I 

108TH CONGRESS 

1ST SESSION H. R. 25

To promote freedom, fairness, and economic opportunity by repealing the 

income tax and other taxes, abolishing the Internal Revenue Service, 

and enacting a national sales tax to be administered primarily by the 

States. 

IN THE HOUSE OF REPRESENTATIVES 

JANUARY 7, 2003

Mr. LINDER (for himself and Mr. PETERSON of Minnesota) introduced the 

following bill; which was referred to the Committee on Ways and Means 

A BILL

To promote freedom, fairness, and economic opportunity by 

repealing the income tax and other taxes, abolishing the 

Internal Revenue Service, and enacting a national sales 

tax to be administered primarily by the States.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Fair Tax Act of 2003’’. 

6 (b) TABLE OF CONTENTS.—The table of contents for 

7 this Act is as follows:

Sec. 1. Short title; table of contents. 
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Sec. 2. Congressional findings. 

TITLE I—REPEAL OF THE INCOME TAX, PAYROLL TAXES, AND 

ESTATE AND GIFT TAXES 

Sec. 101. Income taxes repealed. 

Sec. 102. Payroll taxes repealed. 

Sec. 103. Estate and gift taxes repealed. 

Sec. 104. Conforming amendments; effective date. 

TITLE II—SALES TAX ENACTED 

Sec. 201. Sales tax. 

Sec. 202. Conforming and technical amendments. 

TITLE III—OTHER MATTERS 

Sec. 301. Phase-out of administration of repealed Federal taxes. 

Sec. 302. Administration of other Federal taxes. 

Sec. 303. Sales tax inclusive Social Security benefits indexation.

1 SEC. 2. CONGRESSIONAL FINDINGS. 

2 (a) FINDINGS RELATING TO FEDERAL INCOME

3 TAX.—Congress finds the Federal income tax—

4 (1) retards economic growth and has reduced 

5 the standard of living of the American public; 

6 (2) impedes the international competitiveness of 

7 United States industry; 

8 (3) reduces savings and investment in the 

9 United States by taxing income multiple times; 

10 (4) slows the capital formation necessary for 

11 real wages to steadily increase; 

12 (5) lowers productivity; 

13 (6) imposes unacceptable and unnecessary ad14 ministrative and compliance costs on individual and 

15 business taxpayers; 

16 (7) is unfair and inequitable; 
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1 (8) unnecessarily intrudes upon the privacy and 

2 civil rights of United States citizens; 

3 (9) hides the true cost of government by embed4 ding taxes in the costs of everything Americans buy; 

5 (10) is not being complied with at satisfactory 

6 levels and therefore raises the tax burden on law 

7 abiding citizens; and 

8 (11) impedes upward social mobility. 

9 (b) FINDINGS RELATING TO FEDERAL PAYROLL

10 TAXES.—Congress finds further that the Social Security 

11 and Medicare payroll taxes and self-employment taxes—

12 (1) raise the cost of employment; 

13 (2) destroy jobs and cause unemployment; and 

14 (3) have a disproportionately adverse impact on 

15 lower income Americans. 

16 (c) FINDINGS RELATING TO FEDERAL ESTATE AND

17 GIFT TAXES.—Congress finds further that the Federal es18 tate and gift taxes—

19 (1) force family businesses and farms to be sold 

20 by the family to pay such taxes; 

21 (2) discourage capital formation and entrepre22 neurship; 

23 (3) foster the continued dominance of large en24 terprises over small family-owned companies and 

25 farms; and 
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1 (4) impose unacceptably high tax planning costs 

2 on small businesses and farms. 

3 (d) FINDINGS RELATING TO NATIONAL SALES

4 TAX.—Congress finds further that a broad-based national 

5 sales tax on goods and services purchased for final con6 sumption—

7 (1) is similar in many respects to the sales and 

8 use taxes in place in 45 of the 50 States;

9 (2) will promote savings and investment; 

10 (3) will promote fairness; 

11 (4) will promote economic growth; 

12 (5) will raise the standard of living; 

13 (6) will increase investment; 

14 (7) will enhance productivity and international 

15 competitiveness; 

16 (8) will reduce administrative burdens on the 

17 American taxpayer; 

18 (9) will improve upward social mobility; and 

19 (10) will respect the privacy interests and civil 

20 rights of taxpayers. 

21 (e) FINDINGS RELATING TO ADMINISTRATION OF

22 NATIONAL SALES TAX.—Congress further finds that—

23 (1) most of the practical experience admin24 istering sales taxes is found at the State govern25 mental level; 
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1 (2) it is desirable to harmonize Federal and 

2 State collection and enforcement efforts to the max3 imum extent possible; 

4 (3) it is sound tax administration policy to fos5 ter administration and collection of the Federal sales 

6 tax at the State level in return for a reasonable ad7 ministration fee to the States; and 

8 (4) businesses that must collect and remit taxes 

9 should receive reasonable compensation for the cost 

10 of doing so. 

11 (f) FINDINGS RELATING TO REPEAL OF PRESENT

12 FEDERAL TAX SYSTEM.—Congress further finds that the 

13 16th amendment to the United States Constitution should 

14 be repealed. 

15 TITLE I—REPEAL OF THE IN16 COME TAX, PAYROLL TAXES, 

17 AND ESTATE AND GIFT TAXES 

18 SEC. 101. INCOME TAXES REPEALED. 

19 Subtitle A of title 26 of the Internal Revenue Code 

20 of 1986 (relating to income taxes and self-employment 

21 taxes) is repealed. 

22 SEC. 102. PAYROLL TAXES REPEALED. 

23 (a) IN GENERAL.—Subtitle C of title 26 of the Inter24 nal Revenue Code of 1986 (relating to payroll taxes and 

25 withholding of income taxes) is repealed. 
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1 (b) FUNDING OF SOCIAL SECURITY.—For funding of 

2 the Social Security Trust Funds from general revenue, see 

3 section 201 of the Social Security Act (42 U.S.C. 401). 

4 SEC. 103. ESTATE AND GIFT TAXES REPEALED. 

5 Subtitle B of title 26 of the Internal Revenue Code 

6 of 1986 (relating to estate and gift taxes) is repealed. 

7 SEC. 104. CONFORMING AMENDMENTS; EFFECTIVE DATE. 

8 (a) CONFORMING AMENDMENTS.—The Internal Rev9 enue Code of 1986 is amended—

10 (1) by striking subtitle H (relating to financing 

11 of Presidential election campaigns), and 

12 (2) by redesignating—

13 (A) subtitle D (relating to miscellaneous 

14 excise taxes) as subtitle B, 

15 (B) subtitle E (relating to alcohol, tobacco, 

16 and certain other excise taxes) as subtitle C, 

17 (C) subtitle F (relating to procedure and 

18 administration) as subtitle D, 

19 (D) subtitle G (relating to the Joint Com20 mittee on Taxation) as subtitle E, 

21 (E) subtitle I (relating to the Trust Fund 

22 Code) as subtitle F, 

23 (F) subtitle J (relating to coal industry 

24 health benefits) as subtitle G, and 
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1 (G) subtitle K (relating to group health 

2 plan portability, access, and renewability re3 quirements) as subtitle H. 

4 (b) REDESIGNATION OF 1986 CODE.—

5 (1) IN GENERAL.—The Internal Revenue Code 

6 of 1986 enacted on October 22, 1986, as heretofore, 

7 hereby, or hereafter amended, may be cited as the 

8 ‘‘Internal Revenue Code of 2003’’. 

9 (2) REFERENCES IN LAWS, ETC.—Except when 

10 inappropriate, any reference in any law, Executive 

11 order, or other document—

12 (A) to the Internal Revenue Code of 1986 

13 shall include a reference to the Internal Rev14 enue Code of 2003, and 

15 (B) to the Internal Revenue Code of 2003 

16 shall include a reference to the provisions of law 

17 formerly known as the Internal Revenue Code 

18 of 1986. 

19 (c) ADDITIONAL AMENDMENTS.—For additional con20 forming amendments, see section 202 of this Act. 

21 (d) EFFECTIVE DATE.—Except as otherwise pro22 vided in this Act, the amendments made by this Act shall 

23 take effect on January 1, 2005. 
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1 TITLE II—SALES TAX ENACTED 

2 SEC. 201. SALES TAX. 

3 (a) IN GENERAL.—The Internal Revenue Code of 

4 2003 is amended by inserting before subtitle B (as redes5 ignated by section 104(a)(2)(A)) the following new sub6 title: 

7 ‘‘Subtitle A—Sales Tax

‘‘Sec. 1. Principles of interpretation. 

‘‘Sec. 2. Definitions. 

‘‘CHAPTER 1. Interpretation; definitions; imposition of tax; etc. 

‘‘CHAPTER 2. Credits; refunds. 

‘‘CHAPTER 3. Family consumption allowance. 

‘‘CHAPTER 4. State and Federal cooperative tax administration. 

‘‘CHAPTER 5. Other administrative provisions. 

‘‘CHAPTER 6. Collection; appeals; taxpayer rights. 

‘‘CHAPTER 7. Special rules. 

‘‘CHAPTER 8. Financial intermediation services. 

‘‘CHAPTER 9. Additional matters.

8 ‘‘SECTION 1. PRINCIPLES OF INTERPRETATION. 

9 ‘‘(a) IN GENERAL.—Any court, the Secretary, and 

10 any sales tax administering authority shall consider the 

11 purposes of this subtitle (as set forth in subsection (b)) 

12 as the primary aid in statutory construction. 

13 ‘‘(b) PURPOSES.—The purposes of this subtitle are 

14 as follows: 

15 ‘‘(1) To raise revenue needed by the Federal 

16 Government in a manner consistent with the other 

17 purposes of this subtitle. 

18 ‘‘(2) To tax all consumption of goods and serv19 ices in the United States once, without exception, 

20 but only once. 
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1 ‘‘(3) To prevent double, multiple, or cascading 

2 taxation. 

3 ‘‘(4) To simplify the tax law and reduce the ad4 ministration costs of, and the costs of compliance 

5 with, the tax law. 

6 ‘‘(5) To provide for the administration of the 

7 tax law in a manner that respects privacy, due proc8 ess, individual rights when interacting with the gov9 ernment, the presumption of innocence in criminal 

10 proceedings, and the presumption of lawful behavior 

11 in civil proceedings. 

12 ‘‘(6) To increase the role of State governments 

13 in Federal tax administration because of State gov14 ernment expertise in sales tax administration. 

15 ‘‘(7) To enhance generally cooperation and co16 ordination among State tax administrators; and to 

17 enhance cooperation and coordination among Fed18 eral and State tax administrators, consistent with 

19 the principle of intergovernmental tax immunity.

20 ‘‘(c) SECONDARY AIDS TO STATUTORY CONSTRUC21 TION.—As a secondary aid in statutory construction, any 

22 court, the Secretary, and any sales tax administering au23 thority shall consider—

24 ‘‘(1) the common law canons of statutory con25 struction; 
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1 ‘‘(2) the meaning and construction of concepts 

2 and terms used in the Internal Revenue Code of 

3 1986 as in effect before the effective date of this 

4 subtitle; and 

5 ‘‘(3) construe any ambiguities in this Act in 

6 favor of reserving powers to the States respectively, 

7 or to the people. 

8 ‘‘SEC. 2. DEFINITIONS AND SPECIAL RULES. 

9 ‘‘(a) IN GENERAL.—For purposes of this subtitle—

10 ‘‘(1) AFFILIATED FIRMS.—A firm is affiliated 

11 with another if 1 firm owns 50 percent or more of—

12 ‘‘(A) the voting shares in a corporation, or 

13 ‘‘(B) the capital interests of a business 

14 firm that is not a corporation. 

15 ‘‘(2) CONFORMING STATE SALES TAX.—The 

16 term ‘conforming State sales tax’ means a sales tax 

17 imposed by a State that adopts the same definition 

18 of taxable property and services as adopted by this 

19 subtitle. 

20 ‘‘(3) DESIGNATED COMMERCIAL PRIVATE COU21 RIER SERVICE.—The term ‘designated commercial 

22 private courier service’ means a firm designated as 

23 such by the Secretary or any sales tax administering 

24 authority, upon application of the firm, if the firm—
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1 ‘‘(A) provides its services to the general 

2 public, 

3 ‘‘(B) records electronically to its data base 

4 kept in the regular course of its business the 

5 date on which an item was given to such firm 

6 for delivery, and 

7 ‘‘(C) has been operating for at least 1 

8 year. 

9 ‘‘(4) EDUCATION AND TRAINING.—The term 

10 ‘education and training’ means tuition for primary, 

11 secondary, or postsecondary level education, and job12 related training courses. Such term does not include 

13 room, board, sports activities, recreational activities, 

14 hobbies, games, arts or crafts or cultural activities. 

15 ‘‘(5) GROSS PAYMENTS.—The term ‘gross pay16 ments’ means payments for taxable property or serv17 ices, including Federal taxes imposed by this title. 

18 ‘‘(6) INTANGIBLE PROPERTY.—

19 ‘‘(A) IN GENERAL.—The term ‘intangible 

20 property’ includes copyrights, trademarks, pat21 ents, goodwill, financial instruments, securities, 

22 commercial paper, debts, notes and bonds, and 

23 other property deemed intangible at common 

24 law. The Secretary shall, by regulation resolve 
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1 differences among the provisions of common 

2 law of the several States. 

3 ‘‘(B) CERTAIN TYPES OF PROPERTY.—

4 Such term does not include tangible personal 

5 property (or rents or leaseholds of any term 

6 thereon), real property (or rents or leaseholds 

7 of any term thereon) and computer software. 

8 ‘‘(7) PERSON.—The term ‘person’ means any 

9 natural person, and unless the context clearly does 

10 not allow it, any corporation, partnership, limited li11 ability company, trust, estate, government, agency, 

12 administration, organization, association, or other 

13 legal entity (foreign or domestic.) 

14 ‘‘(8) PRODUCE, PROVIDE, RENDER, OR SELL

15 TAXABLE PROPERTY OR SERVICES.—

16 ‘‘(A) IN GENERAL.—A taxable property or 

17 service is used to produce, provide, render, or 

18 sell a taxable property or service if such prop19 erty or service is purchased by a person en20 gaged in a trade or business for the purpose of 

21 employing or using such taxable property or 

22 service in the production, provision, rendering, 

23 or sale of other taxable property or services in 

24 the ordinary course of that trade or business. 
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1 ‘‘(B) RESEARCH, EXPERIMENTATION, 

2 TESTING, AND DEVELOPMENT.—Taxable prop3 erty or services used in a trade or business for 

4 the purpose of research, experimentation, test5 ing, and development shall be treated as used to 

6 produce, provide, render, or sell taxable prop7 erty or services. 

8 ‘‘(C) INSURANCE PAYMENTS.—Taxable 

9 property or services purchased by an insurer on 

10 behalf of an insured shall be treated as used to 

11 produce, provide, render, or sell taxable prop12 erty or services if the premium for the insur13 ance contract giving rise to the insurer’s obliga14 tion was subject to tax pursuant to section 801 

15 (relating to financial intermediation services). 

16 ‘‘(D) EDUCATION AND TRAINING.—Edu17 cation and training shall be treated as services 

18 used to produce, provide, render, or sell taxable 

19 property or services. 

20 ‘‘(9) REGISTERED SELLER.—The term ‘reg21 istered seller’ means a person registered pursuant to 

22 section 502. 

23 ‘‘(10) SALES TAX ADMINISTERING AUTHOR24 ITY.—The term ‘sales tax administering authority’ 

25 means—
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1 ‘‘(A) the State agency designated to collect 

2 and administer the sales tax imposed by this 

3 subtitle, in an administering State, or 

4 ‘‘(B) the Secretary, in a State that is nei5 ther—

6 ‘‘(i) an administering State, nor 

7 ‘‘(ii) a State that has elected to have 

8 its sales tax administered by an admin9 istering State. 

10 ‘‘(11) SECRETARY.—The term ‘Secretary’ 

11 means the Secretary of the Treasury. 

12 ‘‘(12) TAXABLE EMPLOYER.—

13 ‘‘(A) IN GENERAL.—The term ‘taxable em14 ployer’ includes—

15 ‘‘(i) any household employing domes16 tic servants, and

17 ‘‘(ii) any government except for gov18 ernment enterprises (as defined in section 

19 704). 

20 ‘‘(B) EXCEPTIONS.—The term ‘taxable 

21 employer’ does not include any employer which 

22 is—

23 ‘‘(i) engaged in a trade or business, 

24 ‘‘(ii) a not-for-profit organization (as 

25 defined in section 706), or 
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1 ‘‘(iii) a government enterprise (as de2 fined in section 704). 

3 ‘‘(C) CROSS REFERENCE.—

‘‘For rules relating to collection and remittance of 

tax on wages by taxable employers, see section 

103(b)(2).

4 ‘‘(13) TAX INCLUSIVE FAIR MARKET VALUE.—

5 The term ‘tax inclusive fair market value’ means the 

6 fair market value of taxable property or services plus 

7 the tax imposed by this subtitle. 

8 ‘‘(14) TAXABLE PROPERTY OR SERVICE.—

9 ‘‘(A) GENERAL RULE.—The term ‘taxable 

10 property or service’ means—

11 ‘‘(i) any property (including leaseholds 

12 of any term or rents with respect to such 

13 property) but excluding—

14 ‘‘(I) intangible property, and 

15 ‘‘(II) used property, and 

16 ‘‘(ii) any service (including any finan17 cial intermediation services as determined 

18 by section 801). 

19 ‘‘(B) SERVICE.—For purposes of subpara20 graph (A), the term ‘service’—

21 ‘‘(i) shall include any service per22 formed by an employee for which the em23 ployee is paid wages or a salary by a tax24 able employer, and 
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1 ‘‘(ii) shall not include any service per2 formed by an employee for which the em3 ployee is paid wages or a salary—

4 ‘‘(I) by an employer in the reg5 ular course of the employer’s trade or 

6 business, 

7 ‘‘(II) by an employer that is a 

8 not-for-profit organization (as defined 

9 in section 706), 

10 ‘‘(III) by an employer that is a 

11 government enterprise (as defined in 

12 section 704), and 

13 ‘‘(IV) by taxable employers to 

14 employees directly providing education 

15 and training. 

16 ‘‘(15) UNITED STATES.—The term ‘United 

17 States’, when used in the geographical sense, means 

18 each of the 50 states, the District of Columbia, and 

19 any commonwealth, territory, or possession of the 

20 United States. 

21 ‘‘(16) USED PROPERTY.—The term ‘used prop22 erty’ means—

23 ‘‘(A) property on which the tax imposed by 

24 section 101 has been collected and for which no 

25 credit has been allowed under section 203, and 
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1 ‘‘(B) property that was held other than for 

2 a business purpose (as defined in section 

3 102(b)) on December 31, 2004. 

4 ‘‘(17) WAGES AND SALARY.—The terms ‘wage’ 

5 and ‘salary’ mean all compensation paid for employ6 ment service including cash compensation, employee 

7 benefits, disability insurance, or wage replacement 

8 insurance payments, unemployment compensation 

9 insurance, workers’ compensation insurance, and the 

10 fair market value of any other consideration paid by 

11 an employer to an employee in consideration for em12 ployment services rendered. 

13 ‘‘(b) CROSS REFERENCES.—

‘‘(1) For the definition of business purposes, see 

section 102(b). 

‘‘(2) For the definition of insurance contract, see 

section 206(e). 

‘‘(3) For the definition of qualified family, see section 302. 

‘‘(4) For the definition of monthly poverty level, 

see section 303. 

‘‘(5) For the definition of large seller, see section 

501(e)(3). 

‘‘(6) For the definition of hobby activities, see section 701. 

‘‘(7) For the definition of gaming sponsor, see section 701(a). 

‘‘(8) For the definition of a chance, see section 

701(b). 

‘‘(9) For the definition of government enterprise, 

see section 704(b). 

‘‘(10) For the definition of mixed use property, see 

section 705. 

‘‘(11) For the definition of qualified not-for-profit 

organization, see section 706. 

‘‘(12) For the definition of financial intermediation 

services, see section 801.
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1 ‘‘CHAPTER 1—INTERPRETATION; 

2 DEFINITIONS; IMPOSITION OF TAX; ETC.

‘‘Sec. 101. Imposition of sales tax. 

‘‘Sec. 102. Intermediate and export sales. 

‘‘Sec. 103. Rules relating to collection and remittance of tax.

3 ‘‘SEC. 101. IMPOSITION OF SALES TAX. 

4 ‘‘(a) IN GENERAL.—There is hereby imposed a tax 

5 on the use or consumption in the United States of taxable 

6 property or services. 

7 ‘‘(b) RATE.—

8 ‘‘(1) FOR 2005.—In the calendar year 2005, the 

9 rate of tax is 23 percent of the gross payments for 

10 the taxable property or service. 

11 ‘‘(2) FOR YEARS AFTER 2005.—For years after 

12 the calendar year 2005, the rate of tax is the com13 bined Federal tax rate percentage (as defined in 

14 paragraph (3) of the gross payments for the taxable 

15 property or service. 

16 ‘‘(3) COMBINED FEDERAL TAX RATE PERCENT17 AGE.—The combined Federal tax rate percentage is 

18 the sum of—

19 ‘‘(A) the general revenue rate (as defined 

20 in paragraph (4), and 

21 ‘‘(B) the old-age, survivors and disability 

22 insurance rate, and

23 ‘‘(C) the hospital insurance rate. 
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1 ‘‘(4) GENERAL REVENUE RATE.—The general 

2 revenue rate shall be 14.91 percent. 

3 ‘‘(c) COORDINATION WITH IMPORT DUTIES.—The 

4 tax imposed by this section is in addition to any import 

5 duties imposed by chapter 4 of title 19. The Secretary 

6 shall provide by regulation that, to the maximum extent 

7 practicable, the tax imposed by this section on imported 

8 taxable property and services is collected and administered 

9 in conjunction with any applicable import duties imposed 

10 by the United States. 

11 ‘‘(d) LIABILITY FOR TAX.—

12 ‘‘(1) IN GENERAL.—The person using or con13 suming taxable property or services in the United 

14 States is liable for the tax imposed by this section, 

15 except as provided in paragraph (2) of this sub16 section. 

17 ‘‘(2) EXCEPTION WHERE TAX PAID TO SELL18 ER.—A person using or consuming a taxable prop19 erty or service in the United States is not liable for 

20 the tax imposed by this section if the person pays 

21 the tax to a person selling the taxable property or 

22 service and receives from such person a purchaser’s 

23 receipt within the meaning of section 510. 

24 ‘‘SEC. 102. INTERMEDIATE AND EXPORT SALES. 

25 ‘‘(a) IN GENERAL.—For purposes of this subtitle—
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1 ‘‘(1) BUSINESS AND EXPORT PURPOSES.—No 

2 tax shall be imposed under section 101 on any tax3 able property or service purchased for—

4 ‘‘(A) a business purpose in a trade or busi5 ness, or 

6 ‘‘(B) export from the United States for use 

7 or consumption outside the United States, if, 

8 the purchaser provided the seller with a reg9 istration certificate, and the seller was a whole10 sale seller. 

11 ‘‘(2) INVESTMENT PURPOSE.—No tax shall be 

12 imposed under section 101 on any taxable property 

13 or service purchased for an investment purpose and 

14 held exclusively for an investment purpose. 

15 ‘‘(3) STATE GOVERNMENT FUNCTIONS.—No tax 

16 shall be imposed under section 101 on State govern17 ment functions that do not constitute the final con18 sumption of property or services. 

19 ‘‘(b) BUSINESS PURPOSES.—For purposes of this 

20 section, the term ‘purchased for a business purpose in a 

21 trade or business’ means purchased by a person engaged 

22 in a trade or business and used in that trade or business—

23 ‘‘(1) for resale, 

24 ‘‘(2) to produce, provide, render, or sell taxable 

25 property or services, or 
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1 ‘‘(3) in furtherance of other bona fide business 

2 purposes. 

3 ‘‘(c) INVESTMENT PURPOSES.—For purposes of this 

4 section, the term ‘purchased for an investment purpose’ 

5 means property purchased exclusively for purposes of ap6 preciation or the production of income but not entailing 

7 more than minor personal efforts. 

8 ‘‘SEC. 103. RULES RELATING TO COLLECTION AND REMIT9 TANCE OF TAX. 

10 ‘‘(a) LIABILITY FOR COLLECTION AND REMITTANCE

11 OF THE TAX.—Except as provided otherwise by this sec12 tion, any tax imposed by this subtitle shall be collected 

13 and remitted by the seller of taxable property or services 

14 (including financial intermediation services). 

15 ‘‘(b) TAX TO BE REMITTED BY PURCHASER IN CER16 TAIN CIRCUMSTANCES.—

17 ‘‘(1) IN GENERAL.—In the case of taxable prop18 erty or services purchased outside of the United 

19 States and imported into the United States for use 

20 or consumption in the United States, the purchaser 

21 shall remit the tax imposed by section 101. 

22 ‘‘(2) CERTAIN WAGES OR SALARY.—In the case 

23 of wages or salary paid by a taxable employer which 

24 are taxable services, the employer shall remit the tax 

25 imposed by section 101. 
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1 ‘‘(c) CONVERSION OF BUSINESS OR EXPORT PROP2 ERTY OR SERVICES.—Property or services purchased for 

3 a business purpose in a trade or business or for export 

4 (sold untaxed pursuant to section 102(a)) that is subse5 quently converted to personal use shall be deemed pur6 chased at the time of conversion and shall be subject to 

7 the tax imposed by section 101 at the fair market value 

8 of the converted property as of the date of conversion. The 

9 tax shall be due as if the property had been sold at the 

10 fair market value during the month of conversion. The 

11 person using or consuming the converted property is liable 

12 for and shall remit the tax. 

13 ‘‘(d) SELLER RELIEVED OF LIABILITY IN CERTAIN

14 CASES.—In the case of any taxable property or service 

15 which is sold untaxed pursuant to section 102(a), the sell16 er shall be relieved of the duty to collect and remit the 

17 tax imposed under section 101 on such purchase if the 

18 seller—

19 ‘‘(1) received in good faith, and retains on file 

20 for the period set forth in section 509, a copy of a 

21 registration certificate from the purchaser, and 

22 ‘‘(2) did not, at the time of sale, have reason23 able cause to believe that the buyer was not reg24 istered pursuant to section 502. 
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1 ‘‘(e) PURCHASER LIABLE TO COLLECT AND REMIT

2 IN CERTAIN CASES.—In the case of any taxable property 

3 or service which is sold untaxed pursuant to section 102, 

4 if the seller is relieved by reason of subsection (d) of the 

5 duty to collect and remit the tax imposed by section 101, 

6 then the duty to pay any tax due shall rest with the pur7 chaser. 

8 ‘‘(f) BARTER TRANSACTIONS.—If gross payment for 

9 taxable property or services is made in other than money, 

10 then the person responsible for collecting and remitting 

11 the tax shall remit the tax to the sales tax administering 

12 authority in money as if gross payment had been made 

13 in money at the tax inclusive fair market value of the tax14 able property or services purchased. 

15 ‘‘(g) INTERCOMPANY SALES.—Firms that make pur16 chases from affiliated firms that are untaxed pursuant to 

17 section 102, or make sales to affiliated firms that are 

18 untaxed pursuant to section 102, shall not need to comply 

19 with the requirements of subsection (d) (relating to certifi20 cates) for said purchases or sales to remain untaxed. 

21 ‘‘CHAPTER 2—CREDITS; REFUNDS

‘‘Sec. 201. Credits and refunds. 

‘‘Sec. 202. Business use conversion credit. 

‘‘Sec. 203. Intermediate and export sales credit. 

‘‘Sec. 204. Administration credit. 

‘‘Sec. 205. Bad debt credit. 

‘‘Sec. 206. Insurance proceeds credit. 

‘‘Sec. 207. Refunds.
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1 ‘‘SEC. 201. CREDITS AND REFUNDS. 

2 ‘‘(a) IN GENERAL.—Each person shall be allowed a 

3 credit with respect to the taxes imposed by section 101 

4 for each month in an amount equal to the sum of—

5 ‘‘(1) such person’s business use conversion 

6 credit pursuant to section 202 for such month, 

7 ‘‘(2) such person’s intermediate and export 

8 sales credit pursuant to section 203 for such month, 

9 ‘‘(3) the administration credit pursuant to sec10 tion 204 for such month, 

11 ‘‘(4) the bad debt credit pursuant to section 

12 205 for such month, 

13 ‘‘(5) the insurance proceeds credit pursuant to 

14 section 206 for such month, 

15 ‘‘(6) the transitional inventory credit pursuant 

16 to section 902, and 

17 ‘‘(7) any amount paid in excess of the amount 

18 due. 

19 ‘‘(b) CREDITS NOT ADDITIVE.—Only one credit al20 lowed by chapter 2 may be taken with respect to any par21 ticular gross payment. 

22 ‘‘SEC. 202. BUSINESS USE CONVERSION CREDIT. 

23 ‘‘(a) IN GENERAL.—For purposes of section 201, a 

24 person’s business use conversion credit for any month is 

25 the aggregate of the amounts determined under subsection 

26 (b) with respect to taxable property and services—
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1 ‘‘(1) on which tax was imposed by section 101 

2 (and actually paid), and 

3 ‘‘(2) which commenced to be 95 percent or 

4 more used during such month for business purposes 

5 (within the meaning of section 102(b)). 

6 ‘‘(b) AMOUNT OF CREDIT.—The amount determined 

7 under this paragraph with respect to any taxable property 

8 or service is the lesser of—

9 ‘‘(1) the product of—

10 ‘‘(A) the rate imposed by section 101, and 

11 ‘‘(B) the quotient that is—

12 ‘‘(i) the fair market value of the prop13 erty or service when its use is converted, 

14 divided by 

15 ‘‘(ii) the quantity that is 1 minus the 

16 tax rate imposed by section 101, or 

17 ‘‘(2) the amount of tax paid with respect to 

18 such taxable property or service, including the 

19 amount, if any, determined in accordance with sec20 tion 705 (relating to mixed use property). 

21 ‘‘SEC. 203. INTERMEDIATE AND EXPORT SALES CREDIT. 

22 ‘‘For purposes of section 201, a person’s intermediate 

23 and export sales credit is the amount of sales tax paid 

24 on the purchase of any taxable property or service pur25 chased for—
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1 ‘‘(1) a business purpose in a trade or business 

2 (as defined in section 102(b)), or 

3 ‘‘(2) export from the United States for use or 

4 consumption outside the United States. 

5 ‘‘SEC. 204. ADMINISTRATION CREDIT. 

6 ‘‘(a) IN GENERAL.—Every person filing a timely 

7 monthly report (with regard to extensions) in compliance 

8 with section 501 shall be entitled to a taxpayer adminis9 trative credit equal to the greater of—

10 ‘‘(1) $200, or 

11 ‘‘(2) one-quarter of 1 percent of the tax remit12 ted. 

13 ‘‘(b) LIMITATION.—The credit allowed under this sec14 tion shall not exceed 20 percent of the tax due to be remit15 ted prior to the application of any credit or credits per16 mitted by section 201. 

17 ‘‘SEC. 205. BAD DEBT CREDIT. 

18 ‘‘(a) FINANCIAL INTERMEDIATION SERVICES.—Any 

19 person who has experienced a bad debt (other than unpaid 

20 invoices within the meaning of subsection (b)) shall be en21 titled to a credit equal to the product of—

22 ‘‘(1) the rate imposed by section 101, and 

23 ‘‘(2) the quotient that is—

24 ‘‘(A) the amount of the bad debt (as de25 fined in section 802), divided by 
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1 ‘‘(B) the quantity that is 1 minus the rate 

2 imposed by section 101. 

3 ‘‘(b) UNPAID INVOICES.—Any person electing the ac4 crual method pursuant to section 503 that has with re5 spect to a transaction—

6 ‘‘(1) invoiced the tax imposed by section 101, 

7 ‘‘(2) remitted the invoiced tax,

8 ‘‘(3) actually delivered the taxable property or 

9 performed the taxable services invoiced, and 

10 ‘‘(4) not been paid 180 days after date the in11 voice was due to be paid, 

12 shall be entitled to a credit equal to the amount of tax 

13 remitted and unpaid by the purchaser. 

14 ‘‘(c) SUBSEQUENT PAYMENT.—Any payment made 

15 with respect to a transaction subsequent to a section 205 

16 credit being taken with respect to that transaction shall 

17 be subject to tax in the month the payment was received 

18 as if a tax inclusive sale of taxable property and services 

19 in the amount of the payment had been made. 

20 ‘‘(d) PARTIAL PAYMENTS.—Partial payments shall be 

21 treated as pro rata payments of the underlying obligation 

22 and shall be allocated proportionately—

23 ‘‘(1) for fully taxable payments, between pay24 ment for the taxable property and service and tax, 

25 and 
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1 ‘‘(2) for partially taxable payments, among pay2 ment for the taxable property and service, tax and 

3 other payment. 

4 ‘‘(e) RELATED PARTIES.—The credit provided by this 

5 section shall not be available with respect to sales made 

6 to related parties. For purposes of this section, related 

7 party means affiliated firms and family members (as de8 fined in section 302(b)). 

9 ‘‘SEC. 206. INSURANCE PROCEEDS CREDIT. 

10 ‘‘(a) IN GENERAL.—A person receiving a payment 

11 from an insurer by virtue of an insurance contract shall 

12 be entitled to a credit in an amount determined by sub13 section (b), less any amount paid to the insured by the 

14 insurer pursuant to subsection (c), if the entire premium 

15 (except that portion allocable to the investment account 

16 of the underlying policy) for the insurance contract giving 

17 rise to the insurer’s obligation to make a payment to the 

18 insured was subject to the tax imposed by section 101 and 

19 said tax was paid. 

20 ‘‘(b) CREDIT AMOUNT.—The amount of the credit 

21 shall be the product of—

22 ‘‘(1) the rate imposed by section 101, and 

23 ‘‘(2) the quotient that is—

24 ‘‘(A) the amount of the payment made by 

25 the insurer to the insured, divided by 
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1 ‘‘(B) the quantity that is 1 minus the rate 

2 imposed by section 101. 

3 ‘‘(c) ADMINISTRATIVE OPTION.—The credit deter4 mined in accordance with subsection (b) shall be paid by 

5 the insurer to the insured and the insurer shall be entitled 

6 to the credit in lieu of the insured, except that the insurer 

7 may elect, in a form prescribed by the Secretary, to not 

8 pay the credit and require the insured to make application 

9 for the credit. In the event of such election, the insurer 

10 shall provide to the Secretary and the insured the name 

11 and tax identification number of the insurer and of the 

12 insured and indicate the proper amount of the credit. 

13 ‘‘(d) COORDINATION WITH RESPECT TO EXEMP14 TION.—If taxable property or services purchased by an in15 surer on behalf of an insured are purchased free of tax 

16 by virtue of section 2(a)(8)(C), then the credit provided 

17 by this section shall not be available with respect to that 

18 purchase. 

19 ‘‘(e) INSURANCE CONTRACT.—For purposes of sub20 section (a), the term insurance contract’ shall include a 

21 life insurance contract, a health insurance contract, a 

22 property and casualty loss insurance contract, a general 

23 liability insurance contract, a marine insurance contract, 

24 a fire insurance contract, an accident insurance contract, 

25 a disability insurance contract, a long-term care insurance 
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1 contract, and an insurance contract that provides a com2 bination of these types of insurance. 

3 ‘‘SEC. 207. REFUNDS. 

4 ‘‘(a) REGISTERED SELLERS.—If a registered seller 

5 files a monthly tax report with an overpayment, then, 

6 upon application by the registered seller in a form pre7 scribed by the sales tax administering authority, the over8 payment shown on the report shall be refunded to the reg9 istered seller within 60 days of receipt of said application. 

10 In the absence of such application, the overpayment may 

11 be carried forward, without interest, by the person entitled 

12 to the credit. 

13 ‘‘(b) OTHER PERSONS.—If a person other than a reg14 istered seller has an overpayment for any month, then, 

15 upon application by the person in a form prescribed by 

16 the sales tax administering authority, the credit balance 

17 due shall be refunded to the person within 60 days of re18 ceipt of said application. 

19 ‘‘(c) INTEREST.—No interest shall be paid on any 

20 balance due from the sales tax administering authority 

21 under this subsection for any month if such balance due 

22 is paid within 60 days after the application for refund is 

23 received. Balances due not paid within 60 days after the 

24 application for refund is received shall bear interest from 
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1 the date of application. Interest shall be paid at the Fed2 eral short-term rate (as defined in section 512). 

3 ‘‘(d) SUSPENSION OF PERIOD TO PAY REFUND

4 ONLY IF FEDERAL OR STATE COURT RULING.—The 60-

5 day periods under subsections (a) and (b) shall be sus6 pended with respect to a purported overpayment (or por7 tion thereof) only during any period that there is in effect 

8 a preliminary, temporary, or final ruling from a Federal 

9 or State court that there is reasonable cause to believe 

10 that such overpayment may not actually be due. 

11 ‘‘CHAPTER 3—FAMILY CONSUMPTION 

12 ALLOWANCE

‘‘Sec. 301. Family consumption allowance. 

‘‘Sec. 302. Qualified family. 

‘‘Sec. 303. Monthly poverty level.

‘‘Sec. 304. Rebate mechanism. 

‘‘Sec. 305. Change in family circumstances.

13 ‘‘SEC. 301. FAMILY CONSUMPTION ALLOWANCE. 

14 ‘‘Each qualified family shall be eligible to receive a 

15 sales tax rebate each month. The sales tax rebate shall 

16 be in an amount equal to the product of—

17 ‘‘(1) the rate of tax imposed by section 101, 

18 and 

19 ‘‘(2) the monthly poverty level. 

20 ‘‘SEC. 302. QUALIFIED FAMILY. 

21 ‘‘(a) GENERAL RULE.—For purposes of this chapter, 

22 the term ‘qualified family’ shall mean 1 or more family 

23 members sharing a common residence. All family members 
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1 sharing a common residence shall be considered as part 

2 of 1 qualified family. 

3 ‘‘(b) FAMILY SIZE DETERMINATION.—

4 ‘‘(1) IN GENERAL.—To determine the size of a 

5 qualified family for purposes of this chapter, family 

6 members shall mean—

7 ‘‘(A) an individual, 

8 ‘‘(B) the individual’s spouse, 

9 ‘‘(C) all lineal ancestors and descendants 

10 of said individual (and such individual’s 

11 spouse), 

12 ‘‘(D) all legally adopted children of such 

13 individual (and such individual’s spouse), and 

14 ‘‘(E) all children under legal guardianship 

15 of such individual (or such individual’s spouse). 

16 ‘‘(2) IDENTIFICATION REQUIREMENTS.—In 

17 order for a person to be counted as a member of the 

18 family for purposes of determining the size of the 

19 qualified family, such person must—

20 ‘‘(A) have a bona fide Social Security num21 ber; and 

22 ‘‘(B) be a lawful resident of the United 

23 States. 

24 ‘‘(c) CHILDREN LIVING AWAY FROM HOME.—
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1 ‘‘(1) STUDENTS LIVING AWAY FROM HOME.—

2 Any person who was a registered student during not 

3 fewer than 5 months in a calendar year while living 

4 away from the common residence of a qualified fam5 ily but who receives over 50 percent of such person’s 

6 support during a calendar year from members of the 

7 qualified family shall be included as part of the fam8 ily unit whose members provided said support for 

9 purposes of this chapter. 

10 ‘‘(2) CHILDREN OF DIVORCED OR SEPARATED

11 PARENTS.—If a child’s parents are divorced or le12 gally separated, a child for purposes of this chapter 

13 shall be treated as part of the qualified family of the 

14 custodial parent. In cases of joint custody, the custo15 dial parent for purposes of this chapter shall be the 

16 parent that has custody of the child for more than 

17 one-half of the time during a given calendar year. A 

18 parent entitled to be treated as the custodial parent 

19 pursuant to this paragraph may release this claim to 

20 the other parent if said release is in writing. 

21 ‘‘(d) ANNUAL REGISTRATION.—In order to receive 

22 the family consumption allowance provided by section 301, 

23 a qualified family must register with the sales tax admin24 istering authority in a form prescribed by the Secretary. 

25 The annual registration form shall provide—
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1 ‘‘(1) the name of each family member who 

2 shared the qualified family’s residence on the family 

3 determination date, 

4 ‘‘(2) the Social Security number of each family 

5 member on the family determination date who 

6 shared the qualified family’s residence on the family 

7 determination date, 

8 ‘‘(3) the family member or family members to 

9 whom the family consumption allowance should be 

10 paid, 

11 ‘‘(4) a certification that all listed family mem12 bers are lawful residents of the United States, 

13 ‘‘(5) a certification that all family members 

14 sharing the common residence are listed, 

15 ‘‘(6) a certification that no family members 

16 were incarcerated on the family determination date 

17 (within the meaning of subsection (l)), and 

18 ‘‘(7) the address of the qualified family. 

19 Said registration shall be signed by all members of the 

20 qualified family that have attained the age of 21 years 

21 as of the date of filing. 

22 ‘‘(e) REGISTRATION NOT MANDATORY.—Registra23 tion is not mandatory for any qualified family. 

24 ‘‘(f) EFFECT OF FAILURE TO PROVIDE ANNUAL

25 REGISTRATION.—Any qualified family that fails to reg-
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1 ister in accordance with this section within 30 days of the 

2 family determination date, shall cease receiving the 

3 monthly family consumption allowance in the month be4 ginning 90 days after the family determination date. 

5 ‘‘(g) EFFECT OF CURING FAILURE TO PROVIDE AN6 NUAL REGISTRATION.—Any qualified family that failed to 

7 timely make its annual registration in accordance with this 

8 section but subsequently cures its failure to register, shall 

9 be entitled to up to 6 months of lapsed sales tax rebate 

10 payments. No interest on lapsed payment amount shall be 

11 paid. 

12 ‘‘(h) EFFECTIVE DATE OF ANNUAL REGISTRA13 TIONS.—Annual registrations shall take effect for the 

14 month beginning 90 days after the family registration 

15 date. 

16 ‘‘(i) EFFECTIVE DATE OF REVISED REGISTRA17 TIONS.—A revised registration made pursuant to section 

18 305 shall take effect for the first month beginning 60 days 

19 after the revised registration was filed. The existing reg20 istration shall remain in effect until the effective date of 

21 the revised registration. 

22 ‘‘(j) DETERMINATION OF REGISTRATION FILING

23 DATE.—An annual or revised registration shall be deemed 

24 filed when—
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1 ‘‘(1) deposited in the United States mail, post2 age prepaid, to the address of the sales tax admin3 istering authority. 

4 ‘‘(2) delivered and accepted at the offices of the 

5 sales tax administering authority; or 

6 ‘‘(3) provided to a designated commercial pri7 vate courier service for delivery within 2 days to the 

8 sales tax administering authority at the address of 

9 the sales tax administering authority. 

10 ‘‘(k) PROPOSED REGISTRATION TO BE PROVIDED.—

11 30 or more days before the family registration date, the 

12 sales tax administering authority shall mail to the address 

13 shown on the most recent rebate registration or change 

14 of address notice filed pursuant to section 305(d) a pro15 posed registration that may be simply signed by the appro16 priate family members if family circumstances have not 

17 changed. 

18 ‘‘(l) INCARCERATED INDIVIDUALS.—An individual 

19 shall not be eligible under this chapter to be included as 

20 a member of any qualified family if that individual—

21 ‘‘(1) is incarcerated in a local, State, or Federal 

22 jail, prison, mental hospital, or other institution on 

23 the family determination date, and 

24 ‘‘(2) is scheduled to be incarcerated for 6 

25 months or more in the 12-month period following 
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1 the effective date of the annual registration or the 

2 revised registration of said qualified family. 

3 ‘‘(m) FAMILY DETERMINATION DATE.—The family 

4 determination date is a date assigned to each family by 

5 the Secretary for purposes of determining qualified family 

6 size and other information necessary for the administra7 tion of this chapter. The Secretary shall promulgate regu8 lations regarding the issuance of family determination 

9 dates. In the absence of any regulations, the family deter10 mination date for all families shall be October 1. The Sec11 retary may assign family determination dates for adminis12 trative convenience. Permissible means of assigning family 

13 determination dates include a method based on the 

14 birthdates of family members. 

15 ‘‘(n) CROSS REFERENCE.—

‘‘For penalty for filing false rebate claim, see section 505(i).

16 ‘‘SEC. 303. MONTHLY POVERTY LEVEL. 

17 ‘‘(a) IN GENERAL.—The monthly poverty level for 

18 any particular month shall be one-twelfth of the ‘annual 

19 poverty level.’ For purposes of this section the ‘annual 

20 poverty level’ shall be the sum of—

21 ‘‘(1) the annual level determined by the Depart22 ment of Health and Human Services poverty guide23 lines required by sections 652 and 673(2) of the 
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1 Omnibus Reconciliation Act of 1981 for a particular 

2 family size, and 

3 ‘‘(2) in case of families that include a married 

4 couple, the ‘annual marriage penalty elimination 

5 amount’. 

6 ‘‘(b) ANNUAL MARRIAGE PENALTY ELIMINATION

7 AMOUNT.—The annual marriage penalty elimination 

8 amount shall be the amount that is—

9 ‘‘(1) the amount that is two times the annual 

10 level determined by the Department of Health and 

11 Human Services poverty guidelines required by sec12 tions 652 and 673(2) of the Omnibus Reconciliation 

13 Act of 1981 for a family of one, less 

14 ‘‘(2) the annual level determined by the Depart15 ment of Health and Human Services poverty guide16 lines required by sections 652 and 673(2) of the 

17 Omnibus Reconciliation Act of 1981 for a family of 

18 two. 

19 ‘‘SEC. 304. REBATE MECHANISM. 

20 ‘‘(a) GENERAL RULE.—The Social Security Adminis21 tration shall provide a monthly sales tax rebate to duly 

22 registered qualified families in an amount determined in 

23 accordance with section 301. 

24 ‘‘(b) PERSONS RECEIVING REBATE.—The payments 

25 shall be made to the persons designated by the qualifying 
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1 family in the annual or revised registration for each quali2 fied family in effect with respect to the month for which 

3 payment is being made. Payments may only be made to 

4 persons 18 years or older. If more than 1 person is des5 ignated in a registration to receive the rebate, then the 

6 rebate payment shall be divided evenly between or among 

7 those persons designated. 

8 ‘‘(c) WHEN REBATES MAILED.—Rebates shall be 

9 mailed on or before the first business day of the month 

10 for which the rebate is being provided. 

11 ‘‘(d) SMARTCARDS AND DIRECT ELECTRONIC DE12 POSIT PERMISSIBLE.—The Social Security Administration 

13 may provide rebates in the form of smartcards that carry 

14 cash balances in their memory for use in making pur15 chases at retail establishments or by direct electronic de16 posit. 

17 ‘‘SEC. 305. CHANGE IN FAMILY CIRCUMSTANCES. 

18 ‘‘(a) GENERAL RULE.—In the absence of the filing 

19 of a revised registration in accordance with this chapter, 

20 the common residence of the qualified family, marital sta21 tus and number of persons in a qualified family on the 

22 family registration date shall govern determinations re23 quired to be made under this chapter for purposes of the 

24 following calendar year. 
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1 ‘‘(b) NO DOUBLE COUNTING.—In no event shall any 

2 person be considered part of more than 1 qualified family. 

3 ‘‘(c) REVISED REGISTRATION PERMISSIBLE.—A 

4 qualified family may file a revised registration for pur5 poses of section 302(d) to reflect a change in family cir6 cumstances. A revised registration form shall provide—

7 ‘‘(1) the name of each family member who 

8 shared the qualified family’s residence on the filing 

9 date of the revised registration, 

10 ‘‘(2) the Social Security number of each family 

11 member 2 years of age or older who shared the 

12 qualified family’s residence on the filing date of the 

13 revised registration, 

14 ‘‘(3) the family member or family members to 

15 whom the family consumption allowance should be 

16 paid, 

17 ‘‘(4) a certification that all listed family mem18 bers are lawful residents of the United States,

19 ‘‘(5) a certification that all family members 

20 sharing the commoner residence are listed, 

21 ‘‘(6) a certification that no family members 

22 were incarcerated on the family determination date 

23 (within the meaning of section 302(1)), and 

24 ‘‘(7) the address of the qualified family. 
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1 Said revised registration shall be signed by all members 

2 of the qualified family that have attained the age of 21 

3 years as of the filing date of the revised registration. 

4 ‘‘(d) CHANGE OF ADDRESS.—A change of address for 

5 a qualified family may be filed with the sales tax admin6 istering authority at any time and shall not constitute a 

7 revised registration. 

8 ‘‘(e) REVISED REGISTRATION NOT MANDATORY.—

9 Revised registrations reflecting changes in family status 

10 are not mandatory. 

11 ‘‘CHAPTER 4—FEDERAL AND STATE 

12 COOPERATIVE TAX ADMINISTRATION

‘‘Sec. 401. Authority for States to collect tax. 

‘‘Sec. 402. Federal administrative support for States. 

‘‘Sec. 403. Federal-State tax conferences. 

‘‘Sec. 404. Federal administration in certain States. 

‘‘Sec. 405. Interstate allocation and destination determination. 

‘‘Sec. 406. General administrative matters. 

‘‘Sec. 407. Jurisdiction

13 ‘‘SEC. 401 AUTHORITY FOR STATES TO COLLECT TAX 

14 ‘‘(a) IN GENERAL.—The tax imposed by section 101 

15 on gross payments for the use or consumption of taxable 

16 property or services within a State shall be administered, 

17 collected, and remitted to the United States Treasury by 

18 such State if the State is an administering State. 

19 ‘‘(b) ADMINISTERING STATE.—For purposes of this 

20 section, the term ‘administering State’ means any State—

21 ‘‘(1) which maintains a sales tax, and 
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1 ‘‘(2) which enters into a cooperative agreement 

2 with the Secretary containing reasonable provisions 

3 governing the administration by such State of the 

4 taxes imposed by the subtitle and the remittance to 

5 the United States in a timely manner of taxes col6 lected under this chapter. 

7 ‘‘(c) COOPERATIVE AGREEMENTS.—The agreement 

8 under subsection (b)(2) shall include provisions for the ex9 peditious transfer of funds, contact officers, dispute reso10 lution, information exchange, confidentiality, taxpayer 

11 rights, and other matters of importance. The agreement 

12 shall not contain extraneous matters. 

13 ‘‘(d) TIMELY REMITTANCE OF TAX.—

14 ‘‘(1) IN GENERAL.—Administering States shall 

15 remit and pay over taxes collected under this subtitle 

16 on behalf of the United States (less the administra17 tion fee allowable under paragraph (2)) not later 

18 than 5 days after receipt. Interest at 150 percent of 

19 the Federal short-term rate shall be paid with re20 spect to amounts remitted after the due date. 

21 ‘‘(2) ADMINISTRATION FEE.—An administering 

22 State may retain an administration fee equal to one23 quarter of 1 percent of the amounts otherwise re24 quired to be remitted to the United States under 

25 this chapter by the administering State. 
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1 ‘‘(e) LIMITATION ON ADMINISTRATION OF TAX BY

2 UNITED STATES.—The Secretary may administer the tax 

3 imposed by this subtitle in an administering State only 

4 if—

5 ‘‘(1)(A) such State has failed on a regular basis 

6 to timely remit to the United States taxes collected 

7 under this chapter on behalf of the United States, 

8 or 

9 ‘‘(B) such State has on a regular basis other10 wise materially breached the agreement referred to 

11 in subsection (b)(2); 

12 ‘‘(2) the State has failed to cure such alleged 

13 failures and breaches within a reasonable time; 

14 ‘‘(3) the Secretary provides such State with 

15 written notice of such alleged failures and breaches; 

16 and 

17 ‘‘(4) a District Court of the United States with18 in such State, upon application of the Secretary, has 

19 rendered a decision—

20 ‘‘(A) making findings of fact that—

21 ‘‘(i) such State has failed on a regular 

22 basis to timely remit to the United States 

23 taxes collected under this chapter on behalf 

24 of the United States, or such State has on 

25 a regular basis otherwise materially 
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1 breached the agreement referred to in sub2 section (b)(2); 

3 ‘‘(ii) the Secretary has provided such 

4 State with written notice of such alleged 

5 failures and breaches; and 

6 ‘‘(iii) the State has failed to cure such 

7 alleged failures and breaches within a rea8 sonable time; and 

9 ‘‘(B) making a determination that it is in 

10 the best interest of the citizens of the United 

11 States that the administering State’s authority 

12 to administer the tax imposed by this subtitle 

13 be revoked and said tax be administered di14 rectly by the Secretary. 

15 The order of the District Court revoking the author16 ity of an Administering State shall contain provi17 sions governing the orderly transfer of authority to 

18 the Secretary. 

19 ‘‘(f) REINSTITUTION.—A State that has had its au20 thority revoked pursuant to subsection (e) shall not be an 

21 administering State for a period of not less than 5 years 

22 after the date of the order of revocation. For the first cal23 endar year commencing 8 years after the date of the order 

24 of revocation, the State shall be regarded without preju25 dice as eligible to become an administering State. 
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1 ‘‘(g) THIRD STATE ADMINISTRATION PERMIS2 SIBLE.—It shall be permissible for a State to contract with 

3 an administering State to administer the State’s sales tax 

4 for an agreed fee. In this case, the agreement con5 templated by subsection (c) shall have both the State and 

6 the Federal Government as parties. 

7 ‘‘(h) INVESTIGATIONS AND AUDITS.—Administering 

8 States shall not conduct investigations or audits at facili9 ties in other administering States in connection with the 

10 tax imposed by section 101 or conforming State sales tax 

11 but shall instead cooperate with other administering 

12 States using the mechanisms established by section 402, 

13 by compact or by other agreement. 

14 ‘‘SEC. 402. FEDERAL ADMINISTRATIVE SUPPORT FOR 

15 STATES. 

16 ‘‘(a) IN GENERAL.—The Secretary shall administer 

17 a program to facilitate information sharing among States. 

18 ‘‘(b) STATE COMPACTS.—The Secretary shall facili19 tate, and may be a party to a compact among States for 

20 purposes of facilitating the taxation of interstate pur21 chases and for other purposes that may facilitate imple22 mentation of this subtitle. 

23 ‘‘(c) AGREEMENT WITH CONFORMING STATES.—The 

24 Secretary is authorized to enter into and shall enter into 

25 an agreement among conforming States enabling con-
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1 forming States to collect conforming State sales tax on 

2 sales made by sellers without a particular conforming 

3 State to a destination within that particular conforming 

4 State. 

5 ‘‘(d) SECRETARY’S AUTHORITY.—The Secretary shall 

6 have the authority to promulgate regulations, to provide 

7 guidelines, to assist States in administering the national 

8 sales tax, to provide for uniformity in the administration 

9 of the tax and to provide guidance to the public. 

10 ‘‘SEC. 403. FEDERAL-STATE TAX CONFERENCES. 

11 ‘‘Not less than once annually, the Secretary shall host 

12 a conference with the sales tax administrators from the 

13 various administering States to evaluate the state of the 

14 national sales tax system, to address issues of mutual con15 cern and to develop and consider legislative, regulatory, 

16 and administrative proposals to improve the tax system. 

17 ‘‘SEC. 404. FEDERAL ADMINISTRATION IN CERTAIN STATES. 

18 ‘‘The Secretary shall administer the tax imposed by 

19 this subtitle in any State or other United States jurisdic20 tion that—

21 ‘‘(1) is not an administering State, or 

22 ‘‘(2) elected to have another State administer 

23 its tax in accordance with section 401(g). 
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1 ‘‘SEC. 405. INTERSTATE ALLOCATION AND DESTINATION 

2 DETERMINATION. 

3 ‘‘(a) DESTINATION GENERALLY.—The tax imposed 

4 by this subtitle is a destination principle tax. This section 

5 shall govern for purposes of determining—

6 ‘‘(1) whether the destination of taxable property 

7 and services is within or without the United States, 

8 and 

9 ‘‘(2) which State or territory within the United 

10 States is the destination of taxable property and 

11 services. 

12 ‘‘(b) TANGIBLE PERSONAL PROPERTY.—Except as 

13 provided in subsection (f) (relating to certain leases), the 

14 destination of tangible personal property shall be the State 

15 or territory in which the property was first delivered to 

16 the purchaser (including agents and authorized represent17 atives). 

18 ‘‘(c) REAL PROPERTY.—The destination of real prop19 erty, or rents or leaseholds on real property, shall be the 

20 State or territory in which the real property is located. 

21 ‘‘(d) OTHER PROPERTY.—The destination of any 

22 other taxable property shall be the residence of the pur23 chaser. 

24 ‘‘(e) SERVICES.—

25 ‘‘(1) GENERAL RULE.—The destination of serv26 ices shall be the State or territory in which the use 
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1 or consumption of the services occurred. Allocation 

2 of service invoices relating to more than 1 jurisdic3 tion shall be on the basis of time or another method 

4 determined by regulation. 

5 ‘‘(2) TELECOMMUNICATIONS SERVICES.—The 

6 destination of telecommunications services shall be 

7 the residence of the purchaser. Telecommunications 

8 services include telephone, telegraph, beeper, radio, 

9 cable television, satellite, and computer on-line or 

10 network services. 

11 ‘‘(3) DOMESTIC TRANSPORTATION SERVICES.—

12 For transportation services where all of the final 

13 destinations are within the United States, the des14 tination of transportation services shall be the final 

15 destination of the trip (in the case of round or mul16 tiple trip fares, the services amount shall be equally 

17 allocated among each final destination). 

18 ‘‘(4) INTERNATIONAL TRANSPORTATION SERV19 ICES.—For transportation services where the final 

20 destination or origin of the trip is without the 

21 United States, the service amount shall be deemed 

22 50 percent attributable to the United States destina23 tion or origin. 
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1 ‘‘(5) ELECTRICAL SERVICE.—The destination of 

2 electrical services shall be the residence of the pur3 chaser. 

4 ‘‘(f) FINANCIAL INTERMEDIATION SERVICES.—The 

5 destination of financial intermediation services shall be the 

6 residence of the purchaser. 

7 ‘‘(g) RENTS PAID FOR THE LEASE OF TANGIBLE

8 PROPERTY.—

9 ‘‘(1) GENERAL RULE.—Except as provided in 

10 paragraph (2), the destination of rents paid for the 

11 lease of tangible property and leaseholds on such 

12 property shall be where the property is located while 

13 in use.

14 ‘‘(2) LAND VEHICLES; AIRCRAFT, WATER

15 CRAFT.—The destination of rental and lease pay16 ments on land vehicles, aircraft and water craft shall 

17 be—

18 ‘‘(A) in the case of rentals and leases of a 

19 term of 1 month or less, the location where the 

20 land vehicle, aircraft, or water craft was origi21 nally delivered to the renter or lessee; and 

22 ‘‘(B) in the case of rentals and leases of a 

23 term greater than 1 month, the residence of the 

24 renter or lessee. 
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1 ‘‘(h) ALLOCATION RULES.—For purposes of allo2 cating revenue—

3 ‘‘(1) between or among administering States 

4 from taxes imposed by this subtitle or from State 

5 sales taxes administered by third-party admin6 istering States, or 

7 ‘‘(2) between or among States imposing con8 forming State sales taxes, 

9 the revenue shall be allocated to those States that are the 

10 destination of the taxable property or service. 

11 ‘‘(i) FEDERAL OFFICE OF REVENUE ALLOCATION.—

12 The Secretary shall establish an Office of Revenue Alloca13 tion to arbitrate any claims or disputes among admin14 istering States as to the destination of taxable property 

15 and services for purposes of allocating revenue between or 

16 among the States from taxes imposed by this subtitle. The 

17 determination of the Administrator of the Office of Rev18 enue Allocation shall be subject to judicial review in any 

19 Federal court with competent jurisdiction. The standard 

20 of review shall be abuse of discretion. 

21 ‘‘SEC. 406. GENERAL ADMINISTRATIVE MATTERS. 

22 ‘‘(a) IN GENERAL.—The Secretary and each sales tax 

23 administering authority may employ such persons as may 

24 be necessary for the administration of this subtitle and 

25 may delegate to employees the authority to conduct inter-
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1 views, hearings, prescribe rules, promulgate regulations, 

2 and perform such other duties as are required by this sub3 title. 

4 ‘‘(b) RESOLUTION OF ANY INCONSISTENT RULES

5 AND REGULATIONS.—In the event that the Secretary and 

6 any sales tax administering authority have issued incon7 sistent rules or regulations, any lawful rule or regulation 

8 issued by the Secretary shall govern. 

9 ‘‘(c) ADEQUATE NOTICE TO BE PROVIDED.—Except 

10 in the case of an emergency declared by the Secretary (and 

11 not his designee), no rule or regulation issued by the Sec12 retary with respect to any internal revenue law shall take 

13 effect before 90 days have elapsed after its publication in 

14 the Federal Register. Upon issuance, the Secretary shall 

15 provide copies of all rules or regulations issued under this 

16 title to each sales tax administering authority. 

17 ‘‘(d) NO RULES, RULINGS, OR REGULATIONS WITH

18 RETROACTIVE EFFECT.—No rule, ruling, or regulation 

19 issued or promulgated by the Secretary relating to any in20 ternal revenue law or by a sales tax administering author21 ity shall apply to a period prior to its publication in the 

22 Federal Register (or State equivalent) except that a regu23 lation may take retroactive effect to prevent abuse. 

24 ‘‘(e) REVIEW OF IMPACT OF REGULATIONS, RULES, 

25 AND RULINGS ON SMALL BUSINESS.—
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1 ‘‘(1) SUBMISSION TO SMALL BUSINESS ADMIN2 ISTRATION.—After publication of any proposed or 

3 temporary regulation by the Secretary relating to in4 ternal revenue laws, the Secretary shall submit such 

5 regulation to the Chief Counsel for Advocacy of the 

6 Small Business Administration for comment on the 

7 impact of such regulation on small businesses. Not 

8 later than the date 30 days after the date of such 

9 submission, the Chief Counsel for Advocacy of the 

10 Small Business Administration shall submit com11 ments on such regulation to the Secretary. 

12 ‘‘(2) CONSIDERATION OF COMMENTS.—In pre13 scribing any final regulation which supersedes a pro14 posed or temporary regulation which had been sub15 mitted under this subsection to the Chief Counsel 

16 for Advocacy of the Small Business Administration, 

17 the Secretary shall—

18 ‘‘(A) consider the comments of the Chief 

19 Counsel for Advocacy of the Small Business 

20 Administration on such proposed or temporary 

21 regulation, and 

22 ‘‘(B) in promulgating such final regulation, 

23 include a narrative that describes the response 

24 to such comments. 
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1 ‘‘(3) SUBMISSION OF CERTAIN FINAL REGULA2 TION.—In the case of promulgation by the Secretary 

3 of any final regulations (other than a temporary reg4 ulation) which do not supersede a proposed regula5 tion, the requirements of paragraphs (1) and (2) 

6 shall apply, except that the submission under para7 graph (1) shall be made at least 30 days before the 

8 date of such promulgation, and the consideration 

9 and discussion required under paragraph (2) shall 

10 be made in connection with the promulgation of such 

11 final regulation. 

12 ‘‘(f) SMALL BUSINESS REGULATORY SAFEGUARDS.—

13 The Small Business Regulatory Enforcement Fairness Act 

14 (Public Law 104–121; 110 Stat. 857 (‘SBREFA’)) and 

15 the Regulatory Flexibility Act (5 U.S.C. 601–612 

16 (‘RFA’)) shall apply to regulations promulgated under this 

17 subtitle. 

18 ‘‘SEC. 407. JURISDICTION. 

19 ‘‘(a) STATE JURISDICTION.—A sales tax admin20 istering authority shall have jurisdiction over any gross 

21 payments made which have a destination (as determined 

22 in accordance with section 405) within the State of said 

23 sales tax administering authority. This grant of jurisdic24 tion is not exclusive of any other jurisdiction that such 

25 sales tax administering authority may have. 
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1 ‘‘(b) FEDERAL JURISDICTION.—The grant of juris2 diction in subsection (a) shall not be in derogation of Fed3 eral jurisdiction over the same matter. The Federal Gov4 ernment shall have the right to exercise preemptive juris5 diction over matters relating to the taxes imposed by this 

6 subtitle.

7 ‘‘CHAPTER 5—OTHER ADMINISTRATIVE 

8 PROVISIONS

‘‘Sec. 501. Monthly reports and payments. 

‘‘Sec. 502. Registration. 

‘‘Sec. 503. Accounting. 

‘‘Sec. 504. Registration certificates. 

‘‘Sec. 505. Penalties. 

‘‘Sec. 506. Burden of persuasion and burden of production. 

‘‘Sec. 507. Attorneys’ and accountancy fees. 

‘‘Sec. 508. Summons, examinations, audits, etc. 

‘‘Sec. 509. Records. 

‘‘Sec. 510. Tax to be separately stated and charged. 

‘‘Sec. 511. Coordination with title 11. 

‘‘Sec. 512. Applicable interest rate.

9 ‘‘SEC. 501. MONTHLY REPORTS AND PAYMENTS. 

10 ‘‘(a) TAX REPORTS AND FILING DATES.—

11 ‘‘(1) IN GENERAL.—On or before the 15th day 

12 of each month, each person who is—

13 ‘‘(A) liable to collect and remit the tax im14 posed by this subtitle by reason of section 

15 103(a), or 

16 ‘‘(B) liable to pay tax imposed by this sub17 title which is not collected pursuant to section 

18 103(a), 
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1 shall submit to the appropriate sales tax admin2 istering authority (in a form prescribed by the Sec3 retary) a report relating to the previous calendar 

4 month. 

5 ‘‘(2) CONTENTS OF REPORT.—The report re6 quired under paragraph (1) shall set forth—

7 ‘‘(A) the gross payments referred to in sec8 tion 101, 

9 ‘‘(B) the tax collected under chapter 4 in 

10 connection with such payments, 

11 ‘‘(C) the amount and type of any credit 

12 claimed, and 

13 ‘‘(D) other information reasonably required 

14 by the Secretary or the sales tax administering 

15 authority for the administration, collection, and 

16 remittance of the tax imposed by this subtitle. 

17 ‘‘(b) TAX PAYMENTS DATE.—

18 ‘‘(1) GENERAL RULE.—The tax imposed by this 

19 subtitle during any calendar month is due and shall 

20 be paid to the appropriate sales tax administering 

21 authority on or before the 15th day of the suc22 ceeding month. Both Federal tax imposed by this 

23 subtitle and confirming State sales tax (if any) shall 

24 be paid in 1 aggregate payment. 
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1 ‘‘(2) CROSS REFERENCE.—

‘‘See subsection (e) relating to remitting of separate segregated funds for sellers that are not small 

sellers.

2 ‘‘(c) EXTENSIONS FOR FILING REPORTS.—

3 ‘‘(1) AUTOMATIC EXTENSIONS FOR NOT MORE

4 THAN 30 DAYS.—On application, an extension of not 

5 more than 30 days to file reports under subsection 

6 (a) shall be automatically granted. 

7 ‘‘(2) OTHER EXTENSIONS.—On application, ex8 tensions of 30 to 60 days to file such reports shall 

9 be liberally granted by the sales tax administering 

10 authority for reasonable cause. Extensions greater 

11 than 60 days may be granted by the sales tax ad12 ministering authority to avoid hardship. 

13 ‘‘(3) NO EXTENSION FOR PAYMENT OF

14 TAXES.—Notwithstanding paragraphs (1) and (2), 

15 no extension shall be granted with respect to the 

16 time for paying or remitting the taxes under this 

17 subtitle. 

18 ‘‘(d) TELEPHONE REPORTING OF VIOLATIONS.—The 

19 Secretary shall establish a system under which a violation 

20 of this subtitle can be brought to the attention of the sales 

21 tax administering authority for investigation through the 

22 use of a toll-free telephone number and otherwise. 

23 ‘‘(e) SEPARATE SEGREGATED ACCOUNTS.—
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1 ‘‘(1) IN GENERAL.—Any registered seller that 

2 is not a small seller shall deposit all sales taxes col3 lected pursuant to section 103 in a particular week 

4 in a separate segregated account maintained at a 

5 bank or other financial institution within 3 business 

6 days of the end of such week. Said registered seller 

7 shall also maintain in that account sufficient funds 

8 to meet the bank or financial institution minimum 

9 balance requirements, if any, and to pay account 

10 fees and costs. 

11 ‘‘(2) SMALL SELLER.—For purposes of this 

12 subsection, a small seller is any person that has not 

13 collected $20,000 or more of the taxes imposed by 

14 this subtitle in any of the previous 12 months. 

15 ‘‘(3) LARGE SELLERS.—Any seller that has col16 lected $100,000 or more of the taxes imposed by 

17 this subtitle in any of the previous 12 months is a 

18 large seller. A large seller shall remit to the sales tax 

19 administering authority the entire balance of depos20 ited taxes in its separate segregated account on the 

21 first business day following the end of the calendar 

22 week. The Secretary may by regulation require the 

23 electronic transfer of funds due from large sellers. 
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1 ‘‘(4) WEEK.—For purposes of this subsection, 

2 the term ‘week’ shall mean the 7-day period ending 

3 on a Friday. 

4 ‘‘(f) DETERMINATION OF REPORT FILING DATE.—

5 A report filed pursuant to subsection (a) shall be deemed 

6 filed when—

7 ‘‘(1) deposited in the United States mail, post8 age prepaid, addressed to the sales tax administering 

9 authority, 

10 ‘‘(2) delivered and accepted at the offices of the 

11 sales tax administering authority, 

12 ‘‘(3) provided to a designated commercial pri13 vate courier service for delivery within 2 days to the 

14 sales tax administering authority at the address of 

15 the sales tax administering authority, or 

16 ‘‘(4) by other means permitted by the Sec17 retary. 

18 ‘‘(g) SECURITY REQUIREMENTS.—A large seller 

19 (within the meaning of subsection (e)(3)) shall be required 

20 to provide security in an amount equal to the greater of 

21 $100,000 or one and one-half times the seller’s average 

22 monthly tax liability during the previous 6 calendar 

23 months. Security may be a cash bond, a bond from a sur24 ety company approved by the Secretary, a certificate of 

25 deposit, or a State or United States Treasury bond. A 
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1 bond qualifying under this subsection must be a con2 tinuing instrument for each calendar year (or portion 

3 thereof) that the bond is in effect. The bond must remain 

4 in effect until the surety or sureties are released and dis5 charged. Failure to provide security in accordance with 

6 this section shall result in revocation of the seller’s section 

7 502 registration. If a person who has provided security 

8 pursuant to this subsection—

9 ‘‘(1) fails to pay an amount indicated in a final 

10 notice of amount due under this subtitle (within the 

11 meaning of section 605(d)), 

12 ‘‘(2) no Taxpayer Assistance Order is in effect 

13 relating to the amount due, 

14 ‘‘(3) either the time for filing an appeal pursu15 ant to section 604 has passed or the appeal was de16 nied, and 

17 ‘‘(4) the amount due is not being litigated in 

18 any judicial forum, 

19 then the security or part of the security, as the case may 

20 be, may be forfeited in favor of the Secretary to the extent 

21 of such tax due (plus interest if any). 

22 ‘‘(h) REWARDS PROGRAM.—The Secretary is author23 ized to maintain a program of awards wherein individuals 

24 that assist the Secretary or sales tax administering au-
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1 thorities in discovering or prosecuting tax fraud may be 

2 remunerated. 

3 ‘‘(i) CROSS REFERENCE.—

‘‘For interest due on taxes remitted late, see section 6601.

4 ‘‘SEC. 502. REGISTRATION. 

5 ‘‘(a) IN GENERAL.—Any person liable to collect and 

6 remit taxes pursuant to section 103(a) who is engaged in 

7 a trade or business shall register as a seller with the sales 

8 tax administering authority administering the taxes im9 posed by this subtitle. 

10 ‘‘(b) AFFILIATED FIRMS.—Affiliated firms shall be 

11 treated as 1 person for purposes of this section. Affiliated 

12 firms may elect, upon giving notice to the Secretary in 

13 a form prescribed by the Secretary, to treat separate firms 

14 as separate persons for purposes of this subtitle. 

15 ‘‘(c) DESIGNATION OF TAX MATTERS PERSON.—

16 Every person registered pursuant to subsection (a) shall 

17 designate a tax matters person who shall be an individual 

18 whom the sales tax administering authority may contact 

19 regarding tax matters. Each person registered must pro20 vide notice of a change in the identity of the tax matters 

21 person within 30 days of said change. 

22 ‘‘(d) CERTIFICATES OF REGISTRATION.—The sales 

23 tax administering authority shall provide certificates of 

24 registration to registered sellers. 
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1 ‘‘(e) EFFECT OF FAILURE TO REGISTER.—Any per2 son that is required to register and who fails to do so is 

3 prohibited from selling taxable property or services. The 

4 Secretary or a sales tax administering authority may bring 

5 an action seeking a temporary restraining order, an in6 junction, or such other order as may be appropriate to 

7 enforce this section. 

8 ‘‘SEC. 503. ACCOUNTING 

9 ‘‘(a) CASH METHOD TO BE USED GENERALLY.—

10 Registered sellers and other persons shall report trans11 actions using the cash method of accounting unless an 

12 election to use the accrual method of accounting is made 

13 pursuant to subsection (b). 

14 ‘‘(b) ELECTION TO USE ACCRUAL METHOD.—A per15 son may elect with respect to a calender year to remit 

16 taxes and report transactions with respect to the month 

17 where a sale was invoiced and accrued. 

18 ‘‘(c) CROSS REFERENCE.—

‘‘See section 205 for rules relating to bad debts for 

sellers electing the accrual method.

19 ‘‘SEC. 504. REGISTRATION CERTIFICATES. 

20 ‘‘The sales tax administering authority shall issue 

21 certificates of registration to registered sellers and such 

22 other certificates as are necessary or may prove useful in 

23 the administration of the taxes imposed by this subtitle. 
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1 ‘‘SEC. 505. PENALTIES. 

2 ‘‘(a) FAILURE TO REGISTER.—Each person who is 

3 required to register pursuant to section 502 but fails to 

4 do so prior to notification by the sales tax administering 

5 authority shall be liable for a penalty of $500. 

6 ‘‘(b) RECKLESS OR WILLFUL FAILURE TO COLLECT

7 TAX.—

8 ‘‘(1) CIVIL PENALTY; FRAUD.—Each person 

9 who is required to and recklessly or willfully fails to 

10 collect taxes imposed by this subtitle shall be liable 

11 for a penalty equal to the greater of $500 or 20 per12 cent of tax not collected.

13 ‘‘(2) CRIMINAL PENALTY.—Each person who is 

14 required to and willfully fails as part of a trade or 

15 business to collect taxes imposed by this subtitle 

16 may be fined an amount up to the amount deter17 mined in accordance with paragraph (1) or impris18 oned for a period of not more than 1 year or both. 

19 ‘‘(c) RECKLESS OR WILLFUL ASSERTION OF INVALID

20 EXEMPTION.—

21 ‘‘(1) CIVIL PENALTY; FRAUD.—Each person 

22 who recklessly or willfully asserts an invalid inter23 mediate or export sales exemption from the taxes 

24 imposed by this subtitle shall be liable for a penalty 

25 equal to the greater of $500 or 20 percent of the tax 

26 not collected or remitted. 
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1 ‘‘(2) CRIMINAL PENALTY.—Each person who 

2 willfully asserts an invalid intermediate or export 

3 sales exemption from the taxes imposed by this sub4 title may be fined an amount up to the amount de5 termined in accordance with paragraph (1) or im6 prisoned for a period of not more than 1 year or 

7 both. 

8 ‘‘(d) RECKLESS OR WILLFUL FAILURE TO REMIT

9 TAX COLLECTED.—

10 ‘‘(1) CIVIL PENALTY; FRAUD.—Each person 

11 who is required to and recklessly or willfully fails to 

12 remit taxes imposed by this subtitle and collected 

13 from purchasers shall be liable for a penalty equal 

14 to the greater of $1,000 or 50 percent of the tax not 

15 remitted. 

16 ‘‘(2) CRIMINAL PENALTY.—Each person who 

17 willfully fails to remit taxes imposed by this subtitle 

18 and collected from purchasers may be fined an 

19 amount up to the amount determined in accordance 

20 with paragraph (1) or imprisoned for a period of not 

21 more than 2 years or both. 

22 ‘‘(e) RECKLESS OR WILLFUL FAILURE TO PAY

23 TAX.—Each person who is required to and recklessly or 

24 willfully fails to pay taxes imposed by this subtitle shall 
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1 be liable for a penalty equal to the greater of $500 or 

2 20 percent of the tax not paid. 

3 ‘‘(f) PENALTY FOR LATE FILING.—

4 ‘‘(1) IN GENERAL.—In the case of a failure by 

5 any person who is required to and fails to file a re6 port required by section 501 on or before the due 

7 date (determined with regard to any extension) for 

8 such report, such person shall pay a penalty for each 

9 month or fraction thereof that said report is late 

10 equal to the greater of—

11 ‘‘(A) $50, or 

12 ‘‘(B) 0.5 percent of the gross payments re13 quired to be shown on the report. 

14 ‘‘(2) INCREASED PENALTY ON RETURNS FILED

15 AFTER WRITTEN INQUIRY.—The amount of the pen16 alty under paragraph (1) shall be doubled with re17 spect to any report filed after a written inquiry with 

18 respect to such report is received by the taxpayer 

19 from the sales tax administering authority. 

20 ‘‘(3) LIMITATION.–The penalty imposed under 

21 this subsection shall not exceed 12 percent. 

22 ‘‘(4) EXCEPTIONS.—

23 ‘‘(A) REASONABLE CAUSE.—No penalty 

24 shall be imposed under this subsection with re-
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1 spect to any failure if it is shown that such fail2 ure is due to reasonable cause. 

3 ‘‘(B) OTHER WAIVER AUTHORITY.—In ad4 dition to penalties not imposed by reason of 

5 subparagraph (A), the sales tax administering 

6 authority, on application, shall waive the pen7 alty imposed by paragraph (1) once per reg8 istered person per 24-month period. The pre9 ceding sentence shall not apply to a penalty de10 termined under paragraph (2). 

11 ‘‘(g) PENALTY FOR WILLFULLY OR RECKLESSLY AC12 CEPTING A FALSE INTERMEDIATE OR EXPORT SALES

13 CERTIFICATE.—A person who willingly or recklessly ac14 cepts a false intermediate or export sales certificate shall 

15 pay a penalty equal to 20 percent of the tax not collected 

16 by reason of said acceptance. 

17 ‘‘(h) PENALTY FOR LATE REMITTANCE OF TAXES.—

18 ‘‘(1) IN GENERAL.—A person who is required 

19 to timely remit taxes imposed by this subtitle and 

20 remits taxes more than 1 month after such taxes are 

21 due shall pay a penalty equal to 1 percent per month 

22 (or fraction thereof) from the due date. 

23 ‘‘(2) LIMITATION.—The penalty imposed under 

24 this subsection shall not exceed 24 percent. 
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1 ‘‘(3) EXCEPTIONS FOR REASONABLE CAUSE.—

2 No penalty shall be imposed under paragraph (1) 

3 with respect to any late remittance if it is shown 

4 that such late remittance is due to reasonable cause. 

5 ‘‘(i) PENALTY FOR FILING FALSE REBATE CLAIM.—

6 ‘‘(1) CIVIL PENALTY; FRAUD.—A person who 

7 willingly or recklessly files a false claim for a family 

8 consumption allowance rebate (within the meaning 

9 of chapter 3) shall—

10 ‘‘(A) pay a penalty equal to the greater of 

11 $500 or 50 percent of the claimed annual re12 bate amount not actually due, and 

13 ‘‘(B) repay any rebates received as a result 

14 of the false rebate claim (together with inter15 est). 

16 ‘‘(2) CRIMINAL PENALTY.—A person who will17 ingly files a false claim for a family consumption al18 lowance rebate (within the meaning of chapter 3) 

19 may be fined an amount up to the amount deter20 mined in accordance with paragraph (1) or impris21 oned for a period not more than 1 year or both. 

22 ‘‘(j) PENALTY FOR BAD CHECK.—If any check or 

23 money order in payment of any amount receivable under 

24 this subtitle is not duly paid, in addition to other penalties 
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1 provided by law, the person who tendered such check shall 

2 pay a penalty equal to the greater of—

3 ‘‘(1) $25, or 

4 ‘‘(2) two percent of the amount of such check.

5 ‘‘(k) PENALTY FOR FAILURE TO MAINTAIN A SEPA6 RATE SEGREGATED ACCOUNT.—Any person required to 

7 maintain a separate segregated account pursuant to sec8 tion 501(e) that fails to maintain such a separate seg9 regated account shall pay a penalty of $1,000. 

10 ‘‘(l) PENALTY FOR FAILURE TO DEPOSIT COL11 LECTED TAXES IN A SEPARATE SEGREGATED AC12 COUNT.—Any person required to deposit collected taxes 

13 into a separate segregated account maintained pursuant 

14 to section 501(e) that fails to timely deposit said taxes 

15 into the separate segregated account shall pay a penalty 

16 equal to 1 percent of the amount required to be deposited. 

17 The penalty imposed by the previous sentence shall be tri18 pled unless said taxes have been deposited in the separate 

19 segregated account or remitted to the sales tax admin20 istering authority within 16 days of the date said deposit 

21 was due. 

22 ‘‘(m) JOINT AND SEVERAL LIABILITY FOR TAX MAT23 TERS PERSON AND RESPONSIBLE OFFICERS.—The tax 

24 matters person (designated pursuant to section 502(c)) 

25 and responsible officers or partners of a firm shall be 
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1 jointly and severally liable for the tax imposed by this sub2 title and penalties imposed by this subtitle. 

3 ‘‘(n) RIGHT OF CONTRIBUTION.—If more than 1 per4 son is liable with respect to any tax or penalty imposed 

5 by this subtitle, each person who paid such tax or penalty 

6 shall be entitled to recover from other persons who are 

7 liable for such tax or penalty an amount equal to the ex8 cess of the amount paid by such person over such person’s 

9 proportionate share of the tax or penalty. 

10 ‘‘(o) CIVIL PENALTIES AND CRIMINAL FINES NOT

11 EXCLUSIVE.—

12 ‘‘(1) CIVIL PENALTY.—The fact that a civil 

13 penalty has been imposed shall not prevent the im14 position of a criminal fine. 

15 ‘‘(2) CRIMINAL FINE.—The fact that a criminal 

16 fine has been imposed shall not prevent the imposi17 tion of a civil penalty. 

18 ‘‘(p) CONFIDENTIALITY.—Any person who violates 

19 the requirements relating to confidentiality of tax informa20 tion (as provided in section 605(e)) may be fined up to 

21 $10,000 or imprisoned for a period of not more than 1 

22 year, or both. 
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1 ‘‘(q) CROSS REFERENCE.—

‘‘For interest due on late payments, see section 

6601.

2 ‘‘SEC. 506. BURDEN OF PERSUASION AND BURDEN OF PRO3 DUCTION. 

4 ‘‘In all disputes concerning taxes imposed by this sub5 title, the person engaged in a dispute with the sales tax 

6 administering authority or the Secretary, as the case may 

7 be, shall have the burden of production of documents and 

8 records but the sales tax administering authority or the 

9 Secretary shall have the burden of persuasion. In all dis10 putes concerning an exemption claimed by a purchaser, 

11 if the seller has on file an intermediate sale or export sale 

12 certificate from the purchaser and did not have reasonable 

13 cause to believe that the certificate was improperly pro14 vided by the purchaser with respect to such purchase 

15 (within the meaning of section 103), then the burden of 

16 production of documents and records relating to that ex17 emption shall rest with the purchaser and not with the 

18 seller. 

19 ‘‘SEC. 507. ATTORNEYS’ AND ACCOUNTANCY FEES. 

20 ‘‘In all disputes concerning taxes imposed by this sub21 title, the person engaged in a dispute with the sales tax 

22 administering authority or the Secretary, as the case may 

23 be, shall be entitled to reasonable attorneys’ fees, account24 ancy fees, and other reasonable professional fees incurred 
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1 in direct relation to the dispute unless the sales tax admin2 istering authority or the Secretary establishes that its po3 sition was substantially justified. 

4 ‘‘SEC. 508. SUMMONS, EXAMINATIONS, AUDITS, ETC. 

5 ‘‘(a) SUMMONS.—Persons are subject to administra6 tive summons by the sales tax administering authority for 

7 records, documents, and testimony required by the sales 

8 tax administering authority to accurately determine liabil9 ity for tax under this subtitle. A summons shall be served 

10 by the sales tax administering authority by an attested 

11 copy delivered in hand to the person to whom it is directed 

12 or left at his last known address. The summons shall de13 scribe with reasonable certainty what is sought. 

14 ‘‘(b) EXAMINATIONS AND AUDITS.—The sales tax ad15 ministering authority has the authority to conduct at a 

16 reasonable time and place examinations and audits of per17 sons who are or may be liable to collect and remit tax 

18 imposed by this subtitle and to examine the books, papers, 

19 records, or other data of such persons which may be rel20 evant or material to the determination of tax due. 

21 ‘‘(c) LIMITATION ON AUTHORITY IN CASE OF REFER22 RAL.—No administrative summons may be issued by the 

23 sales tax administering authority and no action be com24 menced to enforce an administrative summons with re25 spect to any person if a Justice Department referral or 
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1 referral to a State Attorney General’s Office is in effect 

2 with respect to such person relating to a tax imposed by 

3 this subtitle. Such referral is in effect with respect to any 

4 person if the sales tax administering authority or the Sec5 retary has recommended to the Justice Department or a 

6 State Attorney General’s Office a grand jury investigation 

7 of such person or a criminal prosecution of such person 

8 that contemplates criminal sanctions under this title. A 

9 referral shall be terminated when—

10 ‘‘(1) the Justice Department or a State Attor11 ney General’s Office notifies the sales tax admin12 istering authority or the Secretary that he will not—

13 ‘‘(A) prosecute such person for any offense 

14 connected with the internal revenue laws, 

15 ‘‘(B) authorize a grand jury investigation 

16 of such person with respect to such offense, or 

17 ‘‘(C) continue such a grand jury investiga18 tion, or 

19 ‘‘(2) a final disposition has been made of any 

20 criminal proceeding connected with the internal rev21 enue laws, or conforming State sales tax, against 

22 such person. 

23 ‘‘SEC. 509. RECORDS.

24 ‘‘Any person liable to remit taxes pursuant to this 

25 subtitle shall keep records (including a record of all section 
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1 510 receipts provided, complete records of intermediate 

2 and export sales, including purchaser’s intermediate and 

3 export sales certificates and tax number and the net of 

4 tax amount of purchase) sufficient to determine the 

5 amounts reported, collected, and remitted for a period of 

6 6 years after the latter of the filing of the report for which 

7 the records formed the basis or when the report was due 

8 to be filed. Any purchaser who purchased taxable property 

9 or services but did not pay tax by reason of asserting an 

10 intermediate and export sales exemption shall keep records 

11 sufficient to determine whether said exemption was valid 

12 for a period of 7 years after the purchase of taxable prop13 erty or services. 

14 ‘‘SEC. 510. TAX TO BE SEPARATELY STATED AND CHARGED. 

15 ‘‘(a) IN GENERAL.—For each purchase of taxable 

16 property or services for which a tax is imposed by section 

17 101, the seller shall charge the tax imposed by section 101 

18 separately from the purchase. For purchase of taxable 

19 property or services for which a tax is imposed by section 

20 101, the seller shall provide to the purchaser a receipt for 

21 each transaction that includes—

22 ‘‘(1) the property or services price exclusive of 

23 tax; 

24 ‘‘(2) the amount of tax paid; 
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1 ‘‘(3) the property or service price inclusive of 

2 tax; 

3 ‘‘(4) the tax rate (the amount of tax paid (per 

4 paragraph (2)) divided by the property or service 

5 price inclusive of tax (per paragraph (3)); 

6 ‘‘(5) the date that the good or service was sold; 

7 ‘‘(6) the name of the vendor; and 

8 ‘‘(7) the vendor registration number. 

9 ‘‘(b) VENDING MACHINE EXCEPTION.—The require10 ments of subsection (a) shall be inapplicable in the case 

11 of sales by vending machines. Vending machines for pur12 poses of this subsection are machines—

13 ‘‘(1) that dispense taxable property in exchange 

14 for coins or currency; and 

15 ‘‘(2) that sell no single item exceeding $10 per 

16 unit in price. 

17 ‘‘(c) FINANCIAL INTERMEDIATION SERVICES EXCEP18 TION.—The requirements of subsection (a) shall be inap19 plicable in the case of sales financial intermediation serv20 ice. Receipts shall be issued when the tax is imposed (in 

21 accordance with section 803 (relating to timing of tax on 

22 financial intermediation services)). 
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1 ‘‘SEC. 511. COORDINATION WITH TITLE 11. 

2 ‘‘No addition to tax shall be made under section 505 

3 with respect to a period during which a case is pending 

4 under title 11, United States Code—

5 ‘‘(1) if such tax was incurred by the estate and 

6 the failure occurred pursuant to an order of the 

7 court finding probable insufficiency of funds of the 

8 estate to pay administrative expenses; or 

9 ‘‘(2) if—

10 ‘‘(A) such tax was incurred by the debtor 

11 before the earlier of the order for relief or (in 

12 the involuntary case) the appointment of a 

13 trustee; and 

14 ‘‘(B) the petition was filed before the due 

15 date prescribed by law (including extensions) 

16 for filing a return of such tax, or the date for 

17 making the addition to tax occurs on or after 

18 the date the petition was filed. 

19 ‘‘SEC. 512. APPLICABLE INTEREST RATE. 

20 ‘‘(a) IN GENERAL.—

21 ‘‘(1) FEDERAL SHORT-TERM RATE.—In the 

22 case of a debt instrument, investment, financing 

23 lease, or account with a term of not over 3 years, 

24 the applicable interest rate is the Federal short-term 

25 rate. 
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1 ‘‘(2) FEDERAL MID-TERM RATE.—In the case 

2 of a debt instrument, investment, financing lease, or 

3 account with a term of over 3 years but not over 9 

4 years, the applicable interest rate is the Federal 

5 mid-term rate. 

6 ‘‘(3) FEDERAL LONG-TERM RATE.—In the case 

7 of a debt instrument, investment, financing lease, or 

8 account with a term of over 9 years, the applicable 

9 interest rate is the Federal long-term rate. 

10 ‘‘(b) FEDERAL SHORT-TERM RATE.—The Federal 

11 short-term rate shall be the rate determined by the Sec12 retary based on the average market yield (selected by the 

13 Secretary and ending in the calendar month in which the 

14 determination is made during any one month) on out15 standing marketable obligations of the United States with 

16 remaining periods to maturity of 3 years or fewer. 

17 ‘‘(c) FEDERAL MID-TERM RATE.—The Federal mid18 term rate shall be the rate determined by the Secretary 

19 based on the average market yield (selected by the Sec20 retary and ending in the calendar month in which the de21 termination is made during any 1 month) on outstanding 

22 marketable obligations of the United States with remain23 ing periods to maturity of more than 3 years and not over 

24 9 years. 
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1 ‘‘(d) FEDERAL LONG-TERM RATE.—The Federal 

2 long-term rate shall be the rate determined by the Sec3 retary based on the average market yield (selected by the 

4 Secretary and ending in the calendar month in which the 

5 determination is made during any 1 month) on out6 standing marketable obligations of the United States with 

7 remaining periods to maturity of over 9 years. 

8 ‘‘(e) DETERMINATION OF RATES.—During each cal9 endar month, the Secretary shall determine the Federal 

10 short-term rate, the Federal mid-term rate and the Fed11 eral long-term rate which shall apply during the following 

12 calendar month. 

13 ‘‘CHAPTER 6—COLLECTIONS; APPEALS; 

14 TAXPAYER RIGHTS

‘‘Sec. 601. Collections. 

‘‘Sec. 602. Power to levy, etc. 

‘‘Sec. 603. Problem resolution offices.

‘‘Sec. 604. Appeals. 

‘‘Sec. 605. Taxpayer rights. 

‘‘Sec. 606. Installment agreements compromises.

15 ‘‘SEC. 601. COLLECTIONS. 

16 ‘‘The sales tax administering authority shall collect 

17 the taxes imposed by this subtitle, except as provided in 

18 section 404 (relating to Federal administration in certain 

19 States). 

20 ‘‘SEC. 602. POWER TO LEVY, ETC. 

21 ‘‘(a) IN GENERAL.—The sales tax administering au22 thority may levy and seize property, garnish wages or sal-
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1 ary and file liens to collect amounts due under this sub2 title, pursuant to enforcement of—

3 ‘‘(1) a judgment duly rendered by a court of 

4 law; 

5 ‘‘(2) an amount due if the taxpayer has failed 

6 to exercise his appeals rights under section 604; or 

7 ‘‘(3) an amount due if the appeals process de8 termined that an amount remained due and the tax9 payer has failed to timely petition the Tax Court for 

10 relief. 

11 ‘‘(b) EXEMPTION FROM LEVY, SEIZURE, AND GAR12 NISHMENTS.—There shall be exempt from levy, seizure, 

13 and garnishment or penalty in connection with any tax 

14 imposed by this subtitle—

15 ‘‘(1) wearing apparel, school books, fuel, provi16 sions, furniture, personal effects, tools of a trade or 

17 profession, livestock in a household up to an aggre18 gate value of $15,000; and 

19 ‘‘(2) monthly money income equal to 150 per20 cent of the monthly poverty level (as defined in sec21 tion 303). 

22 ‘‘(c) LIENS TO BE TIMELY RELEASED.—Subject to 

23 such reasonable regulations as the Secretary may provide, 

24 any lien imposed with respect to a tax imposed by this 

25 title shall be released not later than 30 days after—
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1 ‘‘(1) the liability was satisfied or became unen2 forceable; or 

3 ‘‘(2) a bond was accepted as security. 

4 ‘‘SEC. 603. PROBLEM RESOLUTION OFFICES. 

5 ‘‘(a) PROBLEM RESOLUTION OFFICE TO BE ESTAB6 LISHED.—Each sales tax administering authority shall es7 tablish an independent Problem Resolution Office and ap8 point an adequate number of problem resolution officers. 

9 The head of the problem resolution office must be ap10 pointed by, and serve at the pleasure of either the State 

11 Governor (in the case of an administering State) or the 

12 President of the United States. 

13 ‘‘(b) AUTHORITY OF PROBLEM RESOLUTION OFFI14 CERS.—Problem resolution officers shall have the author15 ity to investigate complaints and issue a Taxpayer Assist16 ance Order to administratively enjoin any collection activ17 ity if, in the opinion of the problem resolution officer, said 

18 collection activity is reasonably likely to not be in compli19 ance with law or to prevent hardship (other than by reason 

20 of having to pay taxes lawfully due). Problem resolution 

21 officers shall also have the authority to issue Taxpayer As22 sistance Orders releasing or returning property that has 

23 been levied upon or seized, ordering that a lien be released 

24 and that garnished wages be returned. A Taxpayer Assist25 ance Order may only be rescinded or modified by the prob-
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1 lem resolution officer that issued it, by the highest official 

2 in the relevant sales tax administering authority or by its 

3 general counsel upon a finding that the collection activity 

4 is justified by clear and convincing evidence. The authority 

5 to reverse this Taxpayer Assistance Order may not be del6 egated. 

7 ‘‘(c) FORM OF REQUEST FOR TAXPAYER ASSISTANCE

8 ORDER.—The Secretary shall establish a form and proce9 dure to aid persons requesting the assistance of the Prob10 lem Resolution Office and to aid the Problem Resolution 

11 Office in understanding the needs of the person seeking 

12 assistance. The use of this form, however, shall not be a 

13 prerequisite to a problem resolution officer taking action, 

14 including issuing a Taxpayer Assistance Order. 

15 ‘‘(d) CONTENT OF TAXPAYER ASSISTANCE ORDER.—

16 A Taxpayer Assistance Order shall contain the name of 

17 the problem resolution officer, any provision relating to 

18 the running of any applicable period of limitation, the 

19 name of the person that the Taxpayer Assistance Order 

20 assists, the government office (or employee or officer of 

21 said government office) to whom it is directed and the ac22 tion or cessation of action that the Taxpayer Assistance 

23 Order requires of said government officer (or employee or 

24 officer of said government office). The Taxpayer Assist25 ance Order need not contain findings of fact or its legal 
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1 basis; however, the problem resolution officer must provide 

2 findings of fact and the legal basis for the issuance of the 

3 Taxpayer Assistance Order to the sales tax administering 

4 authority upon the request of an officer of said authority 

5 within 2 weeks of the receipt of such request. 

6 ‘‘(e) INDEPENDENCE PROTECTED.—Problem resolu7 tion officers shall not be disciplined or adversely affected 

8 for the issuance of administrative injunctions unless a pat9 tern of issuing injunctions that are manifestly unreason10 able is proven in an administrative hearing by a prepon11 derance of the evidence. 

12 ‘‘(f) OTHER RIGHTS NOT LIMITED.—Nothing in this 

13 section shall limit the authority of the sales tax admin14 istering authority, the registered person or other person 

15 from pursuing any legal remedy in any court with jurisdic16 tion over the dispute at issue. 

17 ‘‘(g) LIMITATIONS.—The running of any applicable 

18 period of limitation shall be suspended for a period of 8 

19 weeks following the issuance of a Taxpayer Assistance 

20 Order or, if specified, for a longer period set forth in the 

21 Taxpayer Assistance Order provided the suspension does 

22 not exceed 6 months. 

23 ‘‘SEC. 604 APPEALS

24 ‘‘(a) ADMINISTRATIVE APPEALS.—The sales tax ad25 ministering authority shall establish an administrative ap-
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1 peals process wherein the registered person or other per2 son in disagreement with a decision of the sales tax admin3 istering authority asserting liability for tax is provided a 

4 full and fair hearing in connection with any disputes said 

5 person has with the sales tax administering authority. 

6 ‘‘(b) TIMING OF ADMINISTRATIVE APPEALS.—Said 

7 administrative appeal must be made within 60 days of re8 ceiving a final notice of amount due pursuant to section 

9 605(d) unless leave for an extension is granted by the ap10 peals officer in a form prescribed by the Secretary. Leave 

11 shall be granted to avoid hardship. 

12 ‘‘SEC. 605. TAXPAYER RIGHTS. 

13 ‘‘(a) RIGHTS TO BE DISCLOSED.—The sales tax ad14 ministering authority shall provide to any person against 

15 whom it has—

16 ‘‘(1) commenced an audit or investigation; 

17 ‘‘(2) issued a final notice of amount due; 

18 ‘‘(3) filed an administrative lien, levy, or gar19 nishment; 

20 ‘‘(4) commenced other collection action; 

21 ‘‘(5) commenced an action for civil penalties; or 

22 ‘‘(6) any other legal action, 

23 a document setting forth in plain English the rights of 

24 the person. The document shall explain the administrative 

25 appeals process, the authority of the Problem Resolution 
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1 Office (established pursuant to section 603) and how to 

2 contact that Office, the burden of production and persua3 sion that the person and the sales tax administering au4 thority bear (pursuant to section 506), the right of the 

5 person to professional fees (pursuant to section 507), the 

6 right to record interviews and such other rights as the per7 son may possess under this subtitle. Said document will 

8 also set forth the procedures for entering into an install9 ment agreement. 

10 ‘‘(b) RIGHT TO PROFESSIONAL ASSISTANCE.—In all 

11 dealings with the sales tax administering authority, a per12 son shall have the right to assistance, at their own ex13 pense, of 1 or more professional advisors. 

14 ‘‘(c) RIGHT TO RECORD INTERVIEWS.—Any person 

15 who is interviewed by an agent of the sales tax admin16 istering authority shall have the right to video or audio 

17 tape the interview at the person’s own expense. 

18 ‘‘(d) RIGHT TO FINAL NOTICE OF AMOUNT DUE.—

19 No collection or enforcement action will be commenced 

20 against a person until 30 days after they have been pro21 vided with a final notice of amount due under this subtitle 

22 by the sales tax administering authority. The final notice 

23 of amount due shall set forth the amount of tax due (along 

24 with any interest and penalties due) and the factual and 

25 legal basis for such amounts being due with sufficient 
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1 specificity that such basis can be understood by a reason2 able person who is not a tax professional reading the no3 tice. The final notice shall be sent by certified mail, return 

4 receipt requested, to—

5 ‘‘(1) the address last provided by a registered 

6 seller; or 

7 ‘‘(2) the best available address to a person who 

8 is not a registered seller. 

9 ‘‘(e) CONFIDENTIALITY OF TAX INFORMATION.—

10 ‘‘(1) IN GENERAL.—All reports and report in11 formation (related to any internal revenue law) shall 

12 be confidential and except as authorized by this title 

13 ‘‘(A) no officer or employee (including 

14 former officers and employees) of the United 

15 States; 

16 ‘‘(B) no officer or employee (including 

17 former officers and employees) of any State or 

18 local agency who has had access to returns or 

19 return information; and 

20 ‘‘(C) no other person who has had access 

21 to returns or return information. 

22 shall disclose any report or report information ob23 tained by him in any manner in connection with his 

24 service as such officer or employee or otherwise. 
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1 ‘‘(2) DESIGNEES.—The sales tax administering 

2 authority may, subject to such requirements as the 

3 Secretary may impose, disclose the report and report 

4 information of a person to that person or persons as 

5 that person may designate to receive said informa6 tion or return. 

7 ‘‘(3) OTHER SALES TAX ADMINISTERING AU8 THORITIES.—A sales tax administering authority 

9 may impose, disclose the report and report informa10 tion to another sales tax administering authority. 

11 ‘‘(4) INCOMPETENCY.—A sales tax admin12 istering authority may, subject to such requirements 

13 as the Secretary may impose, disclose the report and 

14 report information to the committee, trustee, or 

15 guardian of a person who is incompetent. 

16 ‘‘(5) DECEASED PERSONS.—A sales tax admin17 istering authority may, subject to such requirements 

18 as the Secretary may impose, disclose the report and 

19 report information to the decedent’s—

20 ‘‘(A) administrator, executor, estate trust21 ee, or 

22 ‘‘(B) heir at law, next of kin, or beneficiary 

23 under a will who has a material interest that 

24 will be affected by the information. 
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1 ‘‘(6) BANKRUPTCY.—A sales tax administering 

2 authority may, subject to such requirements as the 

3 Secretary may impose, disclose the report and report 

4 information to a person’s trustee in bankruptcy. 

5 ‘‘(7) CONGRESS.—Upon written request from 

6 the Chairman of the Committee on Ways and 

7 Means, the Chairman of the Committee on Finance 

8 of the Senate, or the Chairman or Chief of Staff of 

9 the Joint Committee on Taxation, a sales tax admin10 istering authority shall disclose the report and report 

11 information, except that any report or report infor12 mation that can be associated with or otherwise 

13 identify a particular person shall be furnished to 

14 such committee only when sitting in closed executive 

15 session unless such person otherwise consents in 

16 writing to such disclosure. 

17 ‘‘(8) WAIVER OF PRIVACY RIGHTS.—A person 

18 may waive confidentiality rights provided by this sec19 tion. Such waiver must be in writing.

20 ‘‘(9) INTERNAL USE.—Disclosure of the report 

21 or report information by officers or employees of a 

22 sales tax administering authority to other officers or 

23 employees of a sales tax administering authority in 

24 the ordinary course of tax administration activities 
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1 shall not constitute unlawful disclosure of the report 

2 or report information. 

3 ‘‘(10) STATISTICAL USE.—Upon request in 

4 writing by the Secretary of Commerce, the Secretary 

5 shall furnish such reports and report information to 

6 officers and employees of the Department of Com7 merce as the Secretary may prescribe by regulation 

8 for the purposes of, and only to the extent necessary 

9 in, the structuring of censuses and national eco10 nomic accounts and conducting related statistical ac11 tivities authorized by law. 

12 ‘‘(11) DEPARTMENT OF THE TREASURY.—Re13 turns and return information shall be open for in14 spection by officers and employees of the Depart15 ment of the Treasury whose official duties require 

16 such inspection or disclosure for the purpose of, and 

17 only to the extent necessary for, preparing economic 

18 or financial forecasts, projections, analyses, or esti19 mates. Such inspection or disclosure shall be per20 mitted only upon written request that sets forth the 

21 reasons why such inspection or disclosure is nec22 essary and is signed by the head of the bureau or 

23 office of the Department of the Treasury requesting 

24 the inspection or disclosure. 
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1 ‘‘SEC. 606. INSTALLMENT AGREEMENTS; COMPROMISES. 

2 ‘‘The sales tax administering authority is authorized 

3 to enter into written agreements with any person under 

4 which the person is allowed to satisfy liability for payment 

5 of any tax under this subtitle (and penalties and interest 

6 relating thereto) in installment payments if the sales tax 

7 administering authority determines that such agreement 

8 will facilitate the collection of such liability. The agree9 ment shall remain in effect for the term of the agreement 

10 unless the information that the person provided to the 

11 sales tax administering authority was materially inac12 curate or incomplete. The sales tax administering author13 ity may compromise any amounts alleged to be due. 

14 ‘‘CHAPTER 7—SPECIAL RULES

‘‘Sec. 701. Hobby activities. 

‘‘Sec. 702. Gaming activities. 

‘‘Sec. 703. Government purchases. 

‘‘Sec. 704. Government enterprises. 

‘‘Sec. 705. Mixed use property. 

‘‘Sec. 706. Not-for-profit organizations.

15 ‘‘SEC. 701. HOBBY ACTIVITIES. 

16 ‘‘(a) HOBBY ACTIVITIES.—Neither the exemption af17 forded by section 102 for intermediate sales nor the cred18 its available pursuant to section 202 or 203 shall be avail19 able for any taxable property or service purchased for use 

20 in an activity if that activity is not engaged in for-profit. 
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1 ‘‘(b) STATUS DEEMED.—If the activity has received 

2 gross payments for the sale of taxable property or services 

3 that exceed the sum of—

4 ‘‘(1) taxable property and services purchased; 

5 ‘‘(2) wages and salary paid; and 

6 ‘‘(3) taxes (of any type) paid, 

7 in 2 or more of the most recent 3 calendar years during 

8 which it operated when the business activity shall be con9 clusively deemed to be engaged in for profit. 

10 ‘‘SEC. 702. GAMING ACTIVITIES. 

11 ‘‘(a) REGISTRATION.—Any person selling 1 or more 

12 chances is a gaming sponsor and shall register, in a form 

13 prescribed by the Secretary, with the sales tax admin14 istering authority as a gaming sponsor. 

15 ‘‘(b) CHANCE DEFINED.—For purposes of this sec16 tion, the term ‘chance’ means a lottery ticket, a raffle tick17 et, chips, other tokens, a bet or bets placed, a wager or 

18 wagers placed, or any similar device where the purchase 

19 of the right gives rise to an obligation by the gaming spon20 sor to pay upon the occurrence of—

21 ‘‘(1) a random or unpredictable event; or 

22 ‘‘(2) an event over which neither the gaming 

23 sponsor nor the person purchasing the chance has 

24 control over the outcome. 
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1 ‘‘(c) CHANCES NOT TAXABLE PROPERTY OR SERV2 ICE.—Notwithstanding any other provision in this sub3 title, a chance is not taxable property or services for pur4 poses of section 101. 

5 ‘‘(d) TAX ON GAMING SERVICES IMPOSED.—A 23-

6 percent tax is hereby imposed on the taxable gaming serv7 ices of a gaming sponsor. This tax shall be paid and remit8 ted by the gaming sponsor. The tax shall be remitted by 

9 the 15th day of each month with respect to taxable gaming 

10 services during the previous calendar month. 

11 ‘‘(e) TAXABLE GAMING SERVICES DEFINED.—For 

12 purposes of this section, the term ‘taxable gaming services’ 

13 means—

14 ‘‘(1) gross receipts of the gaming sponsor from 

15 the sale of chances, minus 

16 ‘‘(2) the sum of—

17 ‘‘(A) total gaming payoffs to chance pur18 chasers (or their designees); and 

19 ‘‘(B) gaming specific taxes (other than the 

20 tax imposed by this section) imposed by the 

21 Federal, State, or local government. 

22 ‘‘SEC. 703. GOVERNMENT PURCHASES. 

23 ‘‘(a) GOVERNMENT PURCHASES.—

24 ‘‘(1) PURCHASES BY THE FEDERAL GOVERN25 MENT.—Purchases by the Federal Government of 
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1 taxable property and services shall be subject to the 

2 tax imposed by section 101. 

3 ‘‘(2) PURCHASE BY STATE GOVERNMENTS AND

4 THEIR POLITICAL SUBDIVISIONS.—Purchases by 

5 State governments and their political subdivisions of 

6 taxable property and services shall be subject to the 

7 tax imposed by section 101. 

8 ‘‘(b) CROSS REFERENCES.—

‘‘For purchases by government enterprises see 

section 704.

9 ‘‘SEC. 704. GOVERNMENT ENTERPRISES. 

10 ‘‘(a) GOVERNMENT ENTERPRISES TO COLLECT AND

11 REMIT TAXES ON SALES.—Nothing in this subtitle shall 

12 be construed to exempt any Federal, State, or local gov13 ernmental unit or political subdivision (whether or not the 

14 State is an administering State) operating a government 

15 enterprise from collecting and remitting tax imposed by 

16 this subtitle on any sale of taxable property or services., 

17 Government enterprises shall comply with all duties im18 posed by this subtitle and shall be liable for penalties and 

19 subject to enforcement action in the same manner as pri20 vate persons that are not government enterprises. 

21 ‘‘(b) GOVERNMENT ENTERPRISE.—Any entity owned 

22 or operated by a Federal, State, or local governmental unit 

23 or political subdivision that receives gross payments from 

24 private persons is a government enterprise, except that a 
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1 government-owned entity shall not become a government 

2 enterprise for purposes of this section unless in any quar3 ter it has revenues from selling taxable property or serv4 ices that exceed $2,500. 

5 ‘‘(c) GOVERNMENT ENTERPRISES INTERMEDIATE

6 SALES.—

7 ‘‘(1) IN GENERAL.—Government enterprises 

8 shall not be subject to tax on purchases that would 

9 not be subject to tax pursuant to section 102(b) if 

10 the government enterprise were a private enterprise. 

11 ‘‘(2) EXCEPTION.—Government enterprises 

12 may not use the exemption afforded by section 

13 102(b) to serve as a conduit for tax-free purchases 

14 by government units that would otherwise be subject 

15 to taxation on purchases pursuant to section 703. 

16 Transfers of taxable property or services purchased 

17 exempt from tax from a government enterprise to 

18 such government unit shall be taxable. 

19 ‘‘(d) SEPARATE BOOKS OF ACCOUNT.—Any govern20 ment enterprise must maintain books of account, separate 

21 from the nonenterprise government accounts, maintained 

22 in accordance with generally accepted accounting prin23 ciples. 
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1 ‘‘(e) TRADE OR BUSINESS.—A government enterprise 

2 shall be treated as a trade or business for purposes of this 

3 subtitle. 

4 ‘‘(f) ENTERPRISE SUBSIDIES CONSTITUTE TAXABLE

5 PURCHASE.—A transfer of funds to a government enter6 prise by a government entity without full consideration 

7 shall constitute a taxable government purchase with the 

8 meaning of section 703 to the extent that the transfer of 

9 funds exceeds the fair market value of the consideration. 

10 ‘‘SEC. 705. MIXED USE PROPERTY. 

11 ‘‘(a) MIXED USE PROPERTY OR SERVICE.—

12 ‘‘(1) MIXED USE PROPERTY OR SERVICE DE13 FINED.—For purposes of this section, the term 

14 ‘mixed use property or service’ is a taxable property 

15 or taxable service used for both taxable use or con16 sumption and for a purpose that would not be sub17 ject to tax pursuant to section 102(a)(1). 

18 ‘‘(2) TAXABLE THRESHOLD.—Mixed use prop19 erty or service shall be subject to tax notwith20 standing section 102(a)(1) unless such property or 

21 service is used more than 95 percent for purposes 

22 that would give rise to an exemption pursuant to 

23 section 102(a)(1) during each calendar year (or por24 tions thereof) it is owned. 
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1 ‘‘(3) MIXED USE PROPERTY OR SERVICES

2 CREDIT.—A person registered pursuant to section 

3 502 is entitled to a business use conversion credit 

4 (pursuant to section 202) equal to the product of—

5 ‘‘(A) the mixed use property amount; and 

6 ‘‘(B) the business use ratio; and 

7 ‘‘(C) the rate of tax imposed by section 

8 101. 

9 ‘‘(4) MIXED USE PROPERTY AMOUNT.—The 

10 mixed use property amount for each month (or frac11 tion thereof) in which the property was owned shall 

12 be—

13 ‘‘(A) one-three-hundred-sixtieth of the 

14 gross payments for real property for 360 

15 months or until the property is sold; 

16 ‘‘(B) one-eighty-fourth of the gross pay17 ments for tangible personal property for 84 

18 months or until the property is sold; 

19 ‘‘(C) one-sixtieth of the gross payments for 

20 vehicles for 60 months or until the property is 

21 sold; or 

22 ‘‘(D) for other types of taxable property or 

23 services, a reasonable amount or in accordance 

24 with regulations prescribed by the Secretary. 
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1 ‘‘(5) BUSINESS USE RATIO.—For purposes of 

2 this section, the term ‘business use ratio’ means the 

3 ratio of business use to total use for a particular cal4 endar month (or portion thereof if the property was 

5 owned for only part of said calendar month). For ve6 hicles, the business use ratio will be the ratio of 

7 business purpose miles to total miles in a particular 

8 calendar month. For real property, the business use 

9 ratio is the ratio of floor space used primarily for 

10 business purposes to total floor space in a particular 

11 calendar month. For tangible personal property (ex12 cept for vehicles), the business use ratio is the ratio 

13 of total time used for business purposes to total time 

14 used in a particular calendar year. For other prop15 erty or services, the business ratio shall be cal16 culated using a reasonable method. Reasonable 

17 records must be maintained to support a person’s 

18 business use of the mixed use property or service. 

19 ‘‘(b) TIMING OF BUSINESS USE CONVERSION CRED20 IT ARISING OUT OF OWNERSHIP OF MIXED USE PROP21 ERTY.—A person entitled to a credit pursuant to sub22 section (a)(3) arising out of the ownership of mixed use 

23 property must account for the mixed use on a calendar 

24 year basis, and may file for the credit with respect to 
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1 mixed use property in any month following the calendar 

2 year giving rise to the credit. 

3 ‘‘(c) CROSS REFERENCE.—

‘‘For business use conversion credit, see section 

202.

4 ‘‘SEC. 706. NOT-FOR-PROFIT ORGANIZATIONS. 

5 ‘‘(a) NOT-FOR-PROFIT ORGANIZATIONS.—Dues, con6 tributions, and similar payments to qualified not-for-profit 

7 organizations shall not be considered gross payments for 

8 taxable property or services for purposes of this subtitle. 

9 ‘‘(b) DEFINITION.—For purposes of this section, the 

10 term ‘qualified not-for-profit organization’ means a not11 for-profit organization organized and operated exclu12 sively—

13 ‘‘(1) for religious, charitable, scientific, testing 

14 for public safety, literary, or educational purposes; 

15 ‘‘(2) as civic leagues or social welfare organiza16 tions; 

17 ‘‘(3) as labor, agricultural, or horticultural or18 ganizations; 

19 ‘‘(4) as chambers of commerce, business 

20 leagues, or trade associations; or 

21 ‘‘(5) as fraternal beneficiary societies, orders, or 

22 associations; 

23 no part of the net earnings of which inures to the benefit 

24 of any private shareholder or individual. 
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1 ‘‘(c) QUALIFICATION CERTIFICATES.—Upon applica2 tion in a form prescribed by the Secretary, the sales tax 

3 administering authority shall provide qualification certifi4 cates to qualified not-for-profit organizations. 

5 ‘‘(d) TAXABLE TRANSACTIONS.—If a qualified not6 for-profit organization provides taxable property or serv7 ices in connection with contributions, dues, or similar pay8 ments to the organization, then it shall be required to 

9 treat the provision of said taxable property or services as 

10 a purchase taxable pursuant to this subtitle at the fair 

11 market value of said taxable property or services. 

12 ‘‘(e) EXEMPTIONS.—Taxable property and services 

13 purchased by a qualified not-for-profit organization shall 

14 be eligible for the exemptions provided in section 102. 

15 ‘‘CHAPTER 8—FINANCIAL 

16 INTERMEDIATION SERVICES

‘‘Sec. 801. Determination of financial intermediation services amount. 

‘‘Sec. 802. Bad debts. 

‘‘Sec. 803. Timing of tax on financial intermediation services. 

‘‘Sec. 804. Financing leases. 

‘‘Sec. 805. Basic interest rate. 

‘‘Sec. 806. Foreign financial intermediation services.

17 ‘‘SEC. 801. DETERMINATION OF FINANCIAL INTERMEDI18 ATION SERVICES AMOUNT. 

19 ‘‘(a) FINANCIAL INTERMEDIATION SERVICES.—For 

20 purposes of this subtitle—

21 ‘‘(1) IN GENERAL.—The term ‘financial inter22 mediation services’ means the sum of—
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1 ‘‘(A) explicitly charged fees for financial 

2 intermediation services, and 

3 ‘‘(B) implicitly charged fees for financial 

4 intermediation services. 

5 ‘‘(2) EXPLICITLY CHARGED FEES FOR FINAN6 CIAL INTERMEDIATION SERVICES.—The term ‘explic7 itly charged fees for financial intermediation serv8 ices’ includes—

9 ‘‘(A) brokerage fees; 

10 ‘‘(B) explicitly stated banking, loan origi11 nation, processing, documentation, credit check 

12 fees, or other similar fees; 

13 ‘‘(C) safe-deposit box fees; 

14 ‘‘(D) insurance premiums, to the extent 

15 such premiums are not allocable to the invest16 ment account of the underlying insurance pol17 icy; 

18 ‘‘(E) trustees’ fees; and 

19 ‘‘(F) other financial services fees (includ20 ing mutual fund management, sales, and exit 

21 fees). 

22 ‘‘(3) IMPLICITLY CHARGED FEES FOR FINAN23 CIAL INTERMEDIATION SERVICES.—

24 ‘‘(A) IN GENERAL.—The term ‘implicitly 

25 charged fees for financial intermediation serv-
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1 ices’ includes the gross imputed amount in rela2 tion to any underlying interest-bearing invest3 ment, account, or debt. 

4 ‘‘(B) GROSS IMPUTED AMOUNT.—For pur5 poses of subparagraph (A), the term ‘gross im6 puted amount’ means—

7 ‘‘(i) with respect to any underlying in8 terest-bearing investment or account, the 

9 product of—

10 ‘‘(I) the excess (if any) of the 

11 basic interest rate (as defined in sec12 tion 805) over the rate paid on such 

13 investment; and 

14 ‘‘(II) the amount of the invest15 ment or account; and 

16 ‘‘(ii) with respect to any underlying 

17 interest-bearing debt, the product of—

18 ‘‘(I) the excess (if any) of the 

19 rate paid on such debt over the basic 

20 interest rate (as defined in section 

21 805); and 

22 ‘‘(II) the amount of the debt. 

23 ‘‘(b) SELLER OF FINANCIAL INTERMEDIATION SERV24 ICES.—For purposes of section 103(a), the seller of finan25 cial intermediation services shall be—
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1 ‘‘(1) in the case of explicitly charged fees for fi2 nancial intermediation services, the seller shall be 

3 the person who receives the gross payments for the 

4 charged financial intermediation services; 

5 ‘‘(2) in the case of implicitly charged fees for fi6 nancial intermediation services with respect to any 

7 underlying interest-bearing investment or account, 

8 the person making the interest payments on the in9 terest-bearing investment or account; and 

10 ‘‘(3) in the case of implicitly charged fees for fi11 nancial intermediation services with respect to any 

12 interest-bearing debt, the person receiving the inter13 est payments on the interest-bearing debt. 

14 ‘‘SEC. 802. BAD DEBTS. 

15 ‘‘(a) IN GENERAL.—For purposes of section 205(a), 

16 a bad debt shall be a business debt that becomes wholly 

17 or partially worthless to the payee. 

18 ‘‘(b) BUSINESS LOAN.—For purposes of subsection 

19 (a), a business loan or debt is a bona fide loan or debt 

20 made for a business purpose that both parties intended 

21 be repaid. 

22 ‘‘(c) DETERMINATION OF WORTHLESSNESS.—

23 ‘‘(1) IN GENERAL.—No loan or debt shall be 

24 considered wholly or partially worthless unless it has 

25 been in arrears for 180 days or more, except that if 
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1 a debt is discharged wholly or partially in bank2 ruptcy before 180 days has elapsed, then it shall be 

3 deemed wholly or partially worthless on the date of 

4 discharge. 

5 ‘‘(2) DETERMINATION BY HOLDER.—A loan or 

6 debt that has been in arrears for 180 days or more 

7 may be deemed wholly or partially worthless by the 

8 holder unless a payment schedule has been entered 

9 into between the debtor and the lender. 

10 ‘‘(d) CROSS REFERENCE.—

‘‘See section 205(c) for tax on subsequent payments.

11 ‘‘SEC. 803. TIMING OF TAX ON FINANCIAL INTERMEDIATION 

12 SERVICES. 

13 ‘‘The tax on financial intermediation services pro14 vided by section 801 with respect to an underlying invest15 ment account or debt shall be imposed and collected with 

16 the same frequency that statements are rendered by the 

17 financial institution in connection with the investment ac18 count or debt but not less frequently than quarterly. 

19 ‘‘SEC. 804. FINANCING LEASES. 

20 ‘‘(a) DEFINITION.—For purposes of this section, the 

21 term ‘financing lease’ means any lease under which the 

22 lessee has the right to acquire the property for 50 percent 

23 or less of its fair market value at the end of the lease 

24 term. 
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1 ‘‘(b) GENERAL RULE.—Financing leases shall be 

2 taxed in the method set forth in this section. 

3 ‘‘(c) DETERMINATION OF PRINCIPAL AND INTEREST

4 COMPONENTS OF FINANCING LEASE.—The Secretary 

5 shall promulgate rules for disaggregating the principal 

6 and interest components of a financing lease. The prin7 cipal amount shall be determined to the extent possible 

8 by examination of the contemporaneous sales price or 

9 prices of property the same or similar as the leased prop10 erty. 

11 ‘‘(d) ALTERNATIVE METHOD.—In the event that con12 temporaneous sales prices or property the same or similar 

13 as the leased property are not available, the principal and 

14 interest components of a financing lease shall be 

15 disaggregated using the applicable interest rate (as de16 fined in section 512) plus 4 percent. 

17 ‘‘(e) PRINCIPAL COMPONENT.—The principal compo18 nent of the financing lease shall be subject to tax as if 

19 a purchase in the amount of the principal component had 

20 been made on the day on which said lease was executed. 

21 ‘‘(f) INTEREST COMPONENT.—The financial inter22 mediation services amount with respect to the interest 

23 component of the financing lease shall be subject to tax 

24 under this subtitle. 
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1 ‘‘(g) COORDINATION.—If the principal component 

2 and financial intermediation services amount with respect 

3 to the interest component of a lease have been taxed pur4 suant to this section, then the gross lease or rental pay5 ments shall not be subject to additional tax. 

6 ‘‘SEC. 805. BASIC INTEREST RATE. 

7 ‘‘For purposes of this chapter, the basic interest rate 

8 with respect to a debt instrument, investment, financing 

9 lease, or account shall be the applicable interest rate (as 

10 determined in section 512). For debt instruments, invest11 ments, or accounts of contractually fixed interest, the ap12 plicable interest rate of the month of issuance shall apply. 

13 For debt instruments, investments, or accounts of variable 

14 interest rates and which have no reference interest rate, 

15 the applicable interest shall be the Federal short-term in16 terest rate for each month. For debt instruments, invest17 ments, or accounts of variable interest rates and which 

18 have a reference interest rate, the applicable interest shall 

19 be the applicable interest rate for the reference interest 

20 rate for each month. 

21 ‘‘SEC. 806. FOREIGN FINANCIAL INTERMEDIATION SERV22 ICES. 

23 ‘‘(a) SPECIAL RULES RELATING TO INTERNATIONAL

24 FINANCIAL INTERMEDIATION SERVICES.—Financial 

25 intermediation services shall be deemed as used or con-
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1 sumed within the United States if the person (or any re2 lated party as defined in section 205(e)) purchasing the 

3 services is a resident of the United States. 

4 ‘‘(b) DESIGNATION OF TAX REPRESENTATIVE.—Any 

5 person that provides financial intermediation services to 

6 United States residents must, as a condition of lawfully 

7 providing such services, designate, in a form prescribed 

8 by the Secretary, a tax representative for purposes of this 

9 subtitle. The tax representative shall be responsible for en10 suring that the taxes imposed by this subtitle are collected 

11 and remitted and shall be jointly and severally liable for 

12 collecting and remitting these taxes. The Secretary may 

13 require reasonable bond of the tax representative. The 

14 Secretary or a sales tax administering authority may bring 

15 an action seeking a temporary restraining order, an in16 junction, or such other order as may be appropriate to 

17 enforce this section. 

18 ‘‘(c) CROSS REFERENCES.—

‘‘For definition of person, see section 901.

19 ‘‘CHAPTER 9—ADDITIONAL MATTERS

‘‘Sec. 901. Additional matters. 

‘‘Sec. 902. Transition matters. 

‘‘Sec. 903. Wages to be reported to Social Security Administration. 

‘‘Sec. 904. Trust Fund revenue. 

‘‘Sec. 905. Withholding of tax on nonresident aliens and foreign corporations.
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1 ‘‘SEC. 901. ADDITIONAL MATTERS. 

2 ‘‘(a) INTANGIBLE PROPERTY ANTIAVOIDANCE

3 RULE.—Notwithstanding section 2(a)(14)(a)(i), the sale 

4 of a copyright or trademark shall be treated as the sale 

5 of taxable services (within the meaning of section 101(a)) 

6 if the substance of the sales of copyright or trademark 

7 constituted the sale of the services that produced the copy8 righted material or the trademark. 

9 ‘‘(b) DE MINIMIS PAYMENTS.—Up to $400 of gross 

10 payments per calendar year shall be exempt from the tax 

11 imposed by section 101 if—

12 ‘‘(1) made by a person not in connection with 

13 a trade or business at any time during such calendar 

14 year prior to making said gross payments, and 

15 ‘‘(2) made to purchase any taxable property or 

16 service which is imported into the United States by 

17 such person for use or consumption by such person 

18 in the United States. 

19 ‘‘(c) DE MINIMIS SALES.—Up to $1,200 per calendar 

20 year of gross payments shall be exempt from the tax im21 posed by section 101 if received—

22 ‘‘(1) by a person not in connection with a trade 

23 or business during such calendar year prior to the 

24 receipt of said gross payments; and 

25 ‘‘(2) in connection with a casual or isolated 

26 sale. 
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1 ‘‘(d) DE MINIMIS SALE OF FINANCIAL INTERMEDI2 ATION SERVICES.—Up to $10,000 per calendar year of 

3 gross payments received by a person from the sale of fi4 nancial intermediation services (as determined in accord5 ance with section 801) shall be exempt from the tax im6 posed by section 101. The exemption provided by this sub7 section is in addition to other exemptions afforded by this 

8 chapter. The exemption provided by this subsection shall 

9 not be available to large sellers (as defined in section 

10 501(e)(3)). 

11 ‘‘(e) PROXY BUYING TAXABLE.—If a registered per12 son provides taxable property or services to a person either 

13 as a gift, prize, reward, or as remuneration for employ14 ment, and such taxable property or services were not pre15 viously subject to tax pursuant to section 101, then the 

16 provision of such taxable property or services by the reg17 istered person shall be deemed the conversion of such tax18 able property or services to personal use subject to tax 

19 pursuant to section 103(c) at the tax inclusive fair market 

20 value of such taxable property or services. 

21 ‘‘(f) SUBSTANCE OVER FORM.—The substance of a 

22 transaction will prevail over its form if the transaction has 

23 no bona fide economic purpose and is designed to evade 

24 tax imposed by this subtitle. 

25 ‘‘(g) CERTAIN EMPLOYEE DISCOUNTS TAXABLE.—
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1 ‘‘(1) EMPLOYEE DISCOUNT.—For purposes of 

2 this subsection, the term ‘employee discount’ means 

3 an employer’s offer of taxable property or services 

4 for sale to its employees or their families (within the 

5 meaning of section 302(b)) for less than the offer of 

6 such taxable property or services to the general pub7 lic. 

8 ‘‘(2) EMPLOYEE DISCOUNT AMOUNT.—For pur9 poses of this subsection, the employee discount 

10 amount is the amount by which taxable property or 

11 services are sold pursuant to an employee discount 

12 below the amount for which such taxable property or 

13 services would have been sold to the general public. 

14 ‘‘(3) TAXABLE AMOUNT.—If the employee dis15 count amount exceeds 20 percent of the price that 

16 the taxable property or services would have been sold 

17 to the general public, then the sale of such taxable 

18 property or services by the employer shall be deemed 

19 the conversion of such taxable property or services 

20 to personal use and tax shall be imposed on the tax21 able employee discount amount. The taxable em22 ployee discount amount shall be—

23 ‘‘(A) the employee discount amount, minus 
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1 ‘‘(B) 20 percent of the amount for which 

2 said taxable property or services would have 

3 been sold to the general public. 

4 ‘‘(h) SATURDAY, SUNDAY, OR LEGAL HOLIDAY.—

5 When the last day prescribed for performing any act re6 quired by this subtitle falls on a Saturday, Sunday, or 

7 legal holiday (in the jurisdiction where the return is to 

8 be filed), the performance of such act shall be considered 

9 timely if it is performed on the next day which is not a 

10 Saturday, Sunday, or legal holiday (in the jurisdiction 

11 where the return is to be filed). 

12 ‘‘SEC. 902. TRANSITION MATTERS.

13 ‘‘(a) INVENTORY.—

14 ‘‘(1) QUALIFIED INVENTORY.—Inventory held 

15 by a trade or business on the close of business on 

16 December 31, 2004, shall be qualified inventory if it 

17 is sold—

18 ‘‘(A) before December 31, 2006; 

19 ‘‘(B) by a registered person; and 

20 ‘‘(C) subject to the tax imposed by section 

21 101. 

22 ‘‘(2) COSTS.—For purposes of this section, 

23 qualified inventory shall have the cost that it had for 

24 Federal income tax purposes for the trade or busi25 ness as of December 31, 2004 (including any 
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1 amounts capitalized by reason of section 263A of the 

2 Internal Revenue Code of 1986 as in effect on De3 cember 31, 2004). 

4 ‘‘(3) TRANSITIONAL INVENTORY CREDIT.—The 

5 trade or business which held the qualified inventory 

6 on the close of business on December 31, 2004, shall 

7 be entitled to a transitional inventory credit equal to 

8 the cost of the qualified inventory (determined in ac9 cordance with paragraph (2)) times the rate of tax 

10 imposed by section 101. 

11 ‘‘(4) TIMING OF CREDIT.—The credit provided 

12 under paragraph (3) shall be allowed with respect to 

13 the month when the inventory is sold subject to the 

14 tax imposed by this subtitle. Said credit shall be re15 ported as an intermediate and export sales credit 

16 and the person claiming said credit shall attach sup17 porting schedules in the form that the Secretary 

18 may prescribe. 

19 ‘‘(b) WORK-IN-PROCESS.—For purposes of this sec20 tion, inventory shall include work-in-process. 

21 ‘‘(c) QUALIFIED INVENTORY HELD BY BUSINESSES

22 NOT SELLING SAID QUALIFIED INVENTORY AT RE23 TAIL.—

24 ‘‘(1) IN GENERAL.—Qualified inventory held by 

25 businesses that sells said qualified inventory not sub-
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1 ject to tax pursuant to section 102(a) shall be eligi2 ble for the transitional inventory credit only if that 

3 business (or a business that has successor rights 

4 pursuant to paragraph (2)) receives certification in 

5 a form satisfactory to the Secretary that the quali6 fied inventory was subsequently sold subject to the 

7 tax imposed by this subtitle. 

8 ‘‘(2) TRANSITIONAL INVENTORY CREDIT RIGHT

9 MAY BE SOLD.—The business entitled to the transi10 tional inventory credit may sell the right to receive 

11 said transitional inventory credit to the purchaser of 

12 the qualified inventory that gave rise to the credit 

13 entitlement. Any purchaser of such qualified inven14 tory (or property or services into which the qualified 

15 inventory has been incorporated) may sell the right 

16 to said transitional inventory credit to a subsequent 

17 purchaser of said qualified inventory (or property or 

18 services into which the qualified inventory has been 

19 incorporated). 

20 ‘‘SEC. 903. WAGES TO BE REPORTED TO SOCIAL SECURITY 

21 ADMINISTRATION. 

22 ‘‘(a) IN GENERAL.—Employers shall submit such in23 formation to the Social Security Administration as is re24 quired by the Social Security Administration to calculate 

25 Social Security benefits under title II of the Social Secu-
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1 rity Act, including wages paid, in a form prescribed by 

2 the Secretary. A copy of the employer submission to the 

3 Social Security Administration relating to each employee 

4 shall be provided to each employee by the employer. 

5 ‘‘(b) WAGES.—For purposes of this section, the term 

6 ‘wages’ means all cash remuneration for employment (in7 cluding tips to an employee by third parties provided that 

8 the employer or employee maintains records documenting 

9 such tips) including self-employment income; except that 

10 such term shall not include—

11 ‘‘(1) any insurance benefits received (including 

12 death benefits); 

13 ‘‘(2) pension or annuity benefits received; 

14 ‘‘(3) tips received by an employee over $5,000 

15 per year; and 

16 ‘‘(4) benefits received under a government enti17 tlement program (including Social Security benefits 

18 and unemployment compensation benefits). 

19 ‘‘(c) SELF-EMPLOYMENT INCOME.—For purposes of 

20 subsection (b), the term ‘self-employment income’ means 

21 gross payments received for taxable property or services 

22 minus the sum of—

23 ‘‘(1) gross payments made for taxable property 

24 or services (without regard to whether tax was paid 
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1 pursuant to section 101 on such taxable property or 

2 services), and 

3 ‘‘(2) wages paid by the self-employed person to 

4 employees of the self-employed person. 

5 ‘‘SEC. 904. TRUST FUND REVENUE. 

6 ‘‘(a) SECRETARY TO MAKE ALLOCATION OF SALES

7 TAX REVENUE.—The Secretary shall allocate the revenue 

8 received by virtue of the tax imposed by section 101 in 

9 accordance with this section. The revenue shall be allo10 cated among—

11 ‘‘(1) the general revenue, 

12 ‘‘(2) the old-age and survivors insurance trust 

13 fund, 

14 ‘‘(3) the disability insurance trust fund, 

15 ‘‘(4) the hospital insurance trust fund, and 

16 ‘‘(5) the Federal supplementary medical insur17 ance trust fund. 

18 ‘‘(b) GENERAL RULE.—

19 ‘‘(1) GENERAL REVENUE.—The proportion of 

20 total revenue allocated to the general revenue shall 

21 be the same proportion as the rate in section 

22 101(b)(4) bears to the combined Federal tax rate 

23 percentage (as defined in section 101(b)(3)). 

24 ‘‘(2) The amount of revenue allocated to the 

25 old-age and survivors insurance and disability insur-
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1 ance trust funds shall be the same proportion as the 

2 old-age, survivors and disability insurance rate (as 

3 defined in subsection (d)) bears to the combined 

4 Federal tax rate percentage (as defined in section 

5 101(b)(3)). 

6 ‘‘(3) The amount of revenue allocated to the 

7 hospital insurance and Federal supplementary med8 ical insurance trust funds shall be the same propor9 tion as the hospital insurance rate (as defined in 

10 subsection (e)) bears to the combined Federal tax 

11 rate percentage (as defined in section 101(b)(3)). 

12 ‘‘(c) CALENDAR YEAR 2005.—Notwithstanding sub13 section (b), the revenue allocation pursuant to subsection 

14 (a) for calendar year 2005 shall be as follows: 

15 ‘‘(1) 64.83 percent of total revenue to general 

16 revenue; 

17 ‘‘(2) 27.43 percent of total revenue to the old18 age and survivors insurance and disability insurance 

19 trust funds, and 

20 ‘‘(3) 7.74 percent of total revenue to the hos21 pital insurance and Federal supplementary medical 

22 insurance trust funds. 

23 ‘‘(d) OLD-AGE, SURVIVORS AND DISABILITY INSUR24 ANCE RATE.—The old-age, survivors and disability insur25 ance rate shall be determined by the Social Security Ad-
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1 ministration. The old-age, survivors and disability insur2 ance rate shall be that sales tax rate which is necessary 

3 to raise the same amount of revenue that would have been 

4 raised by imposing a 12.4 percent tax on the Social Secu5 rity wage base (including self-employment income) as de6 termined in accordance with chapter 21 of the Internal 

7 Revenue Code most recently in effect prior to the enact8 ment of this Act. The rate shall be determined using actu9 arially sound methodology and announced at least 6 

10 months prior to the beginning of the Calendar year for 

11 which it applies. 

12 ‘‘(e) HOSPITAL INSURANCE RATE.—The hospital in13 surance rate shall be determined by the Social Security 

14 Administration. The hospital insurance rate shall be that 

15 sales tax rate which is necessary to raise the same amount 

16 of revenue that would have been raised by imposing a 2.9 

17 percent tax on the Medicare wage base (including self-em18 ployment income) as determined in accordance with chap19 ter 21 of the Internal Revenue Code most recently in effect 

20 prior to the enactment of this Act. The rate shall be deter21 mined using actuarially sound methodology and an22 nounced at least 6 months prior to the beginning of the 

23 calendar year for which it applies. 

24 ‘‘(f) ASSISTANCE.—The Secretary shall provide such 

25 technical assistance as the Social Security Administration 
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1 shall require to determine the old-age, survivors and dis2 ability insurance rate and the hospital insurance rate. 

3 ‘‘(g) FURTHER ALLOCATIONS.—

4 ‘‘(1) OLD-AGE, SURVIVORS AND DISABILITY IN5 SURANCE.—The Secretary shall allocate revenue re6 ceived because of the old-age, survivors and dis7 ability insurance rate to the old-age and survivors 

8 insurance trust fund and the disability insurance 

9 trust fund in accordance with law or, in the absence 

10 of other statutory provision, in the same proportion 

11 that the old-age and survivors insurance trust fund 

12 receipts bore to the sum of the old-age and survivors 

13 insurance trust fund receipts and the disability in14 surance trust fund receipts in calendar year 2004 

15 (taking into account only receipts pursuant to chap16 ter 21 of the Internal Revenue Code). 

17 ‘‘(2) HOSPITAL INSURANCE.—The Secretary 

18 shall allocate revenue received because of the hos19 pital insurance rate to the hospital insurance trust 

20 fund and the Federal supplementary medical insur21 ance trust fund in accordance with law or, in the ab22 sence of other statutory provision, in the same pro23 portion that hospital insurance trust fund receipts 

24 bore to the sum of the hospital insurance trust fund 

25 receipts and Federal supplementary medical insur-
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1 ance trust fund receipts in calendar year 2004 (tak2 ing into account only receipts pursuant to chapter 

3 21 of the Internal Revenue Code). 

4 ‘‘SEC. 905. WITHHOLDING OF TAX ON NONRESIDENT ALIENS 

5 AND FOREIGN CORPORATIONS. 

6 ‘‘(a) IN GENERAL.—All persons, in whatever capacity 

7 acting (including lessees or mortgagors or real or personal 

8 property, fiduciaries, employers, and all officers and em9 ployees of the United States) having control, receipt, cus10 tody, disposal, or payment of any income to the extent 

11 such income constitutes gross income from sources within 

12 the United States of any nonresident alien individual, for13 eign partnership, or foreign corporation shall deduct and 

14 withhold from that income a tax equal to 23 percent there15 of. 

16 ‘‘(b) EXCEPTION.—No tax shall be required to be de17 ducted from interest on portfolio debt investments. 

18 ‘‘(c) TREATY COUNTRIES.—In the case of payments 

19 to nonresident alien individuals, foreign partnerships, or 

20 foreign corporations that have a residence in (or the na21 tionality of a country) that has entered into a tax treaty 

22 with the United States, then the rate of withholding tax 

23 prescribed by the treaty shall govern.’’. 
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1 SEC. 202. CONFORMING AND TECHNICAL AMENDMENTS. 

2 ‘‘(a) REPEALS.—The following provisions of the In3 ternal Revenue Code of 1986 are repealed: 

4 (1) Subchapter A of chapter 61 of subtitle D 

5 (as redesignated by section 104) (relating to infor6 mation and returns). 

7 (2) Sections 6103 through 6116 of subchapter 

8 B of chapter 61 of subtitle D (as so redesignated). 

9 (3) Section 6157 (relating to unemployment 

10 taxes). 

11 (4) Section 6163 (relating to estate taxes). 

12 (5) Section 6164 (relating to corporate taxes). 

13 (6) Section 6166 (relating to estate taxes). 

14 (7) Section 6167 (relating to foreign expropria15 tion losses). 

16 (8) Sections 6201, 6205 and 6207 (relating to 

17 assessments). 

18 (9) Subchapter C of chapter 63 of subtitle D 

19 (as so redesignated) (relating to tax treatment of 

20 partnership items). 

21 (10) Section 6305 (relating to collections of cer22 tain liabilities). 

23 (11) Sections 6314, 6315, 6316, and 6317 (re24 lating to payments of repealed taxes).

25 (12) Sections 6324, 6324A and 6324B (relat26 ing to liens for estate and gift taxes). 
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1 (13) Section 6344 (relating to cross references). 

2 (14) Section 6411 (relating to carrybacks). 

3 (15) Section 6413 (relating to employment 

4 taxes). 

5 (16) Section 6414 (relating to withheld income 

6 taxes). 

7 (17) Section 6422 (relating to cross references). 

8 (18) Section 6425 (relating to overpayment of 

9 corporate estimated taxes). 

10 (19) Section 6504 (relating to cross references). 

11 (20) Section 6652 (relating to failure to file 

12 certain information returns). 

13 (21) Sections 6654 and 6655 (relating to fail14 ure to payment estimated income tax). 

15 (22) Section 6662 (relating to penalties). 

16 (23) Sections 6677 through 6711 (relating to 

17 income tax related penalties). 

18 (24) Part II of subchapter B of chapter 68 (re19 lating to certain information returns). 

20 (25) Part I of subchapter A of chapter 70 (re21 lating to termination of taxable year). 

22 (26) Section 6864 (relating to certain 

23 carrybacks). 

24 (27) Section 7103 (relating to cross references). 
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1 (28) Section 7204 (relating to withholding 

2 statements). 

3 (29) Section 7211 (relating certain statements). 

4 (30) Section 7231 (relating to failure to obtain 

5 certain licenses). 

6 (31) Section 7270 (relating to insurance poli7 cies). 

8 (32) Section 7404 (relating to estate taxes). 

9 (33) Section 7404 (relating to income tax pre10 parers). 

11 (34) Section 7408 (relating to income tax shel12 ters). 

13 (35) Section 7409 (relating to 501(c)(3) organi14 zations). 

15 (36) Section 7427 (relating to income tax pre16 parers). 

17 (37) Section 7428 (relating to 501(c)(3) organi18 zations). 

19 (38) Section 7476 (relating to declaratory judg20 ments relating to retirement plans). 

21 (39) Section 7478 (relating to declaratory judg22 ments relating to certain tax-exempt obligations). 

23 (40) Section 7508 (relating to postponing time 

24 for certain actions required by the income, estate, 

25 and gift tax). 
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1 (41) Section 7509 (relating to Postal Service 

2 payroll taxes). 

3 (42) Section 7512 (relating to payroll taxes). 

4 (43) Section 7517 (relating to estate and gift 

5 tax evaluation). 

6 (44) Section 7518 (relating to Merchant Marine 

7 tax incentives). 

8 (45) Section 7519 (relating to taxable years). 

9 (46) Section 7520 (relating to insurance and 

10 annuity valuation tables). 

11 (47) Section 7523 (relating to reporting Fed12 eral income and outlays on Form 1040s). 

13 (48) Section 7611 (relating to church income 

14 tax exemptions and church unrelated business in15 come tax inquiries). 

16 (49) Section 7654 (relating to possessions’ in17 come taxes). 

18 (50) Section 7655 (relating to cross references). 

19 (51) Section 7701(a)(16). 

20 (52) Section 7701(a)(19). 

21 (53) Section 7701(a)(20). 

22 (54) Paragraphs (32) through (38) of section 

23 7701(a). 

24 (55) Paragraphs (41) through (46) of section 

25 7701(a). 
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1 (56) Section 7701(b). 

2 (57) Subsections (e) through (m) of section 

3 7701. 

4 (58) Section 7702 (relating to life insurance 

5 contracts). 

6 (59) Section 7702A (relating to modified en7 dowment contracts). 

8 (60) Section 7702B (relating to long-term care 

9 insurance). 

10 (61) Section 7703 (relating to the determina11 tion of marital status). 

12 (62) Section 7704 (relating to publicly traded 

13 partnerships). 

14 (63) Section 7805. 

15 (64) Section 7851. 

16 (65) Section 7872. 

17 (66) Section 7873. 

18 (b) OTHER CONFORMING AND TECHNICAL AMEND19 MENTS.—

20 (1) Section 6151 is amended by striking sub21 section (b) and by redesignating subsection (c) as 

22 subsection (b). 

23 (2) Section 6161 is amended to read as follows: 
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1 ‘‘SEC. 616. EXTENSION OF TIME FOR PAYING TAX. 

2 ‘‘The Secretary, except as otherwise provided in this 

3 title, may extend the time for payment of the amount of 

4 the tax shown or required to be shown on any return, re5 port, or declaration required under authority of this title 

6 for a reasonable period not to exceed 6 months (12 months 

7 in the case of a taxpayer who is abroad).’’. 

8 (3) Section 6211(a) is amended—

9 (A) by striking ‘‘income, estate and gift 

10 taxes imposed by subtitles A and B and’’, 

11 (B) by striking ‘‘subtitle A or B, or’’, and 

12 (C) by striking ‘‘, as defined in subsection 

13 (b)(2),’’ in paragraph (2). 

14 (4) Section 6211(b) is amended to read as fol15 lows: 

16 ‘‘(b) REBATE DEFINED.—For purposes of subsection 

17 (a)(2), the term ‘rebate’ means so much of an abatement, 

18 credit, refund, or other payment, as was made on the 

19 ground that the tax imposed by chapter 41, 42, 43, or 

20 44 was less than the excess of the amount specified in 

21 subsection (a)(1) over the rebates previously made.’’. 

22 (5) Section 6212 is amended to read as follows: 

23 ‘‘(b) ADDRESS FOR NOTICE OF DEFICIENCY.—In the 

24 absence of notice to the Secretary under section 6903 of 

25 the existence of a fiduciary relationship, notice of a defi26 ciency in respect of a tax imposed by chapter 42, 43, or 
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1 44 if mailed to the taxpayer at his last known address, 

2 shall be sufficient for purposes of such chapter and this 

3 chapter even if such taxpayer is deceased, or is under a 

4 legal disability, or, in the case of a corporation has termi5 nated its existence.’’. 

6 (6) Section 6302(b) is amended by striking 

7 ‘‘21,’’. 

8 (7) Section 6302 is amended by striking sub9 sections (g) and (i) and by redesignating subsection 

10 (h) as subsection (g) 

11 (8) Section 6325 is amended by striking sub12 section (c) and by redesignating subsections (d) 

13 through (h) as subsections (c) through (g), respec14 tively. 

15 (9) Section 6402(d) is amended by striking 

16 paragraph (3). 

17 (10) Section 6402 is amended by striking sub18 section (j) and by redesignating subsection (k) as 

19 subsection (j). 

20 (11) Section 6501 (b) is amended—

21 (A) by striking ‘‘except tax imposed by 

22 chapter 3, 21, or 24,’’ in paragraph (1), and 

23 (B) by striking paragraph (2) and by re24 designation paragraphs (3) and (4) as para25 graphs (2) and (3), respectively. 
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1 (12) Section 6501(c) is amended by striking 

2 paragraphs (5) through (9) 

3 (13) Section 6501(e) is amended by striking 

4 ‘‘subsection (c)—’’ and all that follows through 

5 ‘‘subtitle D’’ in paragraph (3) and inserting ‘‘sub6 section (c), in the case of a return of a tax imposed 

7 under a provision of subtitle B’’. 

8 (14) Section 6501 is amended by striking sub9 section (f) through (k) and subsections (m) and (n) 

10 and by redesignating subsection (1) as subsection 

11 (f). 

12 (15) Section 6503(a) is amended—

13 (A) by striking paragraph (2), 

14 (B) by striking ‘‘DEFICIENCY.—’’and all 

15 that follows through ‘‘The running’’ and insert16 ing ‘‘DEFICIENCY.—The running’’, and 

17 (C) by striking ‘‘income, estate, gift and’’. 

18 (16) Section 6503 is amended by striking sub19 sections (e), (f), (i), and (k) and by redesignating 

20 subsections (g), (h), and (j) as subsections (e), (f), 

21 and (g), respectively. 

22 (17) Section 6511 is amended by striking sub23 sections (d) and (g) and by redesignating sub24 sections (f) and (h) as subsections (d) and (e), re25 spectively. 
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1 (18) Section 6512(b)(1) is amended by striking 

2 ‘‘of income tax for the same taxable year, of gift tax 

3 for the same calendar year or calendar quarter, of 

4 estate tax in respect of the taxable estate of the 

5 same decedent or’’. 

6 (19) Section 6513 is amended—

7 (A) by striking ‘‘(a) EARLY RETURN OR

8 ADVANCE PAYMENT OF TAX.—’’,

9 (B) by striking subsections (b) and (e). 

10 (20) Chapter 67 is amended by striking sub11 chapters A through D and inserting the following: 

12 ‘‘SEC. 6601. INTEREST ON OVERPAYMENTS AND UNDER13 PAYMENT. 

14 (a) UNDERPAYMENTS.—If any amount of tax im15 posed by this title is not paid on or before the last date 

16 prescribed for payment, interest on such amount at the 

17 Federal short-term rate (as defined in section 512(b)) 

18 shall be paid from such last date to the date paid. 

19 ‘‘(b) OVERPAYMENTS.—Interest shall be allowed and 

20 paid upon any overpayment in respect of any internal rev21 enue tax at the Federal short-term rate (as defined in sec22 tion 512(b)) from 60 days after the date of the overpay23 ment until the date the overpayment is refunded.’’. 
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1 (21) Section 6651(a)(1) is amended by striking 

2 ‘‘subchapter A of chapter 61 (other than part III 

3 thereof,’’. 

4 (22) Section 6656 is amended by striking sub5 section (c) and by redesignating subsection (d) as 

6 subsection (c). 

7 (23) Section 6663 is amended by striking sub8 section (c). 

9 (24) Section 6664(c) is amended—

10 (A) by striking ‘‘EXCEPTION.—’’ and all 

11 that follows through ‘‘No penalty’’ and insert12 ing ‘‘EXCEPTION.—No penalty,’’ and 

13 (B) by striking paragraphs (2) and (3). 

14 (25) Chapter 72 is amended by striking all 

15 matter preceding section 7011. 

16 (26) Section 7422 is amended by striking sub17 sections (h) and (i) and by redesignating subsections 

18 (j) and (k) as subsections (h) and (i), respectively. 

19 (27) Section 7451 is amended to read as fol20 lows: 

21 ‘‘SEC. 7451. FEE FOR FILING PETITION. 

22 ‘‘The Tax Court is authorized to impose a fee in an 

23 amount not in excess of $60 to be fixed by the Tax Court 

24 for the filing of any petition for the redetermination of 

25 a deficiency.’’. 
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1 (28) Section 7454 is amended by striking sub2 section (b) and by redesignating subsection (c) as 

3 subsection (b). 

4 (29) Section 7463(a) is amended—

5 (A) by striking paragraphs (2) and (3), 

6 (B) by redesignating paragraph (4) as 

7 paragraph (2), and 

8 (C) by striking ‘‘D’’ in paragraph (2) (as 

9 so redesignated) and inserting ‘‘B’’. 

10 (30) Section 7463(c) is amended by striking 

11 ‘‘sections 6214(a) and’’ and inserting ‘‘section’’. 

12 (31) Section 7463(c) is amended by striking ‘‘, 

13 to the extent that the procedures described in sub14 chapter B of chapter 63 apply’’. 

15 (32) Section 7481 is amended by striking sub16 section (d). 

17 (33) Section 7608 is amended by striking ‘‘sub18 title E’’ each place it appears and inserting ‘‘subtitle 

19 C’’. 

20 (34) Section 7651 is amended by striking para21 graph (5).

22 (35) Section 7701(a)(29) is amended by strik23 ing ‘‘1986’’ and inserting ‘‘2003’’. 

24 (36) Section 7809(c) is amended by striking 

25 paragraphs (1) and (4) and by redesignating para-
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1 graphs (2) and (3) as paragraphs (1) and (2), re2 spectively. 

3 (37) Section 7871(a) is amended by striking 

4 paragraphs (1) and (3) through (6) and by redesig5 nating paragraphs (2) and (7) as paragraphs (1) 

6 and (2), respectively. 

7 (38) Section 7871 is amended by striking sub8 section (c) and by redesignating subsections (d) and 

9 (e) as subsections (c) and (d), respectively. 

10 (39) Section 8021 is amended by striking sub11 section (a) and by redesignating subsections (b) 

12 through (f) as subsections (a) through (e), respec13 tively. 

14 (40) Section 8022(a)(2)(A) is amended by 

15 striking ‘‘, particularly the income tax’’. 

16 (41) Section 8023 is amended by striking ‘‘In17 ternal Revenue Service’’ each place it appears and 

18 inserting ‘‘Department of the Treasury’’. 

19 (42) Section 9501(b)(2) is amended by striking 

20 subparagraph (C). 

21 (43) Section 9702(a) is amended by striking 

22 paragraph (4). 

23 (44) Section 9705(a) is amended by striking 

24 paragraph (4) and by redesignating paragraph (5) 

25 as paragraph (4). 
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1 (45) Section 9706(d)(2)(A) is amended by 

2 striking ‘‘6103’’ and inserting ‘‘605(e)’’. 

3 (46) Section 9707 is amended by striking sub4 section (f). 

5 (47) Section 9712(d) is amended by striking 

6 paragraph (5) and by redesignating paragraph (6) 

7 as paragraph (5). 

8 (48) Section 9803(a) is amended by striking 

9 ‘‘(as defined in section 414(f))’’. 

10 TITLE III—OTHER MATTERS 

11 SEC. 301. PHASE-OUT OF ADMINISTRATION OF REPEALED 

12 FEDERAL TAXES. 

13 (a) APPROPRIATIONS.—Appropriations for any ex14 penses of the Internal Revenue Service including proc15 essing tax returns for years prior to the repeal of the taxes 

16 repealed by title I of this Act, revenue accounting, man17 agement, transfer of payroll and wage data to the Social 

18 Security Administration for years after fiscal year 2007 

19 shall not be authorized. 

20 (b) RECORDS.—Federal records related to the admin21 istration of taxes repealed by title I of this Act shall be 

22 destroyed by the end of fiscal year 2007, except that any 

23 records necessary to calculate Social Security benefits 

24 shall be retained by the Social Security Administration 

25 and any records necessary to support ongoing litigation 
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1 with respect to taxes owed or refunds due shall be retained 

2 until final disposition of such litigation. 

3 (c) CONFORMING AMENDMENTS.—Section 7802 is 

4 amended—

5 (1) by striking subsections (a) and (b) and by 

6 redesignating subsections (c) and (d) as subsections 

7 (a) and (b), 

8 (2) by striking ‘‘Internal Revenue Service’’ each 

9 place it appears and inserting ‘‘Department of the 

10 Treasury’’, and 

11 (3) by striking ‘‘Commissioner’’ or ‘‘Commis12 sioner of Internal Revenue’’ each place they appear 

13 and inserting ‘‘Secretary’’. 

14 (d) EFFECTIVE DATE.—The amendments made by 

15 subsection (c) shall take effect on January 1, 2007. 

16 SEC. 302. ADMINISTRATION OF OTHER FEDERAL TAXES. 

17 (a) IN GENERAL.—Section 7801 (relating to the au18 thority of the Department of the Treasury) is amended 

19 by adding at the end the following: 

20 ‘‘(d) EXCISE TAX BUREAU.—There shall be in the 

21 Department of the Treasury an Excise Tax Bureau to ad22 minister those excise taxes not administered by the Bu23 reau of Alcohol, Tobacco and Firearms. 

24 ‘‘(e) SALES TAX BUREAU.—There shall be in the De25 partment of the Treasury a Sales Tax Bureau to admin-
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1 ister the national sales tax in those States where it is re2 quired pursuant to section 404, and to discharge other 

3 Federal duties and powers relating to the national sales 

4 tax (including those required by sections 402, 403, and 

5 405). The Office of Revenue Allocation shall be within the 

6 Sales Tax Bureau.’’. 

7 (b) ASSISTANT GENERAL COUNSELS.—Section 

8 7801(b)(2) is amended to read as follows: 

9 ‘‘(2) ASSISTANT GENERAL COUNSELS.—The 

10 Secretary of the Treasury may appoint, without re11 gard to the provisions of the civil service laws, and 

12 fix the duties of not more than 5 assistant general 

13 counsels.’’. 

14 SEC. 303. SALES TAX INCLUSIVE SOCIAL SECURITY BENE15 FITS INDEXATION. 

16 Subparagraph (D) of section 215(i)(1) of the Social 

17 Security Act (42 U.S.C. 415(i)(1)) (relating to cost-of-liv18 ing increases in Social Security benefits) is amended to 

19 read as follows: 

20 ‘‘(D)(i) the term ‘CPI increase percentage’, 

21 with respect to a base quarter or cost-of-living quar22 ter in any calendar year, means the percentage 

23 (rounded to the nearest one-tenth of 1 percent) by 

24 which the Consumer Price Index for that quarter (as 

25 prepared by the Department of Labor) exceeds such 
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1 index for the most recent prior calendar quarter 

2 which was a base quarter under subparagraph 

3 (A)(ii) or, if later, the most recent cost-of-living 

4 computation quarter under subparagraph (B); 

5 ‘‘(ii) if the Consumer Price Index (as so pre6 pared) does not include the national sales tax paid, 

7 then the term ‘CPI increase percentage’, with re8 spect to a base quarter or cost-of-living quarter in 

9 any calendar year, means the percentage (rounded 

10 to the nearest one-tenth of 1 percent) by which the 

11 product of—

12 ‘‘(I) the Consumer Price Index for that 

13 quarter (as so prepared), and 

14 ‘‘(II) the national sales tax factor, 

15 exceeds such index for the most recent prior calendar 

16 quarter which was a base quarter under subparagraph 

17 (A)(ii) or, if later, the most recent cost of living computa18 tion quarter under subparagraph (B); and 

19 ‘‘(iii) the national sales tax factor is equal to 1 

20 plus the quotient that is—

21 ‘‘(I) the sales tax rate imposed by section 

22 101 of the Internal Revenue Code of 2003, di23 vided by 
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1 ‘‘(II) the quantity that is 1 minus such 

2 sales tax rate.’’.

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