October 22, 2004
On October 22, 2004, President Bush signed into law H.R. 4520, the American Jobs Creation Act of 2004.
The law repeals the extraterritorial income exclusion in the current tax law; provides domestic manufacturing and other business tax relief, including energy-related tax credits; allows for itemized deduction of state and local sales taxes; provides for reform of tobacco subsidies; includes international tax reform and simplification provisions; and includes various revenue-raising provisions.
The new law replaces the Foreign Sales Corporation/Extraterritorial Income (FSC/ETI) tax provisions, which the World Trade Organization ruled were unfair subsidies and therefore violated trade agreements. Without repeal of these provisions, U.S. companies faced increasing tariffs on many exports.
The law extends Section 179 expensing for small business through 2007. This allows the immediate expensing of up to $100,000 per year in new capital goods by small businesses. The provision was scheduled to expire at the end of 2005.
The law also provides a 9 percent tax deduction (equivalent to a 3 percent rate cut) on all domestic manufacturing activity. The deduction is available to C corporations, S corporations, partnerships, sole proprietorships, cooperatives, and estates and trusts.