article: SECTION 1. SHORT TITLE. This Act may be cited as the ``Defense Reinvestment and High-Tech Job Creation Act of 1993''. SEC. 2. DEFENSE CONVERSION CREDIT. (a) General Rule.--Section 46 of the Internal Revenue Code of 1986 (relating to amount of investment credit) is amended-- (1) by striking ``and'' at the end of paragraph (2), (2) by striking the period at the end of paragraph (3) and inserting ``, and'', and (3) by adding at the end thereof the following new paragraph: ``(4) the defense conversion credit.'' (b) Defense Conversion Credit.--Section 48 of such Code is amended by adding at the end thereof the following new subsection: ``(c) Defense Conversion Credit.-- ``(1) In general.--For purposes of section 46, the defense conversion credit for any taxable year is the sum of-- ``(A) the defense conversion employment credit for the taxable year, and ``(B) the defense conversion investment credit for the taxable year. ``(2) Defense conversion employment credit.-- ``(A) In general.--The defense conversion employment credit for any taxable year is 10 percent of the qualified wages paid or incurred by a qualified employer during such year. ``(B) Qualified wages.--For purposes of this subsection-- ``(i) In general.--The term `qualified wages' means the wages (as defined in clause (ii)) paid or incurred by the qualified employer during the taxable year to, and amounts paid or incurred by the qualified employer to third parties for retraining expenses with respect to, qualified conversion employees during the period commencing on July 31, 1993, and ending on December 31, 1995 (`the qualified period'). ``(ii) Wages defined.--Except as provided in subparagraph (C)(ii), the term `wages' has the meaning given to such term by subsection (b) of section 3306 (determined without regard to any dollar limitation contained in such section), but the amount of wages during any taxable year which may be taken into account with respect to any individual shall not exceed 25 percent of the wages (determined without regard to this subsection) paid to such individual during such taxable year or portion thereof included within the qualified period. ``(iii) Retraining expenses.--The term `retraining expenses' includes all amounts paid or incurred with respect to educational or training programs in which a qualified conversion employee participates to learn or improve skills necessary or useful to such employee's employment in the qualified employer's nondefense-related business. ``(C) Qualified conversion employees.-- ``(i) In general.--For purposes of this subsection, the term `qualified conversion employees' means an employee of a qualified employer who had been employed by the qualified employer or another employer in a defense- related business and who is employed by the qualified employer in a nondefense-related business during the taxable year. ``(ii) Proration in case of dual employment.--If a qualified conversion employee is employed by the qualified employer in both a defense-related business and a nondefense- related business during the taxable year, only the portion of the employee's wages properly allocable to employment in the nondefense- related business shall be treated as `wages' for purposes of subparagraph (B)(ii). ``(D) Qualified employer.--For purposes of this paragraph, a qualified employer is an employer which is engaged in a qualified business (as defined in paragraph (3)(D)). ``(3) Defense conversion investment credit.-- ``(A) In general.--The defense conversion investment credit for any taxable year is the applicable percentage of the qualified conversion investment by a qualified business during the taxable year. ``(B) Applicable percentage.--For purposes of this paragraph-- ``(i) In general.--The applicable percentage shall be 7 percent for all taxable years ending after December 31, 1992, and on or before December 31, 1994, and shall be 5 percent for all taxable years ending after December 31, 1994, and on or before December 31, 1999. ``(ii) Incremental employment incentive percentage.--The applicable percentage shall be 10 percent for any taxable year ending after December 31, 1992, and on or before December 31, 1994, and shall be 8 percent for any taxable year ending after December 31, 1994, and on or before December 31, 1999, if in such year the number of employees of the qualified business increases 4 percent or more over the average number of employees of the qualified business during the 3 preceding years (the `qualifying increase'). ``(iii) Recapture in case of decreased employment.--If a qualified business claims the benefit of the incremental employment incentive percentage under clause (ii), and its average employment during any of the 3 years following the year in which the benefit of the increased percentage was claimed falls below the qualifying increase level (a `disqualifying decrease'), the qualified business shall increase its tax liability for the year during which the disqualifying decrease occurred by the difference between the credit to which it would have been entitled under clause (i) and the credit claimed under clause (ii). ``(C) Qualified conversion investment.--For purposes of this paragraph-- ``(i) In general.--The term `qualified conversion investment' means the costs paid or incurred by a qualified business during the taxable year for the purpose of acquiring, constructing, creating, or developing any tangible or intangible assets, in connection with the conduct of the qualified business' nondefense-related business, except that such term shall not include direct production costs of any property held by the qualified business for sale to customers in the ordinary course of its trade or business. ``(ii) Intangible assets.--The term `intangible assets' includes all `intangible property' as defined in section 936(h)(3)(B) (other than literary, musical or artistic compositions) and specifically includes processes and products, models, and prototypes. ``(D) Qualified business.--For purposes of this subsection and pursuant to regulations to be prescribed by the Secretary-- ``(i) In general.--The term `qualified business' means any corporation, partnership, or sole proprietorship or separate unit thereof in existence on January 1, 1993, which derived a substantial portion of its gross receipts or incurred a substantial portion of its gross costs during the 5 years preceding January 1, 1993, from 1 or more defense-related businesses, and which derives a significant portion of its gross receipts from (or incurs a significant amount of costs in acquiring or developing) 1 or more nondefense-related businesses during the taxable year. ``(ii) Defense-related business.--A `defense-related business' is an activity in connection with the development or production (pursuant to a contract or subcontract) of any property designed, modified, or equipped for military purposes (including NASA). ``(iii) Nondefense-related business.--A `nondefense-related business' is any activity in connection with the development or production of any property not designed, modified, or equipped for military purposes which uses a significant portion of assets and employees which had been employed in a defense- related business.'' (c) Accelerated Depreciation of Excess Defense Conversion Property.-- (1) Subsection (b)(3) of section 168 of such Code is amended by adding at the end thereof the following new subparagraph: ``(F) Property described in subsection (e)(3)(B)(vii).'' (2) Subsection (e)(3)(B) of section 168 of such Code is amended by striking ``and'' at the end of clause (v), by striking the period at the end of clause (vi) and inserting ``, and'', and by adding at the end thereof the following new clause: ``(vii) any qualifying excess defense conversion property.'' (3) Subsection (i) of section 168 of such Code is amended by adding at the end thereof the following new paragraph: ``(14) Qualifying excess defense conversion property.-- ``(A) The term `qualifying excess defense conversion property' means, with respect to property owned or leased by the taxpayer and otherwise subject to depreciation under this section and which is `excess defense conversion property' (as defined in subparagraph (B)), the basis of property (or the portion thereof) constituting excess defense conversion property owned by the taxpayer or the total discounted cost of lease obligations during the remaining term of the lease applicable to excess conversion property leased by the taxpayer. ``(B) The term `excess defense conversion property' means property that-- ``(i) has been used by the taxpayer in a defense-related business (as defined in section 48(c)(3)(D)); and ``(ii) is not being used in the taxable year, and is not reasonably expected to be used in the foreseeable future, in a defense-related business. ``(C) Any deductions claimed by a taxpayer with respect to property reported on its return as qualifying excess defense conversion property and which is later determined as not constituting excess defense conversion property shall be recaptured at the rate of 150 percent of the deductions so claimed. ``(D) For purposes of this section, the amount of the property's basis constituting qualifying excess defense conversion property shall be considered to be placed in service on the first day of the taxable year in which the property is determined to constitute qualifying excess defense conversion property.'' (d) Effective Date.--The amendments made by this section shall take effect on July 31, 1993.
summary: Defense Reinvestment and High-Tech Job Creation Act of 1993 - Amends the Internal Revenue Code to allow a tax credit for defense conversion equal to the defense conversion employment credit (ten percent of wages paid by an employer) and the defense conversion investment credit (applicable percentage of a qualified business investment). Makes qualified excess defense conversion property eligible for the straight-line depreciation method and classifies it as five-year depreciable property.