Calendar No. 559
98TH CONGRESS
1st Session
Senate
Report No. 98-308
MISCELLANEOUS TARIFF, TRADE, AND CUSTOMS MATTERS
November 10 (Legislative day, November 7), 1983.- Ordered to be printed
Mr. Dole, from the Committee on Finance, submitted the following
REPORT
(to accompany H.R. 3398]
The Committee on Finance, to which was referred the bill (H.R. 3398) to change the tariff treatment with respect to certain articles, and for other purposes, having considered the same, reports favorÂably thereon with an amendment and recommends that the bill, as amended, do pass.
I. SUMMARY
H.R. 3398, as referred to the Committee, was ordered favorably reported with amendment.s that (1) replace all but two sections with equivalent language, and (2) include new miscellaneous tariff, trade, customs, and related matters. Title I of H.R. 3398, as amendÂed, contains permanent and temporary changes to the Tariff SchedÂules of the United States. Title II contains miscellaneous changes to the customs laws, including authority for the Secretary of ComÂmerce and the Secretary of the Treasury to enforce an agreement with the European Communities relating to imports of steel pipes and tubes. Title III contains amendments to the Internal Revenue Code related to certain trade problems.
Finally, Title IV contains the provisions of S. 144, (the InternaÂtional Trade and Investment Act), as slightly amended. The following is a summary of H.R. 3398, as amended:
SECTION 214-PRECLUSION OF STATE AND LOCAL TAXATION OF PERSONAL PROPERTY IN FOREIGN TRADE ZONES
Current law.-In general, merchandise may be brought into a foreign trade zone without being subject to the customs laws of the United States (the Foreign Trade Zones Act of 1934, 19 U.S. Code sec. 81a et seq.). Merchandise may generally be stored, sold, exhibited, broken up, repacked, assembled, distributed, sorted, graded, cleaned, mixed with foreign or domestic merchandise or otherwise manipulated in a foreign trade zone, or be manufactured in a forÂeign trade zone, without being subject to U.S. customs laws, and it may then be exported or destroyed without being subject to U.S. customs laws. This exemption does not apply to machinery and equipment that is imported for use (for manufacturing or the like) within a foreign trade zone.
When foreign merchandise moves from a foreign trade zone into customs territory of the United States it is subject to the laws and regulations of the United States affecting imported merchandise. At the point, U.S. import duties apply.
A similar deferral of U.S. import duties applies to goods stored in government supervised bonded customs warehouses, which are genÂerally treated as being outside U.S. customs territory. Only if goods are withdrawn for domestic sale of stored beyond a prescribed period does any duty become due. The Supreme Court of the United States has ruled that Congress’s comprehensive regulation of customs duties preempts state property taxes on goods stored under bond in a customs warehouse (Xerox O,rp. v. O,unty of Harris, Texas, and City of Houston, Texas, No. 81-1489, December 13, 1982).
The bill-Section 214 would amend section 15 of the Foreign Trade Zones Act of 1934 to make it clear that tangible personal property imported from outside the United States and held in a foreign trade zone for the purpose of storage, sale, exhibition, re- packaging, assembly, distribution, sorting, grading, cleaning, mixing, display, manufacturing, or processing, and tangible personÂal property produced in the United States and held in a zone for exportation, either in its original form or as altered by any of the above processes, would be exempt from State and local ad valorem taxation .. The bill would preempt State law of local law imposÂing ad valorem taxation on such property.
As for imported goods, the benefits of the bill would apply only to goods in a foreign trade zone for bona fide customs reasons. That is, it would not apply to property imported into the United States for use in manufacturing within a foreign trade zone (rather than for sale). Moreover, the Foreign Trade Zone Act of 1934 does not apply to machinery and equipment within a zone for use therein, so the benefits of the bill would not extend to those items whatever their origin.
As for U.S.-produced property, the benefits of the bill would apply only if the property were held in the zone for exportation. The benefits would not apply to U.S.-produced property that was present in the zone for combination with imported property or for other processing if the U.S.-produced property were destined for later use in or sale into the United States. By contract, the benefits would apply to U.S.-produced property that was present in the zone for combination with imported property or for other processing if the U.S.-produced property were destined for later use or sale outÂside the United States.
Reason for provision.-Local taxing jurisdictions in Texas may seek to declare exemptions for property taxes on some tangible perÂsonal property stored in foreign trade zones, but are precluded from doing so bf the Texas Constitution. The local foreign trade zones thus are disadvantaged in promoting the benefits of zones in their localities. The committee is unaware of any states or localÂities outside the State of Texas that seek to impose property taxes on tangible personnel property located in foreign trade zones for bona fide customs reasons, or have a bar similar to that in Texas that would preclude localities from declaring an exemption to such a tax.
HOUSE OF REPRESENTATIVES
98th Congress, 1st Session
Report No. 98-267
MISCELLANEOUS TARIFF AND CUSTOMS PROVISIONS
June 24, 1983.-Committed to the Committee of the Whole House on the State or the Union and ordered to be printed
Mr. Rostenkowski, from the Committee on Ways and Means, submitted the following
REPORT
[To accompany H.R 3398)
[Including Cost Estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the bill (H.R. 3398) to change the tariff treatment with respect to certain articles, and for other purposes, having considered the same, report favorably thereon without amendment and recommend that the bill do pass.
SUMMARY OF PROVISIONS
H.R. 3398 is a bill which incorporates 23 noncontroversial tariff· and trade bills, approved by the Committee on Ways and Means. They involve permanent duty free entry, temporary duty reducÂtions, temporary suspension of duties, certain classification changes, and for other purposes. The Committee has combined these bills into a single omnibus bill to facilitate their consideraÂtion by the House of Representatives.
Section 101 applies to all other sections of the bill. It states that whenever an amendment or repeal is expressed in terms of an amendment to, or repeal of, a schedule, item, headnote or other provision, the reference shall be considered to be made to a schedÂule, item, headnote, or other provision of the Tariff Schedules of the United States (19 U.S.C. 1202).
PARAGRAPH (b)-EXEMPTION FROM STATE AND LOCAL AD VALOREM TAXES
(Originally introduced as H.R. 717 by Mr. Wright)
Section 211, paragraph (b), would amend section 15 of the ForÂeign Trade Zones Act of 1934, to exempt from State and local ad valorem taxation tangible personal property imported from outside the United States and tangible personal property produced in the United States and held in a zone for exportation.
The goal of this legislation is to affirm the original purpose of FTZs (to expedite and encourage foreign commerce) and to confirm that Congress intended not to permit the imposition of such taxes. The new subsection is designed to insure that FTZs would be uniÂformly treated by non-Federal taxing authorities. In addition, the amendment would eliminate such tax concerns from among the factors to be considered by potential FTZ operators or users when deciding where an operation of FTZ is to be located.
Further, the bill was introduced due to a unique problem in the State of Texas in which the local taxing jurisdiction does not have the authority to exempt tangible personal property in a FTZ from taxation due to the State constitution. The State of Texas constitution specifically provides for certain articles to be exempt from taxation. No other items can be exempted without a change in the Constitution. It is expected that Federal law would preempt State law in this case.
It is the intention of this legislation that the following considerÂations would be applied when implementing this legislation:
(1) Bona fide customs use of Foreign Trade Zone.Based upon the practice followed in states already granting this exemption, by interpretation, the benefits would apply only to goods in the zone for bona fide customs reasons.
(2) Machinery and Equipment.-Since the Foreign Trade Zone Act of 1934 does not apply to machinery and equipment within a zone for use therein the benefits of the bill would not extend to such items.
The FTZs were intended by Congress to be special instrumentalities which would stimulate and facilitate foreign commerce and which would not be considered as part of the United States for cusÂtoms purposes. The zones are unique and limited federally-created entities; while the States provide services to the zones, State taxing authority should be viewed in the context of Federal statutes and regulations and of the Constitution, as well as the overall frameÂwork of State-Federal relations.
It would appear that the principal type of tax which would be proscribed by the legislation is a personal property tax, one levied on goods held by the potential taxpayer on a given date, especially articles used in commerce or inventoried for future sale. Absent this legislation, such a tax could be arguably assessed on merchanÂdise or materials located or being stored in a FTZ, even if the materials or articles were intended for export to countries other than the United States. This form of tax is generally aimed at raising revenue for the taxing authority, rather than at controlling the use of the property; however, the cost of paying a property tax might be passed along to consumers, raising the price of the merchandise. Thus, the tax might have the effect of a duty when imposed on FTZ property, which might be imported into this country, and impinge upon the Congress’ exercise of its Article I authority. While not every State tax will be found on review to be a prohibited impost or duty, and while a State may not be discriminating in asÂsessing the tax on all articles in its geographical territory regard· less of origin, such a tax may constitute a burden on foreign and interstate commerce, in light of the subject of the tax.
