I would like to bring to the Committee's attention the need for a technical correction to the Energy Tax Act of 1978 regarding Section 4221(e)(6) of the Internal Revenue Code which allows an exemption from the manufacturer's excise tax on bus parts at the point of sale to the purchaser for use on or in connection with an automobile bus. Currently, as interpreted, where one or two distributors are interposed between the manufacturer of the bus parts and the bus operator, a credit and refund procedure is required. It would be more consistent with the legislative intent and with efficient tax administration if the procedure contained in Section 4063(e) for light duty truck parts was applied to bus parts as well. This would eliminate what seems to be an unnecessary procedure of initial payment of the excise tax and subsequent rebate once the part is sold to a final purchaser for use on or in connection with an automobile bus. The Treasury Department has agreed with me that this technical correction is appropriate as an amendment to the Technical Corrections Act. I would also ask that Assistant Secretary Donald Lubick's letter to me in this regard, which contains the appropriate language for such a change, be included in the record. With best wishes and kindest personal regards, I am Sincerely, HERMAN E. TALMADGE. DEPARTMENT OF THE TREASURY, Washington, D.C., November 16, 1979. Hon. HERMAN E. TALMADGE, U.S. Senate, Washington, D.C. DEAR SENATOR TALMADGE: I think the current law exemption for bus parts could be improved as suggested by you in your letter of October 30. Providing exemption for sales and resale would eliminate the need for the credit and refund procedures now required where one or two distributors are interposed between the manufacturer and the bus operator. Since the exemption was part of the Energy Tax Act of 1978, it would be an appropriate amendment to the Technical Corrections Act. Amending section 4221(e)(6) along with the following line should provide the relief you suggest. "(6) Bus parts and accessories. Under regulations prescribed by the Secretary, the tax imposed by section 4061(b) shall not apply to any part or accessory which is sold for use by the purchaser on or in connection with an automobile bus, or is to be resold by the first purchaser, or a second purchaser, for such use." Sincerely, DONALD C. LUBICK. U.S. SENATE, Washington, D.C., November 6, 1979. Hon. RUSSELL LONG, Chairman, Committee on Finance, DEAR MR. CHAIRMAN: I am writing to ask that the Committee on Finance clarify language enacted by the Revenue Act of 1978 which created a new section 126 of the Internal Revenue Code relating to exclusion from gross income of certain costsharing payments. This section, created by an amendment I introduced to the Revenue Act of 1978, excludes from gross income payments made under nine federal cost-sharing programs designed to conserve soil, protect or restore the environment, improve forests or provide habitat for wildlife. It also excludes from gross income state program payments made for these same purposes. In all cases, the exclusion applies only to payments which the Secretary of Agriculture determines are made for measures contributing primarily to these purposes and which the Secretary of the Treasury determines do not add substantially to the annual income derived from the property affected. It was certainly my intent at the time to remove from all public cost-sharing programs of this nature the disincentive to cost-effective use of these funds created by existing tax treatment. There appears now to be some uncertainty as to whether or not the language of my amendment would exclude from gross income payments made under programs authorized and funded solely by counties and other political subdivisions of the states. In order to clarify this matter, I urge the committee to modify the language of section 126(a)(10) to specifically include political subdivisions of states. I have attached language which I believe accomplishes this and offer it for your consideration. I appreciate your assistance on this matter and ask that this letter be made a part of the hearing record on H.R. 2797, an act to make technical corrections related to the Revenue Act of 1978. Sincerely, JOHN C. CULVER. TECHNICAL CORRECTION OF SECTION 126(a)(10), INTERNAL REVENUE CODE, (10) Any [State] program authorized by a State, a Territory, or a possession of the United States, or any political subdivision of any of the foregoing, or of the District of Columbia under which payments are made to individuals primarily for the purpose of conserving soil, protecting or restoring the environment, improving forests, or providing a habitat for wildlife. PREPARED STATEMENT OF SENATOR BIRCH BAYH Mr. Chairman, I am requesting your consideration of a provision which I feel is properly the subject of the Technical Corrections Act as well as a paragraph which would be appropriate for the Committee Report accompanying that Act. PROPERTY ACQUIRED FOR LEASE TO ANOTHER AS A FINANCING TRANSACTION NOT TO BE COUNTED AS CAPITAL EXPENDITURES IN COMPUTING LIMITS ON TAX EXEMPT INDUSTRIAL DEVELOPMENT BONDS Last year the provisions of the Internal Revenue Code with respect to tax exempt industrial development bonds were changed to raise from $5 million to $10 million, the maximum amount of capital expenditures (including the face amount of the bond issue) which a company could make with respect to facilities in the same jurisdiction over a six year period. Those provisions also excluded another $10 million of capital expenditures if the bond issue was to provide facilities with respect to which an Urban Development Action Grant had been made. However, since that time, I have learned that the Internal Revenue Service has taken the position that purchase and lease arrangements which substitute as financing transactions for the customers of financial institutions are "capital expenditures with respect to facilities", and that the financial institutions are deemed to be the principal users of these facilities by the I.R.S. I do not think that such a broad interpretation of capital expenditures with respect to facilities was over contemplated by Congress or that the financial institutions are the principal users in these leasing arrangements. Such an interpretation has the effect of denying the benefit of tax exempt industrial development bonds to many financial institutions simply because they use long-term leasing as an alternative to traditional methods of financing for their customers. Financial institutions frequently "acquire" property from a seller to lease to a buyer instead of providing the buyer a loan to buy the seller. It is the lessee who takes possession and uses the property, not the financial institution. These purchases and lease transactions should not be considered as capital expenditures with respect to facilities for use by the financial institution, but simply as a way of financing a buyer's purchase from the seller. To count these transactions as capital expenditures as the I.R.S. does, unnecessarily limits the use of tax exempt securities under the 1978 amendments. Consequently, I am asking that the attached provision be inserted in the Technical Corrections Act so that acquisition of personal property will not be considered as a capital expenditure with respect to facilities when it is leased to a third party for over half of its useful life. The effective date of this provision corresponds to the interpretation presently being placed on the effective date of Sec. 331(c)(2)(B) by the I.R.S., and the effective date of that section is amended to clarify that that interpretation is indeed the law. LIMITS ON PRIVATE CAPITAL EXPENDITURES RELATIVE TO THE SIZE OF URBAN DEVELOPMENT ACTION GRANTS FOR PURPOSES OF THE $10 MILLION CAPITAL EXPENDITURE EXCLUSION I have also become aware that the I.R.S. is seeking to establish a limit over the size of private capital expenditures relative to the size of the Urban Development Action Grant, above which Section 103(b)(6)(I) (which provides the additional $10 million exclusion) would not be operative. While some limit may be necessary to prevent the case of a truly insignificant Urban Development Grant from triggering the operation of this section, our intent has always been to encourage sizeable private capital expenditures in response to an Urban Development Action Grant rather than to discourage such a response. Consequently, I would ask that language be added to the Committee Report on the Technical Corrections Act which would say in effect: "It is not necessary that the Urban Development Action Grant be of a certain size relative to the size of private capital expenditures in order to trigger the operation of Section 103(b)(6)(I) so long as that grant does not constitute an insignificant contribution to the total project. Arbitrary ratios should not disqualify projects in which twenty or thirty times as much private capital has been invested in the project." TECHNICAL NATURE OF THESE CHANGES Mr. Chairman, you asked that statements deal with the question of whether these amendments are technical changes or policy changes: With respect to purchase and lease arrangements being treated as capital expenditures with respect to facilities, the law was amended in 1978 to substantially expand the amount of capital expenditures which could be made and still qualify for tax-exempt status. The recent denial by the I.R.S. of a ruling that such transactions were not capital facilities indicates that the Treasury is seeking to restrict application of the 1978 changes by expanding the definition of "capital expenditures with respect to facilities" to include transactions which were never intended to be included by Congress. The language of the proposed amendment clarifies that these purchase and lease arrangements are not capital expenditures with respect to facilities by specifically saying that these purchase and lease arrangements are not to be taken into account as capital expenditures. With respect to the ratio of private expenditures to the size of Urban Development Action Grants, the 1978 Revenue Act made no mention of such a ratio. The language suggested for inclusion in the Committee Report continues that policy and says that there should not be any limit except for insignificant sized grants. It says that 20-1 or 30-1 ratios should not disqualify a project. This language simply reaffirms what the law already says. CONCLUSION Mr. Chairman, I very much appreciate your consideration of these matters which are important to the Urban Development Action Grant program in both Indiana and elsewhere. 079610.290 AMENDMENT NO. Calendar No. Purpose: To provide that capital expenditures for lease property are not taken into account in applying the small issue exemption rules to industrial development bonds, and to change the effective date for the section 331 amendments relating to such bonds. IN THE SENATE OF THE UNITED STATES--96th Cong., 1st Sess. H.R. 2797 To make technical corrections related to the Revenue Act of 1978. Referred to the Committee cr ordered to be printed and Ordered to lie on the table and to be printed Amendments intended to be proposed by Mr. Bayh Viz: 1 On page 37, between lines 20 and 21, insert the 3 4 5 6 7 (7) Amendments relating to section 311 of the Act.-- 8 9 10 11 (ii) by inserting (iii), and at the end of clause 12 13 14 15 16 17 18 (iii) by inserting immediately after clause (iii) the following new clause: ``(iv) to acquire personal property for lease by the person acquiring the property in a transaction involving a lease term in excess of 50 percent of the useful life of the property,''. 19 20 (B) Change in effective date for Revenue Act of 1978 amendments.--Faragraph (2) of section 331 (c) cf 21 the Revenue Act cf 1978 (relating to effective date) 1 2 3 4 56 7 8 is amended to read as follows: (2) The amendment made by subsection (b) shall apply to obligations issued after September 30, 1979, in taxable`years beginning after that date."'. (C) Effective date.--The amendments made by subparagraph (A) shall apply to obligations issued after September 30, 1979, in taxable years ending 9 10 11 12 13 14 15 16 17 On page 37, line 21, strike out (7)'' and insert in lieu thereof '' (8)''. On page 38, line 13, strike out (8)'' and insert in On page 39, line 1, strike cut (9)'' and insert in lieu thereof ( 18) ́ ́. On page 39, line 16, strike out (10)'' and insert in lieu thereof (8)''. On page 41, line 4, strike out and insert in 18 lieu thereof ``(12)''. 19 On page 41, line 10, strike out (12)'' and insert in 20 lieu thereof ``(13)''. 21 On page 41, line 17, strike out ``(13) ́ ́ and insert in 22 lieu thereof (14)''. |