[House Report 106-927]
[From the U.S. Government Publishing Office]
106th Congress Rept. 106-927
HOUSE OF REPRESENTATIVES
2d Session Part 1
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TRANSPORTATION EMPLOYEE FAIR TAXATION ACT OF 1999
_______
October 3, 2000.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Gekas, from the Committee on the Judiciary, submitted the following
R E P O R T
[To accompany H.R. 1293]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 1293) amending title 46, United States Code, to
provide equitable treatment with respect to State and local
income taxes for certain individuals who perform duties on
vessels, having considered the same, reports favorably thereon
without amendment and recommends that the bill do pass.
TABLE OF CONTENTS
Page
Purpose and Summary........................................ 1
Background and Need for the Legislation.................... 2
Hearings................................................... 4
Committee Consideration.................................... 4
Committee Oversight Findings............................... 4
Committee on Government Reform Findings.................... 4
New Budget Authority and Tax Expenditures.................. 5
Congressional Budget Office Cost Estimate.................. 5
Constitutional Authority Statement......................... 6
Section-by-Section Analysis and Discussion................. 6
Purpose and Summary
H.R. 1293, the ``Transportation Employee Fair Taxation Act
of 1999'' is designed to clarify the taxing status of certain
types of interstate waterway workers, which under current law
is ambiguous. This uncertainty in taxing status allows States
to tax the income of interstate waterway workers in a worker's
State of residence and in any State in which the worker earns
50 percent or more of his or her annual income. H.R. 1293
resolves this ambiguity by prohibiting any State from taxing
the income of a nonresident interstate waterway worker.
Background and Need for the Legislation
The right of States to tax economic activities within their
borders is a key aspect of Federalism rooted in the
Constitution and long recognized by Congress. At the same time,
the Supreme Court has recognized that ``a right to tax is a
right to destroy.'' \1\ The authority of States to lay and
collect taxes is thus subject to a number of constitutional
limitations. First, the Commerce Clause prohibits States from
assessing taxes which may burden interstate commerce.\2\
Second, the Due Process clause prohibits States from taxing
those who lack a ``substantial nexus'' with the taxing
State.\3\ Finally, the Privileges and Immunities clause
prevents States from assessing taxes which discriminate against
nonresidents.\4\
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\1\ McCulloch v. Maryland, 17 U.S. 316, 347 (1819).
\2\ Quill v. North Dakota 504 U.S. 298 (1992). A State tax survives
Commerce Clause challenge if it is:
(1) applied to an activity with a substantial nexus with
the taxing State;
(2) fairly apportioned;
(3) does not discriminate against interstate commerce and;
(4) is fairly related to services provided by the State.
Id. at 311; see also Ronald Rotunda, Modern Constitutional Law at 135
(5th ed. 1998).
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\3\ Quill at 306.
\4\ Ward v. Maryland, 79 U.S. 418 (1870).
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Almost all States levy personal income taxes.\5\ States may
tax the income of in-State residents, even if this income is
derived from sources outside the taxing State.\6\ It is also
constitutionally permissible for States to levy taxes on
nonresident income derived from economic activities within the
State, as long as the nonresident is taxed in a manner similar
to in State residents.\7\ To prevent the imposition of multiple
and discriminatory taxes, most States provide their residents
with credits to offset income taxes paid to other States on
income also taxable by the State of residence.\8\ Other States,
such as those with large commuting populations, protect
residents from double taxation by entering into reciprocal
agreements with neighboring States. Some of these agreements
require that income be taxed solely by the State of residence,
while others apportion taxes between neighboring States.\9\
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\5\ Forty-one States and the District of Columbia levy a broadly-
based personal income tax. Tennessee and New Hampshire impose more
narrowly based income taxes on passive income derived from interest,
dividends and capital gains. Alaska, Florida, Nevada, South Dakota,
Texas, Washington and Wyoming do not collect personal income taxes.
Jerome R. Hellerstein & Walter Hellerstein, State Taxation Sec. 20
(1992).
\6\ New York ex rel. Cohn v. Graves 300 U.S. 308 (1937).
\7\ Shatter v. Carter, 252 U.S. 37 (1920).
\8\ Hellerstein and Hellerstein, supra note 5, Sec. 20.
\9\ See id.
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Interstate Transportation Workers
Workers employed by interstate railway, motor, water, and
air carriers work in multiple States while conducting their
regularly assigned duties. These interstate transportation
workers are subject to a myriad of State tax regimes and are
sometimes required to pay multiple State taxes on earned
income. While most States allow residents to credit income
taxes paid to other States, State efforts to protect residents
from taxes collected by other States are complicated when the
taxpayer's State of residence does not levy an income tax
against which to credit taxes paid to other States.\10\ These
difficulties are further compounded by the administrative
challenges--such as monitoring the physical location of
employees--associated with apportioning and collecting taxes on
income that might be derived in multiple States in the course
of regularly assigned employment responsibilities.
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\10\ See id.
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Federal Legislation Affecting State Taxation of Interstate
Transportation Workers
Congress has repeatedly attempted to provide a more uniform
State taxing framework for interstate transportation workers.
In 1970, Congress passed legislation \11\ to provide
streamlined taxing principles for this class of workers. The
legislation prohibited nonresident States from withholding
taxes on the income of interstate transportation workers unless
the worker earned 50 percent or more of his or her income in
the nonresident State. This 50 percent taxing threshold is
often referred to as the ``Fifty Percent Rule.'' The act
specifically prohibited States from taxing the income of
interstate rail, motor carrier and aircraft workers if they did
not meet this taxing threshold. While interstate waterway
workers were not exempted from having to pay income taxes to
nonresident States, the statute did exempt interstate waterway
workers from having to report income falling short of the Fifty
Percent Rule to nonresident States.\12\
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\11\ Pub. L. No. 91-569, 84 Stat. 1499.
\12\ See id., Sec. 324(a).
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While a promising first step toward tax equalization, the
``50 Percent Rule'' proved to be administratively burdensome to
States and interstate transportation workers alike. In response
to these concerns, Congress incrementally rescinded the 50
Percent Rule with respect to various classes of interstate
transportation workers. In 1979, Congress prohibited States
other than the taxpayer's State of residence from taxing
interstate air carrier workers.\13\ Two decades later, Congress
eliminated the 50 Percent Rule for interstate motor and railway
carrier workers by prohibiting States other than the taxpayer's
State of residence from taxing these workers.\14\
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\13\ Aviation Safety and Noise Abatement Act, Pub. L. No. 96-193,
94 Stat. 50.
\14\ Amtrak Reauthorization and Improvement Act of 1990, Pub. L.
No. 101-322, 104 Stat. 295.
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The Interstate Commerce Commission Termination Act of 1995
(ICCTA) \15\ brought further taxing clarity to railway and
motor carrier workers. While the act reiterated the exemption
of interstate railway, aviation, and motor carriers from paying
State income taxes to a State other than their State of
residence, it did not extend this protection to interstate
water carriers. The legislation thus had the effect of
preserving the 50 Percent Rule for interstate waterway workers.
While the ICCTA maintained the 50 Percent Rule for interstate
water workers, other Federal legislation expressly prohibits
any State from withholding wages of masters or seaman engaged
in interstate commerce.\16\ As a result of these overlapping
and sometimes conflicting Federal statutes, interstate waterway
carriers occupy an unsettled taxing status. This lack of taxing
clarity is compounded by the monitoring and reporting
difficulties that underlie the proper apportionment of income
earned while navigating waterways that delineate interstate
boundaries.
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\15\ Pub. L. No. 104-88, 109 Stat. 803.
\16\ 46 U.S.C. Sec. 11108 (2000).
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Interstate Water Carriers in the Pacific Northwest
Interstate water carriers working along the Columbia River
in the Pacific Northwest highlight the uncertain taxing
position of interstate water carriers. The Columbia River
serves as the boundary between Oregon and Washington. Oregon
levies a broad based tax on personal income, while Washington
does not. Over the last several years, Washington residents who
work on the Columbia River as riverport pilots and barge
operators have unexpectedly received tax assessments of
hundreds of thousands of dollars in back taxes by Oregon taxing
authorities.\17\ Since interstate water carriers along the
Columbia River are unable to precisely ascertain how much time
their workers spend in Oregon waters, Oregon taxing authorities
have assumed that these workers spend half their time in Oregon
and are thus taxable under the 50 Percent Rule.\18\ On March
25, 1999, Representative Brian Baird (Wash. 3rd) introduced
H.R. 1293, the ``Transportation Employee Fair Taxation Act of
1999,'' to simplify the taxing status of interstate waterway
workers.
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\17\ Foster Church, Waterway Tax Jolts Workers: Baird Files Bill,
Portland Oregonian, Mar. 30, 1999, at B2.
\18\ Jeff Mize, Lawmaker Goes to Bat for River Workers, The
Columbian, Mar. 30, 1999, at B1.
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Hearings
The committee's Subcommittee on Commercial and
Administrative Law held 1 day of hearings on H.R. 1293 on July
17, 2000. Testimony was received from the following four
witnesses: Representative Brian Baird, (Wash, 3rd District);
Chris Eckhardt, Tugboat Captain, Shaver Transportation; and
Mike Simonsen, Representative, International Organization of
Masters, Mates and Pilots. Additional information was submitted
by Elizabeth Harchenko, Director of the Oregon Department of
Revenue, and Robert A. Nelson, Tugboat Captain (Ret.), Shaver
Transportation.
Committee Consideration
On September 12, 2000, the committee met in open session
and ordered favorably reported the bill H.R. 1293, without
amendment by unanimous consent, a quorum being present.
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.
Committee on Government Reform Findings
No findings or recommendations of the Committee on
Government Reform were received as referred to in clause
3(c)(4) of rule XIII of the Rules of the House of
Representatives.
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 H.R. 1293, 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, September 22, 2000.
Hon. Henry J. Hyde, 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. 1293, a bill to
amend title 46, United States Code, to provide equitable
treatment with respect to state and local income taxes for
certain individuals who perform duties on vessels.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Victoria
Heid Hall (for the state and local impact), who can be reached
at 225-3220, Deborah Reis (for federal costs), who can be
reached at 226-2860, and Jean Wooster (for the private-sector
impact), who can be reached at 226-2940.
Sincerely,
Dan L. Crippen, Director.
Enclosure
cc:
Honorable John Conyers Jr.
Ranking Democratic Member
H.R. 1293--A bill to amend title 46, United States Code, to provide
equitable treatment with respect to state and local income
taxes for certain individuals who perform duties on vessels.
SUMMARY
H.R. 1293 would prohibit state and local governments from
imposing income taxes on individuals working on vessels
operating on the navigable waters of more than one state unless
that individual resides in the jurisdiction assessing the tax.
Such a prohibition is an intergovernmental mandate as defined
in the Unfunded Mandates Reform Act (UMRA). CBO estimates that
the costs of this mandate would be well below the threshold
established in UMRA ($55 million in 2000, adjusted annually for
inflation). H.R. 1293 would have no impact on the federal
budget and contains no new private-sector mandates as defined
in UMRA.
According to the Federation of Tax Administrators (FTA),
under current law the amount of state and local income taxes
owed by the individuals affected by this bill is based on the
jurisdiction with the highest applicable income tax rate:
either the jurisdiction where the income is earned, or the
jurisdiction where the worker resides. In contrast, under H.R.
1293 state and local income taxes would be based solely on
where a vessel worker resides. In that case, some individuals
would pay lower income taxes than they would under current law,
resulting in a net loss nationwide in state and local income
tax revenues. Little data are available on the number of
workers on vessels that operate on the navigable waters of more
than one state and on where such workers reside. Consequently,
CBO cannot precisely estimate those losses. Based on
information from FTA, the U.S. Coast Guard's National Maritime
Center, and the Bureau of Labor Statistics, however, CBO
estimates that the revenues forgone by state and local
governments would be small and would not exceed the threshold
established in UMRA ($55 million in 2000, adjusted annually for
inflation).
On August 11, 2000, CBO prepared a cost estimate for S.
893, a similar bill ordered reported by the Senate Committee on
Commerce on June 15, 2000. The estimated impacts of the two
bills on the federal government and on state and local
government are the same.
The CBO contacts are Victoria Heid Hall (for the state and
local impact), who can be reached at 225-3220, Deborah Reis
(for federal costs), who can be reached at 226-2860, and Jean
Wooster (for the private-sector impact), who can be reached at
226-2940. This estimate was approved by Robert A. Sunshine,
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 clause 3 of the
Constitution.
Section-by-Section Analysis and Discussion
Section 1. Short Title.
This section states that the act may be cited as the
``Transportation Employee Fair Taxation Act of 1999.''
Section 2. Equitable Treatment for Individuals Employed on Vessels with
Respect to State and Local Income Taxes.
Section 2 amends 46 U.S.C. Sec. 11108 to clarify the taxing
status of interstate waterway workers. Specifically, the
amendment provides that any person who performs assigned duties
on a vessel in more than one State as a licensed pilot under 46
U.S.C. Sec. 7101, or as a State-licensed or authorized pilot,
shall not be subject to State income taxes in any State other
than the individual's State of residence.
Section 2 extends this exemption from multiple State income
taxation to persons who perform regularly assigned duties while
engaged as a master, officer, or crewman on a vessel operating
on the navigable waters of more than one State.