded that ``this 
preemption would not have a significant cost for state, local 
or territorial governments.''

         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 italic, 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 or 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.

           *       *       *       *       *       *       *


                                
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