REPEAL OF ADDITIONAL 2-PERCENT TAX FOR CORPORATIONS FILING CONSOLIDATED RETURNS.

SEC. 234. REPEAL OF ADDITIONAL 2-PERCENT TAX FOR CORPORATIONS FILING CONSOLIDATED RETURNS. (a) Repeal of Tax.—Subsection (a) of section 1503 (relating to computation and payment of tax in case of consolidated returns) is amended to read as follows: “(a) General Rule.—In any case in which a consolidated return is made or is required to be made, the tax shall be determined, computed, assessed, collected, and adjusted in accordance with the regulations under section 1502 prescribed before the last day prescribed by law for the filing of such return.” (b) Technical and Conforming Amendments.— (1) Section 1503 is amended by striking out subsections (b) and (c) and by relettering subsection (d) as subsection (b). (2) Paragraph (3) of section 1503(b) (as relettered by paragraph (1)) is amended to read as follows: “(3) Special rules.— “(A) For purposes of paragraph (2), a corporation is a regulated public utility only if it is a regulated public utility within the meaning of subparagraph (A) (other than clauses (ii) and (iii) thereof) or (D) of section 7701(a) (33). For purposes of the preceding sentence, the limitation contained in the last two sentences of section 7701(a) (33) shall be applied as if subparagraphs (A) through (F), inclusive, of section 7701(a) (33) were limited to subparagraphs (A)(i) and (D) thereof. 78 Stat. 114 “(B) For purposes of paragraph (2), the foreign countries referred to in this subparagraph include only any country from which any public utility referred to in the first sentence of paragraph (2) derives the principal part of its income. “(C) For purposes of this subsection, the term ‘consolidated taxable income’ means the consolidated taxable income computed without regard to the deduction provided by section 242 for partially tax-exempt interest.” (3) Section 7701(a) (relating to definitions) is amended by adding at the end thereof the following new paragraph: “(33) Regulated public utility.—The term ‘regulated public utility’ means— “(A) A corporation engaged in the furnishing or sale of— “(i) electric energy, gas, water, or sewerage disposal services, or “(ii) transportation (not included in subparagraph (C)) on an intrastate, suburban, municipal, or inter-urban electric railroad, on an intrastate, municipal, or suburban trackless trolley system, or on a municipal or suburban bus system, or “(iii) transportation (not included in clause (ii)) by motor vehicle— if the rates for such furnishing or sale, as the case may be, have been established or approved by a State or political subdivision thereof, by an agency or instrumentality of the United States, by a public service or public utility commission or other similar body of the District of Columbia or of any State or political subdivision thereof, or by a foreign country or an agency or instrumentality or political subdivision thereof. “(B) A corporation engaged as a common carrier in the furnishing or sale of transportation of gas by pipe line, if subject to the jurisdiction of the Federal Power Commission. “(C) A corporation engaged as a common carrier (i) in the furnishing or sale of transportation by railroad, if subject to the jurisdiction of the Interstate Commerce Commission, or (ii) in the, furnishing or sale of transportation of oil or other petroleum products (including shale oil) by pipe line, if subject to the jurisdiction of the Interstate Commerce Commission or if the rates for such furnishing or sale are subject to the jurisdiction of a public service or public utility commission or other similar body of the District of Columbia or of any State. “(D) A corporation engaged in the furnishing or sale of telephone or telegraph service, if the rates for such furnishing or sale meet the requirements of subparagraph (A). “(E) A corporation engaged in the furnishing or sale of transportation as a common carrier by air, subject to the jurisdiction of the Civil Aeronautics Board. “(F) A corporation engaged in the furnishing or sale of transportation by common carrier by water, subject to the jurisdiction of the Interstate Commerce Commission under part III of the Interstate Commerce Act, or subject to the jurisdiction of the Federal Maritime Board under the Intercoastal Shipping Act, 1933. “(G) A railroad corporation subject to part I of the Interstate Commerce Act, if (i) substantially all of its railroad 78 Stat. 115properties have been leased to another such railroad corporation or corporations by an agreement or agreements entered into before January 1, 1954, (ii) each lease is for a term of more than 20 years, and (iii) at least 80 percent or more of its gross income (computed without regard to dividends and capital gains and losses) for the taxable year is derived from such leases and from sources described in subparagraphs (A) through (F), inclusive. For purposes of the preceding sentence, an agreement for lease of railroad properties entered into before January 1, 1954, shall be considered to be a lease including such term as the total number of years of such agreement may, unless sooner terminated, be renewed or continued under the terms of the agreement, and any such renewal or continuance under such agreement shall be considered part of the lease entered into before January 1, 1954. “(H) A common parent corporation which is a common carrier by railroad subject to part I of the Interstate Commerce Act if at least 80 percent of its gross income (computed without regard to capital gains or losses) is derived directly or indirectly from sources described in subparagraphs (A) through (F), inclusive. For purposes of the preceding sentence, dividends and interest, and income, from leases described in subparagraph (G), received from a regulated public utility shall be considered as derived from sources described in subparagraphs (A) through (F), inclusive, if the regulated public utility is a member of an affiliated group (as defined in section 1504) which includes the common parent corporation. The term ‘regulated public utility’ does not (except as provided in subparagraphs (G) and (H)) include a corporation described in subparagraphs (A) through (F), inclusive, unless 80 percent or more of its gross income (computed without regard to dividends and capital gains and losses) for the taxable year is derived from sources described in subparagraphs (A) through (F), inclusive. If the taxpayer establishes to the satisfaction of the Secretary or his delegate that (i) its revenue from regulated rates described in subparagraph (A) or (D) and its revenue derived from unregulated rates are derived from the operation of a single interconnected and coordinated system or from the operation of more than one such system, and (ii) the unregulated rates have been and are substantially as favorable to users and consumers as are the regulated rates, then such revenue from such unregulated rates shall be considered, for purposes of the preceding sentence, as income derived from sources described in subparagraph (A) or (D).” (4) Section 12 (8) (relating to cross reference to additional tax for corporations filing consolidated returns) is hereby repealed. (5) Paragraphs (1) and (2) of section 172(j) (relating to carryover of net operating loss for certain regulated transportation corporations) are amended to read as follows: “(1) Definition.—For purposes of subsection (b) (1) (C), the term ‘regulated transportation corporation’ means a corporation— “(A) 80 percent or more of the gross income of which (computed without regard to dividends and capital gains and losses) for the taxable year is derived from the furnishing or sale of transportation described in subparagraph (A), (C) (i), (E), or (F) of section 7701(a) (33) and taken into account for purposes of the limitation contained in the last two sentences or section 7701(a) (33), 78 Stat. 116 “(B) which is described in subparagraph (G) or (H) of section 7701(a) (33), or “(C) which is a member of a regulated transportation system. “(2) Regulated transportation system.—For purposes of this subsection, a corporation shall be treated as a member of a regulated transportation system for a taxable year if— “(A) it is a member of an affiliated group of corporations making a consolidated return for such taxable year, and “(B) 80 percent or more of the aggregate gross income of the members of such affiliated group (computed without regard to dividends and capital gains and losses) for such taxable year is derived from sources described in paragraph (1)(A). For purposes of subparagraph (B), income derived by a corporation described in subparagraph (G) or (H) of section 7701 (a) (33) from leases described m subparagraph (G) thereof shall be considered as derived from sources described in paragraph (1) (A).” (6) Section 904(g) (2) (relating to cross references for purposes of the limitation on the foreign tax credit) is amended by striking out “section 1503(d)” and inserting in lieu thereof “section 1503(b)”. (7) Section 1341(b) (2) (relating to special rules for the computation of tax where taxpayer restores substantial amount held under claim of right) is amended by striking out “(as defined in section 1503(c) without regard to paragraph (2) thereof)” and inserting in lieu thereof “(as defined in section 7701(a) (33) without regard to the limitation contained in the last two sentences thereof)”. (8) Section 1552(a) (3) (relating to the allocation of tax liability among members of an affiliated group of corporations filing consolidated returns) is amended by striking out “(determined without regard to the 2 percent increase provided by section 1503(a))”. (c) Effective Date.—The amendments made by subsections (a) and (b) shall apply with respect to taxable years beginning after December 31, 1963.