HR 2001 IH
106th CONGRESS
1st Session
H. R. 2001
To promote freedom, fairness, and economic opportunity for families
by repealing the income tax, abolishing the Internal Revenue Service, and
enacting a national retail sales tax to be administered primarily by the
States.
IN THE HOUSE OF REPRESENTATIVES
May 26, 1999
Mr. TAUZIN (for himself, Mr. TRAFICANT, Mr. BRADY of Texas, Mr. CALLAHAN, Mr.
CAMPBELL, Mrs. CHENOWETH, Mr. DEMINT, Mr. HALL of Texas, Mr. HEFLEY, Mr. HUNTER,
Mr. LINDER, Mrs. MYRICK, Mr. NORWOOD, Mr. PACKARD, Mr. PETERSON of Minnesota,
Mr. SCARBOROUGH, Mr. STUMP, Mr. TANCREDO, and Mr. BURTON of Indiana) introduced
the following bill; which was referred to the Committee on Ways and Means, and
in addition to the Committee on Rules, for a period to be subsequently
determined by the Speaker, in each case for consideration of such provisions as
fall within the jurisdiction of the committee concerned
A BILL
To promote freedom, fairness, and economic opportunity for families
by repealing the income tax, abolishing the Internal Revenue Service, and
enacting a national retail sales tax to be administered primarily by the
States.
Be it enacted by the Senate and House of Representatives of the United
States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE- This Act may be cited as the `National Retail Sales Tax
Act of 1999'.
(b) TABLE OF CONTENTS- The table of contents of this Act is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. Congressional findings.
Sec. 3. Repeal of the income tax, estate and gift taxes, and certain
excise taxes.
`Chapter 1--Sales Tax
`SUBCHAPTER A--IMPOSITION OF TAX
`Sec. 1. Imposition of tax.
`Sec. 2. Exemptions.
`Sec. 3. Rules relating to collection and remittance of
tax.
`SUBCHAPTER B--CREDITS; REFUNDS; INSTALLMENT PAYMENTS OF TAX ON PURCHASES OF
RESIDENCES
`Sec. 11. Credits and refunds.
`Sec. 12. Installment payments of tax on purchase of principal
residences.
`Sec. 13. Family consumption refund.
`SUBCHAPTER C--DEFINITIONS AND SPECIAL RULES; FINANCIAL INTERMEDIATION
SERVICES
`Sec. 21. Definitions.
`Sec. 22. Special rules.
`Sec. 23. Determination of financial intermediation services
amount.
`Sec. 24. Bad debts.
`Sec. 25. Timing of tax on financial intermediation
services.
`Sec. 26. Alternative method for calculating tax due.
`Sec. 27. Basic interest rate.
`Sec. 28. Applicable interest rate.
`SUBCHAPTER D--AUTHORITY FOR STATES TO COLLECT TAX
`Sec. 31. Authority for States to collect tax.
`Sec. 32. Federal administrative support for States.
`Sec. 33. Federal administration option for multistate
vendors.
`Sec. 34. General administrative matters.
`SUBCHAPTER E--OTHER ADMINISTRATIVE PROVISIONS
`Sec. 41. Monthly reports and payments.
`Sec. 42. Records.
`Sec. 43. Registration.
`Sec. 44. Certificate.
`Sec. 45. Penalties.
`Sec. 46. Burden of persuasion and burden of production.
`Sec. 47. Attorneys and accountancy fees.
`Sec. 48. Appeals.
`Sec. 49. Taxpayer subject to subpoena on production.
`Sec. 50. Tax Court jurisdiction.
`Sec. 51. Power to levy.
`Sec. 52. Problem resolution officers.
`Sec. 53. Jurisdiction and interstate allocation.
`Sec. 54. Tax to be stated and charged separately.
`Sec. 55. Installment agreements; compromises.
`Sec. 56. Accounting.
`Sec. 57. Hobby activities.
Sec. 5. Phase-out of the Internal Revenue Service.
Sec. 6. Social Security Administration to collect payroll taxes.
Sec. 7. Self-employment tax.
Sec. 8. Social Security benefits indexed on sales tax inclusive
basis.
Sec. 9. Compensating payments to certain persons on fixed income.
Sec. 11. Supermajority required to raise rate.
SEC. 2. CONGRESSIONAL FINDINGS.
(a) The Congress finds that the income tax--
(1) retards economic growth and has reduced the standard of living of
the American public;
(2) impedes the international competitiveness of United States
industry;
(3) reduces savings and investment in the United States;
(5) imposes unacceptable administrative costs on taxpayers, individuals
and businesses alike;
(6) is unfair and inequitable; and
(7) unnecessarily intrudes upon the privacy and civil rights of United
States citizens.
(b) The Congress finds further that national sales, services and use tax
on final consumption of goods and services--
(1) is similar in many respects to those in place in 45 of the 50
States;
(2) will promote savings;
(3) will promote fairness;
(4) will promote economic growth;
(5) will raise the standard of living;
(6) will increase savings and investment;
(7) will enhance productivity and international competitiveness;
(8) will reduce administrative burdens on the taxpayer; and
(9) will respect the privacy interests and civil rights of
taxpayers.
(c) The Congress further finds that--
(1) most of the practical experience administering sales taxes is found
at the State Governmental level;
(2) it is desirable to harmonize Federal and State collection and
enforcement efforts to the maximum extent possible;
(3) it is sound tax administration policy to administer and collect the
Federal sales and service tax at the State level in return for a reasonable
administration fee to the States;
(4) businesses that must collect and remit taxes should receive
reasonable compensation for the cost of doing so; and
(5) the sixteenth amendment to the Constitution should be
repealed.
SEC. 3. REPEAL OF THE INCOME TAX, ESTATE AND GIFT TAXES, AND CERTAIN EXCISE
TAXES.
(a) IN GENERAL- The following provisions of the Internal Revenue Code of
1986 are hereby repealed:
(1) Chapter 1 (relating to income tax).
(2) Chapter 5 (relating to tax on transfers to avoid income tax).
(3) Chapter 6 (relating to consolidated returns).
(4) Chapter 24 (relating to collection of income tax at source).
(5) Subtitle B (relating to estate and gift taxes).
(6) Chapter 31 (relating to retail excise taxes).
(7) Chapter 32 (relating to manufacturers excise taxes).
(8) Subtitle E (relating to alcohol, tobacco, and certain other excise
taxes).
(9) Subtitle F (relating to procedure and administration of the income
tax and certain other taxes) except for section 6103 (relating to
confidentiality), chapter 66 (relating to limitations), chapter 67 (relating
to interest), section 6656 (relating to failure to make deposit of taxes),
section 6657 (relating to bad checks), section 6658 (relating to
coordination with title 11), chapter 75 (relating to crimes), chapter 76
(relating to Judicial Proceedings), section 7431 (relating to damages for
unauthorized disclosure), section 7432 (relating to damages for failure to
release lien), section 7433 (relating to damages for unauthorized collection
data) and chapter 77 (relating to miscellaneous provisions). References to
provisions repealed by the preceding sentence shall be treated as references
to such provisions as in effect on the day before the date of the enactment
of this Act.
(1) IN GENERAL- Except as provided in paragraph (2), the amendments made
by subsection (a) shall take effect on July 1, 2001.
(2) INCOME TAX- The amendment made by subsection (a)(1) shall apply to
taxable years beginning after June 30, 2001.
(3) SALES TAX- The amendment made by section 4 shall take effect on July
1, 2001.
(4) SOCIAL SECURITY BENEFITS- The amendment made by section 9 shall take
effect on January 1, 2001.
(5) SUPERMAJORITY REQUIRED- The amendment made by section 11 shall take
effect on January 1, 2001.
SEC. 4. SALES TAX.
Subtitle A of the Internal Revenue Code of 1986 is amended by inserting at
the beginning the following new chapter:
`CHAPTER 1--SALES TAX
`SUBCHAPTER A. Imposition of tax.
`SUBCHAPTER B. Credits; refunds; installment payments of tax on purchases of
residences.
`SUBCHAPTER C. Definitions and special rules; financial intermediation
services.
`SUBCHAPTER D. Authority for States to collect tax.
`SUBCHAPTER E. Other administrative provisions.
`Subchapter A--Imposition of Tax
`Sec. 1. Imposition of tax.
`Sec. 2. Exemptions.
`Sec. 3. Special rules relating to collection and remittance of tax.
`SECTION 1. IMPOSITION OF TAX.
`(a) IN GENERAL- There is hereby imposed a tax of 15 percent on the gross
payments for the use, consumption or enjoyment in the United States of any
taxable property or service, whether produced or rendered within or without
the United States.
`(b) COORDINATION WITH IMPORT DUTIES- The taxes imposed by this section
are in addition to any import duties imposed by law. The Secretary shall
provide by regulation that, to the maximum extent practicable, the taxes
imposed by this section on imported property and services are collected and
administered in conjunction with any applicable import duties.
`(c) LIABILITY FOR COLLECTION AND REMITTANCE OF THE TAX-
`(1) GENERAL RULE- The tax imposed by subsection (a) shall be collected
and remitted by the seller, except as provided in subsection (2).
`(2) TAX TO BE PAID BY PURCHASER IN CERTAIN CIRCUMSTANCES-
`(A) GENERAL RULE- In the case of taxable property or services
purchased outside of the United States for use, consumption or enjoyment
in the United States, the purchaser shall remit the tax imposed by
subsection (a).
`(B) In the case of a purchaser electing to pay tax in installments
pursuant to section 12, the purchaser shall remit the tax imposed by
subsection (a).
`(C) Employers that pay wages that are taxable services within the
meaning of section 21(n) shall be responsible for paying and remitting the
tax.
`(D) The Secretary may provide by regulation that the tax imposed by
subsection (a) is to be collected and remitted by the purchaser rather
than the seller.
`SEC. 2. EXEMPTIONS.
`(a) IN GENERAL- Except as provided in section 3(b)(2), no tax shall be
imposed under section 1 on any taxable property or service purchased for--
`(1) a business purpose in an active trade or business, or
`(2) export from the United States for use or consumption outside the
United States, provided that the purchaser provided the seller with--
`(A) an intermediate sales certificate, or
`(B) an export sales certificate.
`(b) BUSINESS PURPOSES- For purposes of this section, the term `purchased
for a business purpose in an active trade or business' means purchased by a
person engaged in an active trade or business and used in that active trade or
business--
`(2) to produce taxable property or services (as defined in section
21(e)), or
`(3) in furtherance of other bona fide business purposes.
`(c) DE MINIMIS PAYMENTS- Up to $400 of gross payments per calendar
year--
`(1) made by a person not engaged in an active trade or business at any
time during such calendar year prior to making such gross payments,
and
`(2) made to purchase any taxable property or service which is imported
into the United States by such person for use or consumption by such person
in the United States,
shall be exempt from the tax imposed by section 1.
`(d) DE MINIMIS SALES- Up to $2,500 per calendar year of gross payments
received--
`(1) by a person not engaged in an active trade or business during such
calendar year prior to the receipt of such gross payments, and
`(2) in connection with a casual or isolated sale,
shall be exempt from the tax imposed by section 1.
`(e) AFFILIATED FIRMS- Firms that make purchases from or sell to
affiliated firms which are exempt pursuant to subsection (a) shall not need to
comply with the requirements of subsection (g) for such purchases to remain
exempt. For purposes of this section, a firm is affiliated with another if 1
firm owns 50 percent of the voting shares or interest in the other.
`(f) DE MINIMIS SALE OF FINANCIAL INTERMEDIATION SERVICES- The first
$10,000 per calendar year of gross payments received by a person from the sale
of financial intermediation services shall be exempt from the tax imposed by
section 1. The exemption provided by this subsection is in addition to other
exemptions afforded by this chapter.
`(g) SELLER RELIEVED OF LIABILITY IN CERTAIN CASES- In the case of any
property or service which is sold exempt from tax pursuant to subsection (a),
if the seller--
`(1) has on file a copy of an exemption certificate (whether an
intermediate sale or export sale certificate) from the purchaser, and
`(2) did not have reasonable cause to believe that an exemption from the
tax imposed by section 1 was unavailable to the purchaser with respect to
such purchase, then the seller shall be relieved of liability to collect and
remit the tax imposed by section 1 on such purchase.
`SEC. 3. RULES RELATING TO COLLECTION AND REMITTANCE OF TAX.
`(a) OBLIGATION OF GOVERNMENTAL UNITS AND NOT-FOR-PROFIT ORGANIZATIONS TO
COLLECT, REMIT AND PAY TAXES-
`(1) GOVERNMENTAL UNITS- Nothing in this subtitle shall be construed to
exempt any Federal, State, or local governmental unit or political
subdivision from paying any tax imposed by this subtitle on any sale,
purchase, use, consumption or enjoyment by such a unit.
`(2) NOT-FOR-PROFIT ORGANIZATIONS-
`(A) IN GENERAL- Dues, contributions and payments to qualified
not-for-profit organizations shall not be considered gross payments for
taxable property or services for purposes of this subtitle.
`(B) EXCEPTION- Notwithstanding subparagraph (2)(A), payments of any
form to a qualified not-for-profit organization shall be considered gross
payments for taxable property or services unless said organization
establishes that the property or service provided in exchange
is--
`(i) substantially related to the purposes of the qualified
not-for-profit organization, or
`(ii) is not commercially available.
`(C) For purposes of this section, qualified not-for-profit
organization means a not-for-profit organization organized and operated
exclusively--
`(i) for religious, charitable, scientific, testing for public
safety, literary or educational purposes;
`(ii) as civic leagues or social welfare organizations;
`(iii) as labor, agricultural or horticultural
organizations;
`(iv) as chambers of commerce, business leagues or trade
associations; or
`(v) as fraternal beneficiary societies, orders or
associations;
no part of the net earnings of which inures to the benefit of any
private shareholder or individual.
`(D) Upon application in a form prescribed by the State Administrator,
the State Administrator shall provide qualification certificates to
qualified not-for-profit organizations.
`(E) If a not-for-profit organization provides taxable property or
services in connection with contributions or dues to the organizations,
then it shall be required to treat the provision of said taxable property
or services as a purchase taxable pursuant to this subtitle at the fair
market value of said property or personal services.
`(F) Taxable property and services purchased by not-for-profit
organizations for resale or for use in the production of taxable property
or services shall be eligible for the exemptions provided in section
2.
`(b) TAX COLLECTED ON CERTAIN EXEMPT PURCHASES-
`(1) IN GENERAL- In the case of a purchase which would (but for this
subsection (b)) be exempt from the tax imposed by section 1 by reason of
section 2(a), such subsection shall not apply to such purchase if the
seller--
`(A) elects the application of this subsection, and
`(B) immediately provides the purchaser with a receipt reflecting the
information required by section 54. Seller may elect to exercise the
application of this section with respect to some or all purchases or
purchasers.
`(2) The Secretary may by regulation provide that certain industries or
specific products are such that the vendor must collect the tax on otherwise
exempt purchases if, in the Secretary's judgment, said
industry or products are such that consumers buy 25 percent or more of the
product sold by the industry or the product. A registered vendor may by
application for good cause shown elect to opt out of the application of this
paragraph.
`For credit to purchaser where seller collects tax on exempt purchase,
see section 11(a)(3).
`For tax to be separately stated and charged, see section 54.
`(c) GOVERNMENT ENTERPRISES-
`(1) GOVERNMENT ENTERPRISES TO COLLECT AND REMIT TAXES ON SALES- Nothing
in this subtitle shall be construed to exempt any Federal, State, or local
governmental unit or political subdivision (whether or not the State is a
conforming State) operating a government enterprise from collecting and
remitting tax imposed by this subtitle on any sale of taxable property or
services. Government enterprises shall comply with all duties imposed on
private enterprises by this subtitle and shall be liable for penalties and
subject to enforcement action in the same manner as private
enterprises.
`(2) GOVERNMENT ENTERPRISE- Any entity owned or operated by a Federal,
State, or local governmental unit or political subdivision that receives
gross payments from selling taxable property or services to private persons
is a government enterprise, provided, however, that a government-owned
entity shall not become a government enterprise for purposes of this section
unless in any quarter it has revenues from the sale of taxable property or
services that exceed $2,500.
`(3) GOVERNMENT ENTERPRISES' INTERMEDIATE AND EXPORT SALES-
`(A) Government enterprises shall not be subject to tax on purchases
that would not be subject to tax pursuant to section 2 if the government
enterprise were a private enterprise.
`(B) Government enterprises may not use the exemption afforded by
section 2 to serve as a conduit for tax-free purchases by government units
that would otherwise be subject to taxation on purchases pursuant to
section 1. Transfers of taxable property or services purchased exempt from
tax by a government enterprise to such government unit shall be
taxable.
`(4) SEPARATE BOOKS OF ACCOUNT- Any government enterprise must maintain
books of account, separate from the nonenterprise government accounts,
maintained in accordance with generally accepted accounting
principles.
`(5) ACTIVE TRADE OR BUSINESS- A government enterprise shall be treated
as an active trade or business.
`For obligation of government units, see section 3(a)(1).
`Subchapter B--Credits; Refunds; Installment Payments of Tax on Purchases
of Residences
`Sec. 11. Credits and refunds.
`Sec. 12. Installment payments of tax on purchases of principal residences.
`Sec. 13. Family Consumption Refund.
`SEC. 11. CREDITS AND REFUNDS.
`(a) GENERAL CREDITS- Each person shall be allowed a credit against the
taxes imposed by section 1 for any month in an amount equal to the sum of--
`(1) such person's used property credit under subsection (c) for such
month,
`(2) such person's business use conversion credit under subsection (d)
for such month,
`(3) the amount paid by such person with respect to a purchase during
such month by reason of a tax collected on an exempt purchase pursuant to
section 3(b) (relating to election to collect tax on certain nontaxable
purchases),
`(4) the administration credit under section (e),
`(5) the compliance equipment cost credit under section (f),
`(6) the bad debt credit under subsection (g),
`(7) the insurance proceeds credit under subsection (h),
`(8) the transition inventory credit under subsection (i), and
`(9) any amount paid in excess of amount due.
`(1) FILERS- If a person files two consecutive monthly tax reports with
a credit balance, then, upon application in a form prescribed by the State
Administrator, then the credit balance shown on the second monthly report
shall be refunded to the taxpayer within 60 days of said application.
`(2) NONFILERS- If a person other than a monthly filer has an excess
credit for any month, then, upon application in a form prescribed by the
State Administrator, then the credit balance due shall be refunded to the
taxpayer within 60 days of said application.
`(3) INTEREST- No interest shall be required to be paid on any
overpayment under this subsection for any month if such overpayment is paid
within 60 days after the close of such month.
`(4) SUSPENSION OF PERIOD TO PAY REFUND ONLY IF FEDERAL COURT RULING-
The 60-day periods under paragraphs (1) and (2) shall be suspended with
respect to a purported credit balance (or portion thereof) only during any
period that there is in effect a preliminary ruling from a Federal court
that there is reasonable cause to believe that such credit balance is not
actually the amount due.
`(5) FILER- For purposes of this subsection, the term `filer' means,
with respect to any month, any person required to register under section 43
for such month.
`(c) USED PROPERTY CREDIT-
`(1) IN GENERAL- For purposes of subsection (a), a seller shall receive
credit for previous sales tax paid on the resale of taxable property or
services, as provided in this subsection (c).
`(2) DETERMINATION OF USED PROPERTY CREDIT AMOUNT- The used property
credit amount determined under this paragraph with respect to any property
is the lesser of--
`(A) the amount of tax due and paid by virtue of the present
transaction (without regard to any credits), or
`(B) the most recent prior tax imposed by section 1 with respect to
such property transaction (without regard to any credits).
`(3) TRANSITIONAL DEEMED PAID RULE FOR PROPERTY OWNED ON EFFECTIVE DATE
OF ACT- In the case of property which was acquired by the seller before July
1, 2001, the amount under paragraph (2)(B) shall be the amount which is the
product of--
`(A) that which would be determined under paragraph (2)(B) as if this
subtitle had been in effect at the time of such acquisition, and
`(B) the equity ratio (as defined in paragraph (4)).
`(4) The equity ratio is the quotient of--
`(A) the income tax basis in the property at the end of the taxable
year 2001, less the mortgage or debt secured by said property at the end
of said taxable year, divided by
`(B) the income tax basis in the property at the end of the taxable
year 2001,
provided, however, that the quantity defined in subparagraph (1) cannot
be less than zero and further
providing that the equity ratio so calculated cannot be less than zero or
greater than one.
`(d) Business Use Conversion Credit-
`(1) IN GENERAL- For purposes of subsection (a), a person's business use
conversion credit for any month is the aggregate of the amounts determined
under paragraph (2) with respect to property--
`(A) on which a prior tax was imposed by section 1 on the purchase by
such person, and
`(B) which commences to be exclusively used during such month in the
production by such person of other taxable property or services.
`(2) AMOUNT OF CREDIT- The amount determined under this paragraph with
respect to any property is lesser of--
`(A) the product of the rate imposed by section 1 and the fair market
value of the property when its use is converted, and
`(B) the prior tax referred to in paragraph (1)(A).
`(3) Property converted from business use to personal use shall be
subject to tax pursuant to section 1 on the book value of the converted
property as of the date of conversion, provided that the books are kept in
accordance with generally accepted accounting principles.
`(e) ADMINISTRATION CREDIT- Every taxpayer filing a timely monthly report
in compliance with section 41 shall be entitled to a taxpayer administrative
credit equal to the greater of--
`(2) one-half of 1 percent of the tax remitted, provided, however, that
in no event will the credit afforded by this section exceed 20 percent of
the tax due to be remitted prior to the application of this credit.
`(f) COMPLIANCE EQUIPMENT COST CREDIT- Vendors required to purchase new
equipment to comply with the provisions of section 54 shall be entitled to a
credit in the amount of 50 percent of the cost of such equipment.
`(1) FINANCIAL INTERMEDIATION SERVICES- Any person registered pursuant
to section 43 who has experienced a bad debt (other than unpaid invoices
within the meaning of paragraph (2)) shall be entitled to a credit equal to
the product of--
`(A) the rate imposed by section 1, and
`(B) the quotient that is--
`(i) the amount of the bad debt (as defined in section 24), divided
by
`(ii) the quantity that is 1 minus the rate imposed by section
1.
`(2) UNPAID INVOICES- Any person electing the accrual method pursuant to
section 56 that has with respect to a transaction--
`(A) invoiced the tax imposed by section 1,
`(B) remitted the invoiced tax,
`(C) actually delivered the taxable property or performed the taxable
services invoiced, and
`(D) not been paid 90 days after the date the invoice was due to be
paid,
shall be entitled to a credit equal to the amount of tax remitted and
unpaid by the purchaser.
`(3) SUBSEQUENT PAYMENT- Any payment made with respect to a transaction
subsequent to a subsection (g) credit being taken with respect to that
transaction shall be subject to tax in the month the payment was received as
if a tax inclusive sale of taxable property and services in the amount of
the payment had been made.
`(4) PARTIAL PAYMENTS- Partial payments shall be treated as pro rata
payments of the underlying obligation and shall be allocated proportionately
among payment for the taxable property and service, tax and otherwise (in
the case of partially nontaxable payments).
`(5) RELATED PARTIES- The credit provided by this section shall not be
available with respect to sales made to affiliated firms (within the meaning
of section 2(e)).
`(h) INSURANCE PROCEEDS CREDIT-
`(1) IN GENERAL- A person receiving a payment from an insurer by virtue
of an insurance contract shall be entitled to a credit in an amount
determined by paragraph (2), less any amount paid to the insured by the
insurer pursuant to paragraph (3), if the entire premium (except that
portion allocable to the investment account of the underlying policy) for
the insurance contract giving rise to the insurer's obligation to make a
payment to the insured was subject to the tax imposed by section 1 and such
tax was paid.
`(2) CREDIT AMOUNT- The amount of the credit shall be the product
of--
`(A) the rate imposed by section 1, and
`(B) the quotient that is--
`(i) the amount of the payment made by the insurer to the insured,
divided by
`(ii) the quantity that is 1 minus the rate imposed by section
1.
`(3) ADMINISTRATIVE OPTION- The credit determined in accordance with
paragraph (2) shall be paid by the insurer to the insured and the insurer
shall be entitled to the credit in lieu of the insured provided, however,
the insurer may elect, in a form prescribed by the Secretary, to not pay the
credit and require the insured to make application for the credit. In the
event of such election, the insurer shall provide to the Secretary and the
insured the name and tax identification number of the insurer and of the
insured and indicate the proper amount of the credit.
`(4) COORDINATION WITH RESPECT TO EXEMPTION- If taxable property or
services purchased by an insurer on behalf of an insured are purchased free
of tax by virtue of section 21(e)(3), then the credit provided by this
section shall not be available with respect to that purchase.
`(5) INSURANCE CONTRACT- For purposes of paragraph (1), the term
`insurance contract' includes a life insurance contract, a health insurance
contract, a property and casualty loss insurance contract, a general
liability insurance contract, a marine insurance contract, a fire insurance
contract, an accident insurance contract, a disability insurance contract, a
long-term care insurance contract, and an insurance contract that provides a
combination of these types of insurance.
`(i) TRANSITIONAL INVENTORY CREDIT-
`(1) TRANSITION INVENTORY CREDIT- A credit shall be allowed equal to the
product of the rate of tax imposed by section 1 and the cost of qualified
inventory.
`(A) QUALIFIED INVENTORY- Inventory held by an active trade or
business on the close of business June 30, 2001, that is subsequently sold
subject to the tax imposed by section 1 shall be qualified
inventory.
`(B) COST- For purposes of this section, qualified inventory shall
have the cost that it had on the income tax return of the active trade or
business filed for the period ending June 30, 2001 (including any amounts
capitalized by virtue of section 263A as in effect on June 30,
2001).
`(3) TIMING OF CREDIT- The credit provided under paragraph (1) shall be
allowed on the sales tax return where the taxable sale of the qualified
inventory is reported. The person claiming such credit shall attach
supporting schedules in the form that the Secretary may prescribe.
`SEC. 12. INSTALLMENT PAYMENTS OF TAX ON PURCHASE OF PRINCIPAL
RESIDENCES.
`(1) property is purchased and used as the principal residence of any
purchaser of such property, and
`(2) such purchaser elects the application of this section, then the tax
imposed by section 1 with respect to such purchase shall be paid in equal
annual installments over the 30-year period beginning on the date of such
sale together with simple interest at the rate imposed by section
6621.
`(b) Termination of Installments if Property Is Sold or Otherwise Ceases
To Be Principal Residence-
`(1) IN GENERAL- If, before the close of the 30-year period referred to
in subsection (a), any property to which an election under subsection (a)
applies--
`(B) otherwise ceases to be used as the principal residence of any
purchaser making such election,
then the unpaid installments shall be due no later than two years after
the time of such sale or cessation. To the extent that such sale or
cessation is only of a portion of such residential property, the preceding
sentence shall apply only to a like portion (based on value) of such unpaid
installments.
`(2) SPECIAL RULE- In a case to which paragraph (1)(B) applies with
respect to any purchaser--
`(A) if such purchaser purchases within two years another property
which property is purchased and used as the principal residence of such
purchaser, the remaining unpaid installments shall be due at the time of
such purchase,
`(B) if subparagraph (A) does not apply to such purchaser, the
remaining unpaid installments shall be due at the close of the
two-year
period beginning on the date of the cessation referred to in paragraph (1);
and
`(C) the two-year period referred to in subparagraph (B) shall be
suspended during any period that such purchaser uses such property as his
principal residence.
`(3) If any purchaser exercises the right to installment payments under
this section, then the responsibility to remit the tax due is the
purchaser's rather than the seller's provided that the seller has on file a
copy of the election form prescribed by the Secretary.
`SEC. 13. FAMILY CONSUMPTION REFUND.
`(a) GENERAL RULE- Each qualified family unit (as defined in subsection
(b)) shall be eligible to receive a sales tax rebate in an amount no greater
than the product of--
`(1) the rate of tax imposed by section 1, and
`(A) the poverty level (as defined in subsection (c)), or
`(B) the wage income of the family unit,
in the manner prescribed and subject to the limitations set forth by this
section.
`(b) QUALIFIED FAMILY UNIT DEFINED- For purposes of this section, the term
qualified family unit shall mean any family sharing a common residence. Any
family
members (as defined in subsection (e)) sharing a common residence shall be
considered part of one integrated family unit.
`(c) POVERTY LEVEL DEFINED- The poverty level shall be the quotient that
is--
`(1) the level determined by the Department of Health and Human Services
poverty guidelines required by sections 652 and 673(2) of the Omnibus
Reconciliation Act of 1981 (all States and the District of Columbia) for
family units of a particular size, divided by
`(2) the quantity that is one minus the tax rate imposed by section
1.
`(1) GENERAL RULE- The rebate provided by section (a) shall be provided
to each qualified family unit by including the pay period rebate amount in
each paycheck.
`(2) PAY PERIOD REBATE AMOUNT- The pay period rebate amount shall be the
lesser of product of the rate of tax imposed by the section 1 and--
`(A) the wages paid during the pay period, or
`(B) the quotient that is the poverty level for the family unit
(determined in accordance with subsection (c)) divided by the number of
pay periods in a year.
`(3) ADJUSTED WITHHOLDING TABLES TO BE PROVIDED TO EMPLOYERS- The Social
Security Administration shall publish revised withholding tables for use by
employers.
`(4) COORDINATION- The family member receiving the family consumption
rebate shall set forth, in a form prescribed by the Social Security
Administration, the names and Social Security numbers of all members of the
family unit for which a rebate is claimed. Employers shall provide this
information in the form prescribed to the Social Security
Administration.
`(e) FAMILY MEMBERS DEFINED- For purposes of determining the size of the
family unit, family members shall include each spouse or the head of
household, children, grandchildren, parents and grandparents.
`(f) DISQUALIFIED FAMILY MEMBERS- In order for a family member to be
counted for purposes of determining family unit size, said family member
must--
`(1) if over the age of two years, have a bona fide Social Security
number; and
`(2) be a lawful resident of the United States.
`(g) STUDENTS LIVING AWAY FROM HOME- A student during each of five months
in a calendar year living away from the common residence of a family unit but
who receives over 50 percent of his support from the family unit shall be
included as part of that family unit for purposes of this section.
`(h) CHANGE IN FAMILY CIRCUMSTANCES- The residence of family members,
marital status and number of persons in a family unit on the first day of the
calendar year shall govern determinations required to be made under this
section for purposes of said calendar year.
`(i) TWO OR MORE FAMILY MEMBERS WORKING- The family unit may elect to
divide the rebate between two family members. Family members shall make this
election in a form prescribed by the Social Security Administration and shall
when making said election disclose the name and Social Security number of the
other family members. Creditable wages for families making this election shall
not exceed one half of the poverty level for that family unit.
`(j) EMPLOYERS TO ADJUST REMITTANCES- Employers shall reduce their payroll
tax remittances to the
Social Security Administration by the amount of Family Consumption Rebate
provided in employee paychecks.
`(k) NO DOUBLE COUNTING- In no event shall any person be considered part
of more than one family unit.
`(l) SOCIAL SECURITY ADMINISTRATION- The Social Security Administration
shall provide to multiple wage-earner family units who received a lower rebate
amount than that to which that were entitled under subsection (a) due to the
application of the limitations in subsection (d)(2) and subsection (i) any
payment due within 30 days of the close of the calendar year.
`Subchapter C--Definitions and Special Rules; Financial Intermediation
Services
`Sec. 21. Definitions.
`Sec. 22. Special rules.
`Sec. 23. Determination of financial intermediation services amount.
`Sec. 24. Bad debts.
`Sec. 25. Timing of tax on financial intermediation services.
`Sec. 26. Alternative method for calculating tax due.
`Sec. 27. Basic interest rate.
`Sec. 28. Applicable interest rate.
`SEC. 21. DEFINITIONS.
`(a) FINANCIAL INTERMEDIATION SERVICES- The term `financial intermediation
services' means financial intermediation services determined in accordance
with section 23.
`(b) GROSS PAYMENTS- For purposes of this subtitle, the term `gross
payments' shall mean gross payments inclusive of Federal tax imposed by, and
State taxes imposed in conformity with, this chapter but exclusive of customs
duties. Gross payment shall be the product of the pre-tax factor and the
payments for the taxable property or service exclusive of State and Federal
taxes imposed by, and State taxes imposed in conformity with, this subtitle.
For purposes of this section, the pre-tax factor shall be one divided by the
quantity that is one minus the sum of--
`(1) the Federal tax rate imposed by section 1, and
`(2) the State tax rate imposed in conformity with this subtitle.
`(c) Primary residence shall mean residential real property used
predominantly as the place of abode for a person or persons. A person shall
have only one primary residence for purposes of this section. A married couple
shall have only one primary residence.
`(d) PURCHASED FOR RESALE- For purposes of section 2(b)(1), a property or
service is purchased for resale if such property or service is purchased by a
person in an active trade or business for the purpose of reselling the taxable
property or service in the ordinary course of that active trade or
business.
`(e) PURCHASED TO PRODUCE TAXABLE PROPERTY OR SERVICES- For purposes of
section 2(b)(2)--
`(1) IN GENERAL- A property or service is purchased to produce a taxable
property or service
if such property or service is purchased by a person in an active trade or
business for the purpose of employing or using such property or service in the
production or sale of other taxable property or services in the ordinary course
of that active trade or business.
`(2) RESEARCH EXPERIMENTATION AND DEVELOPMENT- Taxable property or
services used in an active trade or business for the purpose of research,
experimentation and development shall be treated as purchased to produce
taxable property or services.
`(3) INSURANCE PAYMENTS- Taxable property or services purchased by an
insurance company on behalf of an insured shall be treated as a property or
service purchased to produce a taxable property or service if the entire
premium for the insurance contract giving rise to the insurer's obligation
was subject to tax in accordance with subsection (a) (relating to financial
intermediation services).
`(4) EDUCATION AND TRAINING- Education and training shall be treated as
purchased to produce taxable property or services. For purposes of this
section, education and training shall mean tuition for general primary,
secondary, or university level education, and tuition for job-related
training courses. Tuition shall not include amounts attributable to room or
board for the student.
`(f) Qualified fixtures shall include only those fixtures that are a
permanent, integral, incorporated and irremovable part of the structure and
shall exclude furniture, furnishings, appliances or similar tangible personal
property.
`(g) REAL PROPERTY- For purposes of this chapter, the term real property
shall have the meaning ascribed to it at common law. The Secretary shall by
regulation establish uniform national rules for purposes of administering this
chapter to the extent that jurisdictions within the United States may provide
different holdings as to the scope of the term real property.
`(h) RESIDENCE- Whenever this chapter requires that the State of
`residence' need be determined, it shall be determined in descending order of
priority as the State of permanent abode, the center of vital interests, or
the habitual abode. If the State of residence is still undetermined, if the
person is a resident of the United States, the determination will be made by
the Federal Office of Revenue Allocation.
`(i) Residential real property is real property, including structures,
land, and qualified fixtures and appurtenances thereto that--
`(1) is held in fee simple and
`(2) is predominantly used as a residence or dwelling.
`(j) SECRETARY- For purposes of this chapter, the term `Secretary' means
the United States Secretary of Treasury.
`(k) STATE ADMINISTRATOR- For purposes of this chapter, the term `State
Administrator' shall mean the highest State official responsible for
administering the taxes imposed by this subtitle in the conforming State. In
States that are not conforming States, the `State Administrator' shall mean
the person designated by the Secretary as the Federal official responsible for
administering the taxes imposed by this chapter in a non-conforming State.
State Administrator shall also mean, when the context so requires, the Federal
official responsible for administering the multi-State vendor program.
`(l) Structures, for purposes of subsection (i) shall include homes that
are manufactured housing but not self-propelled and not on wheels.
`(m) TANGIBLE PERSONAL PROPERTY- For purposes of this chapter, the term
tangible personal property shall have the meaning ascribed to it at common
law. The Secretary shall by regulation establish uniform national rules for
purposes of administering this chapter to the extent that jurisdictions within
the United States may provide different holdings as to the scope of the term
tangible personal property.
`(n) TAXABLE PROPERTY OR SERVICES-
`(1) GENERAL RULE- For purposes of this chapter, the term `taxable
property or service' means--
`(A) any property (including leaseholds of any term or rents with
respect to such property) other than intangible property, and
`(B) any service (including any financial intermediation
services).
`(2) WAGES- For purposes of the preceding sentence, services shall not
include wages paid by an employer engaged in an active trade or business
that is registered pursuant to section 43. Services shall include wages paid
by an employer (including government employers) not engaged in an active
trade or business unless those wages are paid by a qualified not-for-profit
organization (as defined in section 3(a)(2)(C).
`(3) INTANGIBLE PROPERTY-
`(A) IN GENERAL- For purposes of this subtitle, intangible property
shall include copyrights, trademarks, patents, goodwill, financial
instruments, and other property deemed intangible at common law.
`(B) CERTAIN TYPES OF PROPERTY- For purposes of this subtitle,
intangible property shall not include tangible personal property (or rents
or leaseholds of any term thereon), real property (or rents or leaseholds
of any term thereon), and computer software.
`(C) ANTI-AVOIDANCE RULE- Notwithstanding subparagraph (A), the sale
of a copyright or trademark shall be treated as the sale of taxable
services (within the meaning of section 1) if the substance of the
transaction selling said copyright or trademark constituted the sale of
the services that produced the copyrighted material or the
trademark.
`(o) UNITED STATES- For purposes of this chapter, the term `United
States', when used in the geographical sense, means the 50 States, the
District of Columbia, and any commonwealth, territory or possession of the
United States.
`SEC. 22. SPECIAL RULES.
`(a) FOREIGN FINANCIAL INTERMEDIATION SERVICES-
`(1) SPECIAL RULES RELATING TO INTERNATIONAL FINANCIAL INTERMEDIATION
SERVICES- Financial intermediation services shall be deemed as used or
consumed within the United States if the person (or any related party within
the meaning of section 2(e)) purchasing the services is a resident of the
United States.
`(2) Any person that provides financial intermediation services to
United States residents must, as a condition of lawfully providing such
services, designate, in a form prescribed by the Secretary, a United States
tax representative. This United States tax representative shall be
responsible for ensuring that the taxes imposed by this chapter are
collected and remitted and shall be jointly and severally liable for
collecting and remitting these taxes. The Secretary may require reasonable
bond of the United States tax representative.
`(1) DEFINED- For purposes of this section, a financing lease shall be
any lease under which the lessee shall have the right to acquire the
property
for 50 percent or less of its fair market value at the end of the lease term.
`(2) TAX- Financing leases shall be taxed in the method set forth in
this section.
`(3) DETERMINATION OF PRINCIPLE AND INTEREST COMPONENTS OF FINANCING
LEASE- The Secretary shall promulgate rules for disaggregating the principle
and interest components of a financing lease. The principle amount shall be
determined to the extent possible by examination of the contemporaneous
sales price or prices of the same or similar property as the leased
property.
`(4) ALTERNATIVE METHOD- In the event that contemporaneous sales prices
of the same or similar property as the lease property are not available, the
principle and interest components of a financing lease shall be
disaggregating using the applicable interest rate (as defined in section
28), plus 4 percent.
`(5) PRINCIPAL COMPONENT- The principal component of the financing lease
shall be subject to tax as if a purchase in the amount of the principal
component had been made on the day the lease was entered into.
`(6) INTEREST COMPONENT- The financial intermediation services amount
with respect to the interest component of the financing lease shall be
subject to tax.
`(7) COORDINATION- If the principal component and financial
intermediation services amount with respect to the interest component of a
lease have been taxed pursuant to this section, then the gross lease or
rental payments shall not be subject to additional tax.
`(c) Installment Sales, Accounting, Returns-
`(1) GENERAL RULE- Tax will be due when payment for the taxable property
and services sold, consumed, used or enjoyed is actually received.
`(2) ALTERNATIVE RULE- A vendor may elect to adopt the accrual method of
accounting for purposes of determining when the tax will be due. Said
election must apply to all sales made by vendor in a particular calendar
year.
`(3) INSTALLMENT SALES- Tax will be due on taxable property and services
sold under the installment method when payment for the taxable property and
services sold is actually received.
`(4) RETURNS- A credit shall be provided to the vendor for returned
taxable property and services when actual payment for the returned taxable
property and services is made by the vendor to the person returning the
taxable property and services.
`(d) MIXED USE PROPERTY OR SERVICES-
`(1) MIXED USE PROPERTY OR SERVICE DEFINED- Mixed Use Property or
Service is taxable property or services purchased both for a purpose that
would give rise to an exemption pursuant to section 2 and for taxable use,
consumption or enjoyment.
`(2) EXEMPTION THRESHOLD- Mixed Use Property or Service shall not be
exempt pursuant to section 2 unless said property is used more than 95
percent for purposes that would give rise to an exemption pursuant to
section 2.
`(3) MIXED USE PROPERTY OR SERVICES CREDIT- A business registered
pursuant to section 43 is entitled to a business use conversion credit
(pursuant to section 11(d)) equal to product of--
`(A) the mixed use property amount,
`(B) the business use ratio, and
`(C) the rate of tax imposed by section 1.
`(4) MIXED USE PROPERTY AMOUNT- The mixed use property amount for each
year shall be--
`(A) one-thirtieth of the purchase price for real property for thirty
years or until the property is sold,
`(B) one-seventh of the purchase price for tangible personal property
for seven years or until the property is sold,
`(C) one-fifth of the purchase price for vehicles for five years or
until the property is sold, and
`(D) a reasonable amount for other types of taxable property or
services or in accordance with regulations.
`(5) BUSINESS USE RATIO- The business use ratio is the ratio of business
use to total use for a particular year. For vehicles, the business use ratio
will be the ratio of business purpose miles to total miles. For real
property, the business use ratio is the ratio of floor space used for
business purposes to total floor space. For tangible personal property
(except for vehicles), the business use ratio is the ratio of total time
used for business purposes to total time used. For other property or
services, the business ratio shall be calculated using a reasonable
method. Reasonable records must be maintained to support a taxpayer's
business use of the mixed use property or service.
`(e) GAMING- There is hereby imposed a 15-percent tax on taxable gaming
services. Taxable gaming services shall be the gross gaming receipts less
total gaming payoffs. This tax shall be paid and remitted by the person
offering the gaming services.
`SEC. 23. DETERMINATION OF FINANCIAL INTERMEDIATION SERVICES AMOUNT.
`(a) FINANCIAL INTERMEDIATION SERVICES- For purposes of this subtitle--
`(1) IN GENERAL- The term `financial intermediation services' means the
sum of--
`(A) explicitly charged financial intermediation services,
and
`(B) implicitly charged financial intermediation services.
`(2) EXPLICITLY CHARGED FINANCIAL INTERMEDIATION SERVICES- The term
`explicitly charged financial intermediation services' includes--
`(B) explicitly stated banking, loan origination, processing,
documentation, credit check fees or other similar fees,
`(C) safe-deposit box fees,
`(D) insurance premiums, to the extent such premiums are not allocable
to the investment account of the underlying insurance policy,
`(F) other financial service fees (including, but not limited to,
mutual fund management, sales, and exit fees).
`(3) IMPLICITLY CHARGED FINANCIAL INTERMEDIATION SERVICES-
`(A) IN GENERAL- The term `implicitly charged financial intermediation
services' includes the gross imputed amount in relation to any underlying
interest bearing investment, account, or debt.
`(B) GROSS IMPUTED AMOUNT- For purposes of subparagraph (A), the term
`gross imputed amount' means--
`(i) with respect to any underlying interest bearing investment or
account, the product of--
`(I) the excess (if any) of the basic interest rate (as defined in
section 27) over the rate paid on such investment, and
`(II) such account balance, and
`(ii) with respect to any underlying interest bearing debt, the
product of--
`(I) the excess (if any) of the rate paid on such debt over the
basic interest rate (as defined in section 27), and
`(b) For purposes of section 1(c), the seller of financial intermediation
services shall be--
`(1) in the case of explicitly charged financial intermediation services
(as defined in subsection (a)(2)), the person who receives the gross
payments for the charged financial intermediation services,
`(2) in the case of implicit financial intermediation services (as
defined in subsection (a)(3)) with respect to any underlying interest
bearing investment or account, the person making the interest payments on
the interest bearing investment or account, and
`(3) in the case of implicit financial intermediation services (as
defined in subsection (a)(2)) with respect to any interest bearing debt, the
person receiving the interest payments on the interest bearing debt.
`SEC. 24. BAD DEBTS.
`(a) For purposes of section 11, a bad debt shall be a business loan or
debt that becomes wholly or partially worthless.
`(b) For purposes of subsection (a), a business loan or debt is a bona
fide loan or debt made for a business purpose that both parties intended be
repaid.
`(c) No loan or debt shall be considered wholly or partially worthless
unless it has been in arrears for 90 days or more, provided, however, that if
a debt is discharged wholly or partially in bankruptcy before 90 days has
elapsed, then it shall be deemed wholly or partially worthless on the date of
discharge.
`(d) A loan or debt that has been in arrears for 90 days or more may be
deemed wholly or partially worthless by the holder unless a payment schedule
has been entered into between the debtor and the lender.
`For tax on subsequent payments, see section 11(g)(3).
`SEC. 25. TIMING OF TAX ON FINANCIAL INTERMEDIATION SERVICES.
`The tax on financial intermediation services provided in connection to an
underlying investment account
or debt shall be calculated and collected with the same frequency that
statements are rendered by the financial institution in connection with the
investment account or debt but not less frequently than quarterly.
`SEC. 26. ALTERNATIVE METHOD FOR CALCULATING TAX DUE.
`(a) ALTERNATIVE METHOD PERMISSIBLE- A provider of financial
intermediation services need not calculate its liability on a
transaction-by-transaction or account-by-account basis provided that the
method used by the financial intermediation services provider--
`(2) will lead to a tax liability that is substantially similar to that
projected under ordinary sales tax principles. The provider of financial
intermediation services shall set forth his proposed method and the reasons
why it meets the criteria set forth in the preceding sentence in a petition
to the Secretary.
`(b) SECRETARY TO RULE- An alternative method proposed in a petition
pursuant to subsection (a) shall be accepted by the Secretary unless the
Secretary rules that the proposed alternative method--
`(2) will lead to a tax liability that is substantially different from
that projected under ordinary sales tax principles.
The Secretary shall set forth the reasons for his ruling in a finding. The
Secretary must make his ruling within 120 days of receiving the petition and
notify the petitioner of his decision. In the event the Secretary fails to
render a ruling within 120 days, then the proposed method shall be
permissible. He must provide the petitioner with a copy of the finding within
30 days of a ruling. He must publish the permissible method (including those
methods that become permissible by virtue of the Secretary's failure to
rule).
`(c) EFFECTIVE DATES OF ALTERNATIVE METHOD- An alternative method ruled
permissible or permissible by virtue of the Secretary's failure to rule shall
be effective indefinitely and may take effect as early as the month after the
alternative method becomes permissible. The Secretary may, however, after an
investigation, audit, or otherwise, subsequently rule on his own initiative
that the method is not permissible. Such subsequent ruling shall be
prospective in effect and not take effect until the latter of--
`(1) the first day of the calendar year following the ruling, or
`(2) 120 days after the ruling.
If judicial review is sought pursuant to subsection (d), said subsequent
ruling shall not take effect until a final judgment is rendered by the
court.
`(d) JUDICIAL REVIEW- A ruling by the Secretary with respect to a petition
for use of an alternative method pursuant to subsection (a) shall be subject
to judicial review in any court of competent jurisdiction, provided, however,
that the standard of review shall be whether the petitioner establishes by
clear and convincing evidence that the decision of the Secretary should be
reversed.
`(e) REGULATIONS- The Secretary may provide by regulation permissible
alternative methods for calculating tax due including methods based on annual
flows of revenue and expense.
`SEC. 27. BASIC INTEREST RATE.
`For purposes of this subchapter, the basic interest rate with respect to
a debt instrument, investment, financing lease, or account shall be the
applicable interest rate (as determined in section 28). For debt instruments,
investments, or accounts of contractually fixed interest, the applicable
interest rate of the month of issuance shall apply. For debt instruments,
investments, or accounts of variable interest rates and which have no
reference interest rate, the applicable interest rate shall be the Federal
short-term interest rate for each month. For debt instruments, investments or
accounts of variable interest rates and which have a reference interest rate,
the applicable interest rate shall be the applicable interest rate for the
reference interest rate for each month.
`SEC. 28. APPLICABLE INTEREST RATE.
`(1) In the case of a debt instrument, investment, financing lease, or
account with a term of not over 3 years, the applicable interest rate is the
Federal short-term rate.
`(2) In the case of a debt instrument, investment, financing lease, or
account with a term of over 3 years but not over 9 years, the applicable
interest rate is the Federal mid-term rate.
`(3) In the case of a debt instrument, investment, financing lease, or
account with a term of over 9 years, the applicable interest rate is the
Federal long-term rate.
`(b) FEDERAL SHORT-TERM RATE- The Federal short-term rate shall be the
rate determined by the Secretary based on the average market yield (during any
1 month) on outstanding marketable obligations of the United States with
remaining periods to maturity of 3 years or less.
`(c) FEDERAL MID-TERM RATE- The Federal mid-term rate determined by the
Secretary based on the average market yield (during any 1 month) on
outstanding marketable obligations of the United States with remaining periods
to maturity of more than 3 years and not over 9 years.
`(d) FEDERAL LONG-TERM RATE- The Federal long-term rate shall be the rate
determined by the Secretary based on the average market yield (during any 1
month) on outstanding marketable obligations of the United States with
remaining periods to maturity of over 9 years.
`(e) DETERMINATION OF RATES- During each calendar month, the Secretary
shall determine the Federal short-term rate, the Federal mid-term rate, and
the Federal long-term rate which shall apply during the following calendar
month.
`Subchapter D--Authority for States to Collect Tax
`Sec. 31. Authority for States to collect tax.
`Sec. 32. Federal administrative support for States.
`Sec. 33. Federal administration option for multi-State vendors.
`Sec. 34. General administrative matters.
`SEC. 31. AUTHORITY FOR STATES TO COLLECT TAX.
`(a) IN GENERAL- The tax imposed by this chapter on gross payments for the
use, consumption or enjoyment of taxable property or services within a State
which is an administering State shall be administered, collected, and remitted
to the United States Treasury by such State.
`(b) ADMINISTERING STATE- For purposes of this section, the term
`administering State' means any State--
`(1) which maintains a conforming sales tax, and
`(2) which enters into a cooperative agreement with the Secretary
containing reasonable provisions, limited in scope and detail, governing the
administration by such State of the taxes imposed by this chapter and the
remittance to the United States in a timely manner of taxes collected under
this chapter.
`(c) CONFORMING SALES TAX- For purposes of subsection (b), a State
maintains a conforming sales tax if such State imposes, administers, and
collects a sales tax--
`(1) which conforms to the tax imposed by this chapter in all
significant respects (other than the rate of tax), including--
`(A) the same taxable property and services,
`(B) the same exemptions, and
`(C) the same credits and refunds (other than section 11(a)(4)
(relating to the taxpayer
administrative credit) and section 13 (relating to the family consumption
refund)), and
`(2) which is imposed at a rate of no less than 1 percent.
`(d) COOPERATIVE AGREEMENTS- The agreement under subsection (b)(2) shall
be limited in scope and detail but include provisions for the expeditious
transfer of funds, contact officers, dispute resolution, information exchange,
confidentiality, taxpayer rights, and other matters of importance.
`(e) TIMELY REMITTANCE OF TAX-
`(1) IN GENERAL- Administering States shall remit and pay over taxes
collected under this chapter on behalf of the United States (less the
administration fee allowable under paragraph (2)) no later than 15 days
after receipt.
`(2) ADMINISTRATION FEE- Administering States may retain an
administration fee equal to one percent of the amounts otherwise required to
be remitted to the United States under this chapter by the State.
`(f) LIMITATION ON ADMINISTRATION OF TAX BY UNITED STATES- The Secretary
may administer the tax imposed by this chapter in an administering State only
if--
`(1)(A) such State has failed on a regular and sustained basis to timely
remit to the United States taxes collected under this chapter on behalf of
the United States, or
`(B) such State has on a regular and sustained basis otherwise
materially breached the agreement referred to in subsection (b)(2),
`(2) the State has failed to cure such failures and alleged breaches
within a reasonable time,
`(3) the Secretary provides such State with written notice of such
failures and alleged breaches, and
`(4) a district court of the United States within such State has
rendered a decision permitting such administration.
`(g) The Secretary shall administer the tax imposed by this chapter in any
State or other jurisdiction that is not an administering State.
`(h) It shall be permissible for a conforming State to contract with
another conforming State to administer its sales tax for an agreed fee. In
this case, the agreement contemplated by subsection (d) shall have both States
and the Federal Government as parties.
`(i) Coordination Among Conforming States-
`(1) EXEMPTION CERTIFICATES- Conforming States shall honor exemption
certificates issued by other conforming States.
`(2) AUDITS- Conforming States shall not conduct audits at facilities in
other Conforming States but shall instead cooperate with other Conforming
States using the mechanisms established by section 32 of this subchapter or
by other agreement or Compact.
`SEC. 32. FEDERAL ADMINISTRATIVE SUPPORT FOR STATES.
`(a) The Secretary shall administer a program to facilitate information
sharing among States.
`(b) The Secretary shall facilitate and may be a party to a Compact Among
Conforming States for purposes of facilitating the taxation of interstate
purchases and for other purposes that may facilitate implementation of this
chapter.
`(c) The Secretary shall have the authority to promulgate regulations and
guidelines to assist States in administering the national sales tax, to
provide for uniformity in the administration of the tax and to provide
guidance to taxpayers and administrators.
`SEC. 33. FEDERAL ADMINISTRATION OPTION FOR MULTISTATE VENDORS.
`(a) IN GENERAL- Vendors that maintain retail establishments in five or
more conforming States may elect, in a form prescribed by the Secretary, to
have their sales tax obligations administered by the Federal Government under
the multistate vendor program.
`(b) FEDERAL GOVERNMENT TO COLLECT AND REMIT STATE SALES TAXES- Under the
multistate vendor program, the Federal Government will collect Federal and
conforming State sales taxes and remit the State sales taxes to the States
within 10 days of receiving said revenue.
`(c) FEDERAL ADMINISTRATION- The Federal Government will serve in the
place of the State Administrator with respect to multi-State vendors
exercising the election under this section. With respect to electing
multi-State vendors, the Federal Government exclusively will--
`(2) provide certificates; and
`(3) otherwise administer the Federal and conforming State sales tax in
place of the administering State.
`SEC. 34. GENERAL ADMINISTRATIVE MATTERS.
`(a) IN GENERAL- The Secretary and each State Administrator may employ
accountants, auditors, investigators, assistants, and clerks for the
administration of this subtitle and may delegate to employees the authority to
conduct interviews, hearings, prescribe rules, promulgate regulations, and
perform such other duties as are required by this subtitle.
`(b) RESOLUTION OF ANY INCONSISTENT RULES AND REGULATIONS- In the event
that the Secretary and any State Administrator have issued inconsistent rules
or regulations, the rule or regulation issued by the Secretary shall govern
provided that the Secretary possessed the statutory authority to issue the
rule or regulation.
`(c) ADEQUATE NOTICE TO BE PROVIDED- Except in the case of an emergency
declared by the Secretary (and not his designee), no rule or regulation issued
by the Secretary with respect to any internal revenue law shall take effect
before 90 days have elapsed after its publication in the Federal Register.
Upon issuance, the Secretary shall provide copies of all rules or regulations
issued under this title to each sales tax administering authority.
`(d) NO RULES, RULINGS, OR REGULATIONS WITH RETROACTIVE EFFECT-
`(1) IN GENERAL- No rule, ruling, or regulation issued or promulgated by
the Secretary relating to any internal revenue law or by a State
Administrator that constitutes a change in law (including a
reversal of prior law and new law) shall be retroactive in effect.
`(2) Notwithstanding paragraph (1), a rule, ruling, or regulation that
provides guidance or clarifies existing law may lawfully apply to cases
prior to its issuance.
`(3) For purposes of this subsection, the term `law' includes State and
Federal statutes, regulations, rules, rulings, and court decisions.
`(4) A rule, ruling, or regulation issued in contravention to paragraph
(1) shall be void as to taxable events arising prior to the issuance of such
rule, ruling, or regulation.
`(5) REVIEW OF IMPACT OF RULES, RULINGS, AND REGULATIONS ON SMALL
BUSINESS-
`(A) SUBMISSION TO SMALL BUSINESS ADMINISTRATION- After publication of
any proposed or temporary regulation by the Secretary relating to internal
revenue laws, the Secretary shall submit such regulation to the Chief
Counsel for Advocacy of the Small Business Administration for comment on
the impact of such regulation on small businesses. Not later than the date
4 weeks after the date of such submission, the Chief Counsel for Advocacy
of the
Small Business Administration shall submit comments on such regulation to the
Secretary.
`(B) CONSIDERATION OF COMMENTS- In prescribing any final regulation
which supersedes a proposed or temporary regulation which had been
submitted under this subsection to the Chief Counsel for Advocacy of the
Small Business Administration, the Secretary shall--
`(i) consider the comments of the Chief Counsel for Advocacy of the
Small Business Administration on such proposed or temporary regulation,
and
`(ii) discuss any response to such comments in the preamble to the
regulation.
`(C) SUBMISSION OF CERTAIN FINAL REGULATIONS- In the case of
promulgation by the Secretary of any final regulations (other than a
temporary regulation) which do not supersede a proposed regulation, the
requirements of subparagraphs (A) and (B) shall apply, except that the
submission under subparagraph (A) shall be made at least 4 weeks before
the date of such promulgation, and the consideration and discussion
required under subparagraph (B) shall be made in connection with the
promulgation of such final regulation.
`Subchapter E--Other Administrative Provisions
`Sec. 41. Monthly reports and payments.
`Sec. 42. Records.
`Sec. 43. Registration.
`Sec. 44. Certificates.
`Sec. 45. Penalties.
`Sec. 46. Burden of persuasion and burden of production.
`Sec. 47. Attorneys and accountancy fees.
`Sec. 48. Appeals.
`Sec. 49. Taxpayer subject to subpoena on production.
`Sec. 50. Tax Court jurisdiction.
`Sec. 51. Power to levy.
`Sec. 52. Problem resolution officers.
`Sec. 53. Jurisdiction and interstate allocation.
`Sec. 54. Tax to be separately stated and charged.
`Sec. 55. Installment agreements; compromises.
`Sec. 56. Accounting.
`Sec. 57. Hobby activities.
`SEC. 41. MONTHLY REPORTS AND PAYMENTS.
`(a) REPORTS- On or before the 20th of each month, every person who is
liable to collect and remit the tax imposed by this chapter, or pay the tax
imposed by this chapter by reason of gross payments described in section (1)
(hereafter in this section referred to as the `taxpayer'), shall submit to the
appropriate tax authority (in a form satisfactory to the Secretary) a report
relating to the previous month that sets forth--
`(1) the gross payments referred to in section 1,
`(2) the tax collected under this chapter in connection with such
payments, and
`(3) the amount and type of any credit claimed.
`(b) PAYMENTS OF TAX- The tax imposed by this chapter with respect to any
use, consumption or enjoyment during any month shall be paid on or before the
20th of the succeeding month. One payment shall pay both Federal and
conforming State tax liability.
`(c) INTEREST ON AMOUNTS REMITTED LATE-
`(1) IN GENERAL- If any amount required to be paid on or before the 20th
of any month is paid after such 20th day, the taxpayer shall pay simple
interest from such 20th day at the rate of--
`(A) 1 percent per month (or any fraction thereof) for the first
month, and
`(B) 1.5 percent per month (or any fraction thereof)
thereafter.
`(2) AMOUNTS PAID AFTER COLLECTION ACTION-
`(A) IN GENERAL- The rate of interest under paragraph (1) shall be 2
percent per month (or any fraction thereof) with respect to amounts paid
only after the commencement of a collection action with respect to such
amounts.
`(B) COLLECTION ACTION- For purposes of subparagraph (A), the term
`collection action' includes administrative levies or garnishments and the
commencement of legal action in any court.
`(d) PENALTY FOR LATE FILING-
`(1) IN GENERAL- In the case of a failure by any person to file a report
required by subsection (a) on or before due date (determined with regard to
any extension) for such report, such person shall pay a penalty equal to the
greater of--
`(B) 0.5 percent of the gross payments referred to in section 1
required to be shown on the report.
`(2) INCREASED PENALTY ON RETURNS FILED AFTER WRITTEN INQUIRY- The
amount of the penalty under paragraph (1) shall be doubled with respect to
any report filed after a written inquiry with respect to such report is
received by the taxpayer from the State Administrator.
`(A) REASONABLE CAUSE- No penalty shall be imposed under paragraph (1)
with respect to any failure if it is shown that such failure is due to
reasonable cause.
`(B) OTHER WAIVER AUTHORITY- In addition to penalties not imposed by
reason of subparagraph (A), the State Administrator, on application, shall
waive the penalty imposed by paragraph (1) once per taxpayer per 2-year
period. The preceding sentence shall not apply to a penalty determined
under paragraph (2).
`(e) EXTENSIONS FOR FILING REPORTS-
`(1) AUTOMATIC EXTENSIONS FOR LESS THAN 30 DAYS- On application,
extensions of less than 30 days to file reports under subsection (a) shall
be automatically granted.
`(2) OTHER EXTENSIONS- Extensions of 30 to 90 days to file such reports
shall be liberally granted by the State Administrator for reasonable cause.
Extensions greater than 90 days may be granted by the State Administrator to
avoid hardship.
`(3) NO EXTENSION FOR PAYMENT OF TAXES- Notwithstanding paragraphs (1)
and (2), no extension shall be granted with respect to the time for paying
the taxes under this chapter.
`(f) PENALTY FOR WILLFULLY OR RECKLESSLY ACCEPTING A FALSE EXEMPTION
CERTIFICATE- A person who willingly or recklessly accepts a false exemption
certificate shall pay a penalty equal to 20 percent of the tax not collected
on gross payments for taxable property and services by virtue of said
acceptance.
`(g) The Secretary shall establish a system whereby violation of the
National Retail Sales Tax Act of 1999 can be brought to the attention of the
Secretary for investigation through the use of a toll-free telephone number
and otherwise.
`SEC. 42. RECORDS.
`Any person liable to collect and remit taxes pursuant to this chapter or
pay the tax imposed by this chapter by reason of gross payments described in
section 1, shall keep records (including, but not limited to, copies of all
section 54 receipts provided and complete records of exempt purchases
including exempt purchaser's exemption certificates and tax number and the net
of tax amount of purchase) sufficient to provide a reasonable basis for
determining the amounts reported, collected, and remitted for a period of 3
years after the filing of the report for which the records formed the basis.
Any purchaser who purchased taxable property or services but did not pay tax
by reason of asserting an exemption shall keep records sufficient to provide a
reasonable basis for determining whether the exemption was valid for a period
of 3 years after the purchase of taxable property or services.
`SEC. 43. REGISTRATION.
`(a) IN GENERAL- Any person liable to collect and remit taxes pursuant to
section 1 who is engaged in an active trade or business shall register with
the State or Federal taxing authorities administering the taxes imposed by
this chapter.
`(b) DESIGNATION OF TAX MATTERS PERSON- Every person registered pursuant
to subsection (a) shall designate a tax matters person. Each person registered
must provide notice of a change in the identity of the tax matters person
within 30 days of said change.
`SEC. 44. CERTIFICATE.
`The State Administrator shall issue certificates of registration and
qualification certificates to qualified not-for-profit organizations and may
issue such other certificates as may prove useful in the administration of the
taxes imposed by this chapter.
`SEC. 45. PENALTIES.
`(a) FAILURE TO REGISTER- Each person who is required to register pursuant
to section 43 but fails to do so prior to notification by the State
Administrator shall be liable for a penalty of $500.
`(b) Failure To Collect or Remit Tax-
`(1) CIVIL PENALTY- Each person who recklessly or willfully fails to
collect or remit taxes imposed by section 1 shall be liable for a penalty
equal to the greater of $500 or 20 percent of the tax not collected or
remitted.
`(2) CRIMINAL PENALTY- Each person who willfully fails as part of an
active trade or business to collect or remit taxes imposed by this chapter
may be imprisoned for a period of up to one year.
`(1) CIVIL PENALTY- Each person who willfully fails to pay taxes imposed
by section 1 shall be liable for a penalty equal to the greater of $500 or
20 percent of the tax not paid.
`(2) CRIMINAL PENALTY- Each person who willfully fails to pay taxes
imposed by this chapter may be imprisoned for a period of up to six
months.
`SEC. 46. BURDEN OF PERSUASION AND BURDEN OF PRODUCTION.
`In all disputes concerning taxes imposed by this chapter, the person
engaged in a dispute with the State Administrator shall have the burden of
production of documents and records but the State Administrator shall have the
burden of persuasion. In all disputes concerning the legitimacy of an
exemption claimed by a purchaser, if the seller has on file a copy of a bona
fide exemption certificate and did not have reasonable cause to believe that
an exemption from the tax was unavailable to the
purchaser with respect to such purchase, then the burden of production of
documents and records relating to that exemption shall rest with the purchaser
and not with the seller.
`SEC. 47. ATTORNEYS AND ACCOUNTANCY FEES.
`In all disputes concerning taxes imposed by this chapter, the person
engaged in a dispute with the State Administrator or the Secretary, as the
case may be, shall be entitled to reasonable attorneys and accountancy fees
incurred in direct relation to the dispute unless the State Administrator or
the Secretary, as the case may be, establishes that his position was
substantially justified.
`SEC. 48. APPEALS.
`The State Administrator and the Secretary shall establish an
administrative appeals process wherein the taxpayer is provided a full and
fair hearing in connection with any disputes he has with the State
Administrator or the Secretary.
`SEC. 49. TAXPAYER SUBJECT TO SUBPOENA ON PRODUCTION.
`Taxpayers are subject to subpoena for records and documents required by
the State Administrator or the Secretary, as the case may be, to accurately
determine liability for tax under this chapter.
`SEC. 50. TAX COURT JURISDICTION.
`The United States Tax Court shall have jurisdiction pursuant to section
7442 in connection with all disputes with taxpayers arising under this
chapter.
`SEC. 51. POWER TO LEVY.
`Pursuant to enforcement of a judgment duly rendered by a court of law,
the State Administrator or the Secretary, as the case may be, shall have the
right to levy and seize property and garnish wages to collect amounts due
under this chapter.
`SEC. 52. PROBLEM RESOLUTION OFFICERS.
`The State Administrator shall establish a Problem Resolution Office.
Problem Resolution Officers shall have the authority to investigate taxpayer
complaints and enjoin collection activity if, in the opinion of the Problem
Resolution Officer, said collection activity is reasonably likely to not be in
compliance with law. Said administrative injunction may only be reversed by
the highest official in the relevant State or Federal taxing authority or by
its General Counsel upon a finding that the collection activity is justified
by clear and convincing evidence. The authority to reverse this administrative
injunction may not be delegated. Problem Resolution Officers shall not be
disciplined or adversely affected for the issuance of administrative
injunctions unless a pattern or issuing injunctions that are manifestly
unreasonable is proven in an administrative hearing. Nothing in this section
shall limit the authority of the State Administrators or the taxpayer to
pursue any legal remedy in any court with jurisdiction over the dispute at
issue.
`SEC. 53. JURISDICTION AND INTERSTATE ALLOCATION.
`(a) ALLOCATION RULES- For purposes of allocating revenue between or among
administering states from taxes imposed by this subtitle, the revenue shall be
allocated to those states that are the destination of the taxable property or
services. The destination of the purchase of taxable property and services
shall be determined in accordance with this section.
`(b) FEDERAL OFFICE OF REVENUE ALLOCATION- The Secretary shall establish
an Office of Revenue Allocation to arbitrate any claims or disputes among
administering states as to the destination of taxable property and services
for purposes of allocating revenue between or among the states from taxes
imposed by this subtitle. The determination of the Administrator of the Office
of Revenue Allocation shall be subject to judicial review in any federal court
with competent jurisdiction provided, however, that the standard of review
shall be abuse of discretion.
`(c) TANGIBLE PERSONAL PROPERTY- The destination of tangible personal
property shall be the state or territory in which the property was first
delivered to the purchaser. Tangible personal property shipped by means of the
mail or common carrier shall be deemed delivered to the location of the
purchaser for purposes of this subsection upon shipment by mail or common
carrier.
`(d) REAL PROPERTY- The destination of real property or rents or
leaseholds on real property shall be state or territory in which the real
property is located.
`(e) OTHER PROPERTY- The destination of other property shall be residence
of the purchaser.
`(1) GENERAL RULE- The destination of services shall be state or
territory in which the use, consumption or enjoyment of the services
occurred. Allocation of service invoices relating to more than one
jurisdiction shall be on the basis of time.
`(2) TELECOMMUNICATIONS SERVICES- The destination of telecommunications
services shall be the residence of the purchaser. Telecommunications
services shall include telephone, telegraph, cable television, satellite and
computer on-line or network services.
`(3) DOMESTIC TRANSPORTATION SERVICES- For transportation services where
all of the final destinations are within the United States, the
destination of transportation services shall be the final destination of the
trip (in the case of round or multiple trip fares, the services amount shall be
equally allocated among the final destinations).
`(4) INTERNATIONAL TRANSPORTATION SERVICES- For transportation services
where the final destination or origin of the trip is without the United
States, the service amount shall be deemed 50 percent attributable to the
United States destination or origin.
`(g) FINANCIAL INTERMEDIATION SERVICES- The destination of financial
intermediation services shall be the residence of the purchase.
`(h) A State Tax Administrator shall have jurisdiction over any gross
payments made which have a destination (as determined in accordance with this
section) within the state of said State Tax Administrator. This grant of
jurisdiction is not exclusive of other jurisdiction that said State Tax
Administrator may have.
`(i) RENTS AND ROYALTIES PAID FOR THE LEASE OF TANGIBLE PROPERTY-
`(1) GENERAL RULE- The destination of rents and royalties paid for the
lease of tangible property shall be where the property is located.
`(2) VEHICLES- The destination of rent and lease payments on vehicles
shall be--
`(A) in the case of rentals and leases of a term one month or less,
the location where the vehicle was originally delivered to the lessee;
and
`(B) in the case of rentals and leases of a term greater than one
month, the residence of the lessee.
`SEC. 54. TAX TO BE STATED AND CHARGED SEPARATELY.
`(a) IN GENERAL- For each purchase of taxable property or services for
which a tax is imposed pursuant to section 1, the sales tax shall be charged
separately from the purchase price by the vendor or seller. For purchase of
taxable property or services for which a tax is imposed pursuant to section 1,
the vendor shall provide to the purchaser a receipt that sets forth at least
the following information:
`(1) The property or services price exclusive of tax.
`(2) The amount of tax paid.
`(3) The property or service price inclusive of tax.
`(4) The tax rate (the amount of tax paid (per subparagraph 2) divided
by the property or service price inclusive of tax (per subparagraph
3)).
`(5) The date that the good or service was sold.
`(6) The name of the vendor.
`(7) The vendor registration number.
`(b) VENDING MACHINE EXCEPTION- The requirements of subsection (a) shall
be inapplicable in the case of sales by vending machines. Vending machines for
purposes of this subsection shall mean machines--
`(1) that dispense taxable property in exchange for coins, one, five,
ten or twenty dollar bills, and
`(2) that sell no single item exceeding ten dollars per unit in
price.
`SEC. 55. INSTALLMENT AGREEMENTS; COMPROMISES.
`The State Administrator or the Secretary, as the case may be, is
authorized to enter into written agreements with any person under which the
person is allowed to satisfy liability for payment of any tax in installment
payments if he determines that such agreement will facilitate the collection
of such liability. The agreement shall remain in effect for the term of the
agreement unless the information that the person provided to the Secretary or
the State Administrator was materially inaccurate or incomplete. The Secretary
and the State Administrator may compromise any amounts alleged to be due.
`SEC. 56. ACCOUNTING.
`(a) CASH METHOD TO BE USED GENERALLY- Vendors and other persons shall
remit taxes and report transactions with respect to the month for which
payment was received or the tax imposed by this chapter otherwise becomes
due.
`(b) ELECTION TO USE ACCRUAL METHOD- A person may elect with respect to a
calendar year, in a form prescribed by the Secretary, to remit taxes and
report transactions with respect to the month where a sale was invoiced and
accrued.
`For rules relating to bad debts for vendors electing the accrual
method, see section 11(g).
`SEC. 57. HOBBY ACTIVITIES.
`(a) The exemption afforded by section 2(a)(1) shall not be available for
any taxable property or service used by a trade or business if that trade or
business is not engaged in for profit.
`(b) If the trade or business has received gross payments for the sale of
taxable property or services that exceed the sum of--
`(1) taxable property and services purchased,
in 2 or more of the most recent 4 calendar years during which it operated,
then the business activity shall be conclusively deemed to be engaged in for
profit.'.
SEC. 5. PHASE-OUT OF THE INTERNAL REVENUE SERVICE.
(a) Appropriations for any expenses of the Internal Revenue Service
including processing income tax returns for years prior to the repeal of the
income tax, revenue accounting, management, transfer of payroll tax data to
the Social Security Administration and otherwise for years after fiscal year
2003 are not authorized.
(b) Section 7801 is amended by adding the following new subsections:
`(d) EXCISE TAX BUREAU- There shall be in the Department of Treasury an
Excise Tax Bureau to administer those excise taxes not repealed by this
Act.
`(e) SALES TAX BUREAU- There shall be in the Department of Treasury a
Sales Tax Bureau to administer the national sales tax in those States where it
is required pursuant to section 31(g), and to discharge other Federal duties
and powers relating to the national sales tax (including those required by
sections 32, 33, and 53(b)). The Office of Revenue Allocation shall be within
the Sales Tax Bureau.'.
(c) Section 7801(b)(2) is amended to read as follows:
`(2) ASSISTANT GENERAL COUNSELS- The Secretary of the Treasury may
appoint, without regard to the provisions of the civil service laws, and fix
the duties of not more than 5 Assistant General Counsel.'.
(1) For purposes of the Federal income tax, the tax imposed by section 1
and section 11 for taxable years ending June 30, 2001, shall be modified as
set forth in this subsection.
(2) For calendar year taxpayers, the dollar figures in section 1 and
section 11 shall be reduced by dividing by 2 all dollar figures that would
be applicable but for this subsection.
(3) For fiscal year taxpayers, the dollar figures in section 1 and
section 11 shall be equal to the product of--
(A) the dollar amount that would be applicable but for this
subsection, and
(B) the ratio that has as its numerator the number of months in the
taxpayer's taxable year ending June 30, 2001, and as its denominator
12.
(4) The Secretary shall publish tax rate schedules in accordance with
this subsection.
SEC. 6. SOCIAL SECURITY ADMINISTRATION TO COLLECT PAYROLL TAXES.
(a) Commencing January 1, 2001, the Social Security Administration shall
collect and administer the taxes imposed pursuant to chapter 2 of subtitle A
(relating to self employment income taxes) and subtitle C (relating to
employment taxes) of the Internal Revenue Code of 1986.
For revised rules relating to the self-employment tax, see section 7 of
this Act.
For rules relating to revised withholding tax schedules and family
consumption refund, see section 13.
SEC. 7. SELF-EMPLOYMENT TAX.
(a) Subsection 1402(a) of the Internal Revenue Code of 1986 is amended to
read as follows:
`(a) IN GENERAL- `Self employment income' shall mean gross payments
received in a calendar year from the sale of taxable property or services
(without regard to exemption) less the sum in a calendar year of--
`(1) purchases of taxable property or services (without regard to
exemption) in furtherance of a business purpose,
`(2) any wages paid (whether to the self-employed person or others) in
furtherance of a business purpose,
`(3) unused transition amounts, and
`(4) undeducted negative self employment income amounts from prior
periods.
`(1) GENERAL RULE- The transition amount for the ten calendar years
commencing in 2001 shall be the unrecovered basis amount as of the end of
December 31, 2000 divided by ten.
`(2) UNRECOVERED BASIS AMOUNT- The unrecovered basis amount shall be
remaining income tax basis relating to--
`(A) prior law section 167 property placed in service prior to January
1, 2001, and
`(B) inventory held as of the end of 2000 (including any amounts
capitalized in accordance with prior law section 263A).'.
(b) CONFORMING AMENDMENTS- Subsections 1402(b) and 1402(c) are hereby
repealed. Subsections 1402(d) et seq. are hereby renumbered as subsections
1402(b) et seq.
SEC. 8. SOCIAL SECURITY BENEFITS INDEXED ON SALES TAX INCLUSIVE BASIS.
Subparagraph (D) of paragraph (1) of subsection (i) of section 215 of the
Social Security Act (42 U.S.C. 415) (relating to cost-of-living increases in
Social Security benefits) is amended to read as follows:
`(D)(i) the term `CPI increase percentage', with respect to a base
quarter or cost-of-living quarter in any calendar year, means the percentage
(rounded to the nearest one-tenth of 1 percent) by which the Consumer Price
Index for that quarter (as prepared by the Department of Labor) exceeds such
index for the most recent prior calendar quarter which was a base quarter
under subparagraph (A)(ii) or, if later, the most recent cost-of-living
computation quarter under subparagraph (B);
`(ii) if the Consumer Price Index (as prepared by the Department of
Labor) does not include the national sales tax paid, then the term `CPI
increase percentage' with respect to a base quarter or cost-of-living
quarter in any calendar year, means the percentage (rounded to the nearest
one-tenth of 1 percent) by which the product of--
`(I) the Consumer Price Index for that quarter (as prepared by the
Department of Labor); and
`(II) the national sales tax factor,
exceeds such index for the most recent prior calendar quarter which was
a base quarter under subparagraph (A)(ii) or, if later, the most recent
cost-of-living computation quarter under subparagraph (B); and
`(iii) for purposes of clause (ii), the `national sales tax factor' is
equal to one plus the quotient that is--
`(I) the sales tax rate (as defined in section 1 of title 26), divided
by
`(II) the quantity that is one minus the sales tax rate.'.
SEC. 9. COMPENSATING PAYMENTS TO CERTAIN PERSONS ON FIXED INCOME.
(a) COMPENSATING PAYMENT- Eligible persons (as defined in subsection (c))
shall receive a compensating payment (as defined in subsection (b)) provided
that they comply with subsection (g) (relating to applications).
(b) COMPENSATING PAYMENT DEFINED- The term `compensating payment' means
the product of the qualified fixed income payment amount (as defined in
subsection (e)) and the excess inflation rate (as defined in subsection
(f)).
(c) ELIGIBLE PERSON DEFINED- An eligible person is any person with respect
to any calendar year who is entitled to--
(1) Social Security benefits; and
(2) qualified fixed income payments (as defined in subsection
(d)).
(d) QUALIFIED FIXED INCOME PAYMENT DEFINED- A qualified fixed income
payment is a payment received by--
(1) a beneficiary under a defined benefit plan (within the meaning of
section 414(j) of the Internal Revenue Code as in effect prior to the
enactment of this Act) whether sponsored by a private or Government
employer; or
(2) by an annuitant pursuant to an annuity contract between the
annuitant and a bona fide insurance company.
A payment pursuant to a plan or annuity contract is not a qualified fixed
income payment if the payment varies with investment performance, interest
rates, or inflation. Payments pursuant to an annuity contract entered into
after June 30, 2001, shall not be qualified fixed income payments. Payments
pursuant to a defined benefit plan to a beneficiary that had been a
participant in said defined benefit plan (within the meaning of section 410 of
the Internal Revenue Code as in effect prior to the enactment of this Act) for
less than 5 years shall not be qualified fixed income payments.
(e) QUALIFIED FIXED INCOME PAYMENT AMOUNT- The qualified fixed income
payment amount is 1/12 of qualified fixed income payments that an eligible
person is entitled to receive during the calendar year subsequent to the year
for which the compensating payment is calculated, provided, however, that the
qualified fixed income payment amount shall not exceed $5,000.
(f) EXCESS INFLATION RATE DEFINED- The term `excess inflation rate' shall
mean the excess, if any, of the consumer price index (all urban) during the
18-month period ending December 31, 2002, over the increase projected for the
consumer price index (all urban) in the Office of Management and Budget
baseline reported in the Budget of the United States for Fiscal Year 2001 for
said 18-month period. The baseline assumption for the 6 months in 2001 shall
be 1/2 of the assumed increase for the entire calendar year 2001.
(g) APPLICATION REQUIRED- In order to receive compensating payments, each
eligible person must apply in a form prescribed by the Secretary of Health and
Human Services and provide such documentation as the Secretary may reasonably
require.
(h) MEANS OF PAYMENT- Each person entitled to a compensating payment shall
receive the compensating payment with their Social Security benefit payment.
The compensating payment shall be separately indicated but may be included in
one check. The funds to make compensating payments shall come from the general
fund.
(i) The Secretary of Health and Human Services may require insurers that
are parties to annuity contracts and defined benefit plan sponsors to issue a
statement to annuitants or plan participants including such information as the
Secretary may require to determine the qualified fixed income payment
amount.
SEC. 10. INTEREST.
Section 6621 of the Internal Revenue Code of 1986 is amended by striking
the last sentence in section 6621(a)(1) and by striking `3' in section
6621(a)(2)(B) and substituting in its stead `2'.
SEC. 11. SUPERMAJORITY REQUIRED TO RAISE RATE.
(a) IN GENERAL- It shall not be in order in the House of Representatives
or the Senate to consider any bill, joint resolution, amendment thereto, or
conference report thereon that includes any provision that--
(1) increases any federal sales tax rate, and
(2) provides any exemption, deduction, credit or other benefit which
results in a reduction in federal revenues.
(b) WAIVER OR SUSPENSION- This section may be waived or suspended in the
House of Representatives or the Senate only by the affirmative vote of
two-thirds of the Members, duly chosen and sworn.
END