II

103D CONGRESS

2D SESSION S. 2160

To amend the Internal Revenue Code of 1986 to replace the corporate

income tax with a broad-based business activities tax, to provide relief

from such tax for individuals with moderate incomes, and for other

purposes.

IN THE SENATE OF THE UNITED STATES

JUNE 7, 1994

Mr. DANFORTH (for himself and Mr. BOREN) introduced the following bill;

which was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to replace

the corporate income tax with a broad-based business

activities tax, to provide relief from such tax for individuals with moderate incomes, and for other purposes.

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.

4 This Act may be cited as the ‘‘Comprehensive Tax

5 Restructuring and Simplification Act of 1994’’.

6 SEC. 2. AMENDMENT OF 1986 CODE.

7 Except as otherwise expressly provided, whenever in

8 this Act an amendment or repeal is expressed in terms
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1 of an amendment to, or repeal of, a section or other provi2 sion, the reference shall be considered to be made to a

3 section or other provision of the Internal Revenue Code

4 of 1986.

5 TITLE I—REPEAL OF

6 CORPORATE INCOME TAX

7 SEC. 101. REPEAL OF CORPORATE INCOME TAX.

8 (a) IN GENERAL.—Chapter 1 (relating to normal

9 taxes and surtaxes) is amended by adding at the end the

10 following new subchapter:

11 ‘‘Subchapter W—Termination of Corporate

12 Income Tax

‘‘Sec. 1400. Termination of corporate income tax.

‘‘Sec. 1401. Corporate distributions.

‘‘Sec. 1402. Election of certain businesses to be taxed as domestic

corporations.

13 ‘‘SEC. 1400. TERMINATION OF CORPORATE INCOME TAX.

14 ‘‘(a) TERMINATION.—Except as provided in this sec15 tion, no tax shall be imposed under this chapter on any

16 corporation for any taxable year.

17 ‘‘(b) PASSIVE INVESTMENT TAX.—

18 ‘‘(1) IMPOSITION OF TAX.—

19 ‘‘(A) IN GENERAL.—If, for any taxable

20 year—

21 ‘‘(i) a C corporation has nonbusiness

22 gross income, and
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1 ‘‘(ii) the percentage determined by di2 viding the nonbusiness gross income by the

3 gross income of the C corporation for such

4 taxable year exceeds the applicable working

5 capital percentage,

6 then there is hereby imposed on such corpora7 tion a tax in the amount determined under sub8 paragraph (B).

9 ‘‘(B) AMOUNT OF TAX.—The amount of

10 tax determined under this subparagraph shall

11 be equal to the product of—

12 ‘‘(i) the nonbusiness gross income de13 scribed in paragraph (1)(A), and

14 ‘‘(ii) the highest rate of tax under sec15 tion 1 for taxable years beginning in the

16 same calendar year as the taxable year of

17 the C corporation.

18 ‘‘(C) NO CREDIT AGAINST TAX.—No credit

19 shall be allowed under this chapter against the

20 tax imposed by subparagraph (A).

21 ‘‘(D) SPECIAL RULE FOR FOREIGN COR22 PORATIONS.—No tax shall be imposed under

23 subparagraph (A) on any foreign corporation

24 unless the foreign corporation is exempt from
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1 the tax imposed by section 884 (relating to

2 branch profits tax).

3 ‘‘(2) REDUCTION FOR CERTAIN DISTRIBU4 TIONS.—

5 ‘‘(A) IN GENERAL.—The amount of the

6 nonbusiness gross income for any taxable year

7 shall be reduced by the aggregate amount of

8 any distributions by the corporation to its

9 shareholders with respect to its stock—

10 ‘‘(i) which are made during the tax11 able year and not taken into account under

12 clause (ii) for the preceding taxable year,

13 or

14 ‘‘(ii) which—

15 ‘‘(I) are made after the close of

16 the taxable year and on or before the

17 45th day following the close of the

18 taxable year, and

19 ‘‘(II) are designated, at such

20 time and in such manner as the Sec21 retary may prescribe, as distributions

22 for purposes of this paragraph.

23 ‘‘(B) INCLUSION IN INCOME.—Any dis24 tribution described in subparagraph (A)(ii) shall

25 be included in the gross income of the share-
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1 holder for the shareholder’s taxable year which

2 includes the last day of the taxable year of the

3 corporation for which the reduction under sub4 paragraph (A) was made.

5 ‘‘(3) DEFINITIONS.—For purposes of this sub6 section—

7 ‘‘(A) APPLICABLE WORKING CAPITAL PER8 CENTAGE.—

9 ‘‘(i) IN GENERAL.—The Secretary

10 shall establish an applicable working cap11 ital percentage which, on the basis of the

12 best information available, represents the

13 ratio which the average nonbusiness gross

14 income of corporations which is derived

15 from assets held to provide reasonably re16 quired working capital bears to the average

17 gross income of corporations.

18 ‘‘(ii) ADJUSTMENTS.—The Secretary

19 may prescribe more than one percentage

20 under clause (i) to reflect differences in in21 dustries, size, or other factors which affect

22 reasonably required working capital.

23 ‘‘(B) NONBUSINESS GROSS INCOME.—For

24 purposes of this subsection—
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1 ‘‘(i) IN GENERAL.—The term

2 ‘nonbusiness gross income’ means gross in3 come other than gross income from a busi4 ness activity (determined in the same man5 ner as under chapter 100).

6 ‘‘(ii) EXCEPTIONS.—The term

7 ‘nonbusiness gross income’ shall not in8 clude any gross income derived from a

9 transaction to the extent the gross receipts

10 from the transaction are not taken into ac11 count under chapter 100 by reason of sec12 tion 10016.

13 ‘‘(4) SPECIAL RULES.—For purposes of this

14 subsection—

15 ‘‘(A) AGGREGATION RULES.—The Sec16 retary shall prescribe regulations providing for

17 the aggregation of 2 or more persons to the ex18 tent appropriate to carry out the purposes of

19 this section.

20 ‘‘(B) STARTUP COMPANIES.—A corpora21 tion shall not be treated as described in para22 graph (1) for the first taxable year the corpora23 tion has gross income if—

24 ‘‘(i) no predecessor of the corporation

25 was described in paragraph (1),
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1 ‘‘(ii) it is established to the satisfac2 tion of the Secretary that the corporation

3 will not be described in paragraph (1) for

4 either of the 1st 2 taxable years following

5 such first taxable year, and

6 ‘‘(iii) the corporation is not described

7 in paragraph (1) for either of such 2 tax8 able years.

9 ‘‘(C) COMPANIES CHANGING BUSINESS.—A

10 corporation shall not be treated as described in

11 paragraph (1) for any taxable year if—

12 ‘‘(i) neither the corporation nor any

13 predecessor was described in paragraph (1)

14 for any taxable year,

15 ‘‘(ii) it is established to the satisfac16 tion of the Secretary that—

17 ‘‘(I) substantially all of the

18 nonbusiness gross income of the cor19 poration for the taxable year is attrib20 utable to proceeds from the disposi21 tion of 1 or more active trades or

22 businesses, and

23 ‘‘(II) the corporation will not be

24 described in paragraph (1) for either
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1 of the 1st 2 taxable years following

2 the taxable year, and

3 ‘‘(iii) the corporation is not described

4 in paragraph (1) for either of such 2 tax5 able years.

6 ‘‘(D) COMPUTATION OF GROSS RE7 CEIPTS.—In determining gross income for pur8 poses of this subsection, gross receipts for any

9 taxable year shall be reduced by returns and al10 lowances made during such taxable year, and

11 bad debt deductions for such taxable year.

12 ‘‘(E) PASSIVE FOREIGN INVESTMENT COM13 PANY INTERESTS.—Any taxpayer who owns (or

14 is treated under section 1297(a) as owning)

15 stock in a passive foreign investment company

16 shall be treated as owning stock in a qualified

17 electing fund without regard to whether the re18 quirements of paragraphs (1) and (2) of section

19 1295(a) are met.

20 ‘‘(c) EXCEPTION FOR CERTAIN TAXES ON FOREIGN

21 CORPORATIONS.—Subsection (a) shall not apply to any

22 tax imposed by section 881 or 884.

23 ‘‘SEC. 1401. CORPORATE DISTRIBUTIONS.

24 ‘‘(a) IN GENERAL.—Except as provided in subsection

25 (b), all distributions made by a corporation to a share-
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1 holder with respect to its stock shall be treated as ordinary

2 income of the shareholder.

3 ‘‘(b) EXCEPTIONS.—Except as provided in regula4 tions, subsection (a) shall not apply to any distribution—

5 ‘‘(1) which is pursuant to a plan of liquidation,

6 ‘‘(2) which is in complete redemption of all of

7 a shareholder’s stock in the corporation,

8 ‘‘(3) in the case of a corporation which main9 tains adequate accounts of its earnings and profits,

10 which does not constitute a dividend under section

11 316, or

12 ‘‘(4) which represents a return of capital to the

13 extent the distribution does not exceed the share14 holder’s contributions to capital during the 60-day

15 period ending with the date of the distribution.

16 This subsection shall not apply to any distribution to

17 which section 1400(b)(2) applies.

18 ‘‘SEC. 1402. ELECTION OF CERTAIN BUSINESSES TO BE

19 TAXED AS DOMESTIC CORPORATIONS.

20 ‘‘(a) GENERAL RULE.—If an election is made under

21 this section with respect to any business which is not a

22 C corporation—

23 ‘‘(1) such business shall be treated as a domes24 tic C corporation for purposes of this subtitle (other

25 than chapter 2 thereof), and
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1 ‘‘(2) each owner of an equity interest in such

2 business shall be treated as a shareholder thereof in

3 proportion to such interest.

4 ‘‘(b) ELECTION.—

5 ‘‘(1) IN GENERAL.—An election under this sec6 tion—

‘‘(A) shall be made not later than 21 7 ⁄2

8 months after the close of the first taxable year

9 to which it applies, and

10 ‘‘(B) shall remain in effect until termi11 nated as provided in paragraph (2).

12 ‘‘(2) TERMINATION.—An election may be terminated by an entity if made not later than 21 13 ⁄2

14 months after the beginning of the first taxable year

15 to which the termination applies. A taxpayer termi16 nating an election under this paragraph may not

17 make an election under paragraph (1) for any suc18 ceeding taxable year without the consent of the Sec19 retary.

20 ‘‘(c) SPECIAL RULES.—For purposes of this sec21 tion—

22 ‘‘(1) FRINGE BENEFITS.—Notwithstanding sub23 section (a), a business to which subsection (a) ap24 plies shall not be treated as a domestic C corpora25 tion for purposes of applying the provisions of this
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1 subtitle which relate to employee fringe benefits

2 (within the meaning of section 1372).

3 ‘‘(2) CORPORATE DISTRIBUTIONS AND ADJUST4 MENTS.—The Secretary shall provide regulations to

5 provide for the application of subchapter C of this

6 chapter to distributions (including liquidations) from

7 a business to which subsection (a) applies and to or8 ganizations and reorganizations of such a business.’’

9 (b) CONFORMING AMENDMENT.—The table of sub10 chapters for chapter 1 is amended by adding at the end

11 the following new item:

‘‘SUBCHAPTER W. Termination of corporate income tax.’’

12 SEC. 102. TECHNICAL AND CONFORMING CHANGES.

13 The Secretary of the Treasury shall, not later than

14 6 months after the date of the enactment of this Act, sub15 mit to the Congress such technical and conforming

16 changes as are necessary to implement the amendments

17 made by this title.

18 TITLE II—INDIVIDUAL INCOME

19 TAX RELIEF

20 SEC. 201. REDUCTION OF OASDI PAYROLL TAX RATE BY 50

21 PERCENT.

22 (a) REDUCTION OF RATE.—

23 (1) EMPLOYEES.—Subsection (a) of section

24 3101 (relating to old-age, survivors, and disability

25 insurance) is amended to read as follows:
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1 ‘‘(a) OLD-AGE, SURVIVORS, AND DISABILITY INSUR2 ANCE.—In addition to other taxes, there is hereby imposed

3 on the income of every individual a tax equal to 3.1 per4 cent of the wages (as defined in section 3121(a)) received

5 by such individual with respect to employment (as defined

6 in section 3121(b)).’’

7 (2) EMPLOYERS.—Subsection (a) of section

8 3111 (relating to old-age, survivors, and disability

9 insurance) is amended to read as follows:

10 ‘‘(a) OLD-AGE, SURVIVORS, AND DISABILITY INSUR11 ANCE.—In addition to other taxes, there is hereby imposed

12 on every employer an excise tax, with respect to having

13 individuals in such employer’s employ, equal to 3.1 percent

14 of the wages (as defined in section 3121(a)) paid by such

15 employer with respect to employment (as defined in sec16 tion 3121(b)).’’

17 (3) SELF-EMPLOYED.—Subsection (a) of sec18 tion 1401 (relating to old-age, survivors, and disabil19 ity insurance) is amended to read as follows:

20 ‘‘(a) OLD-AGE, SURVIVORS, AND DISABILITY INSUR21 ANCE.—In addition to other taxes, there shall be imposed

22 for each taxable year, on the self-employment income of

23 every individual, a tax equal to 6.2 percent of the amount

24 of self-employment income for such taxable year.’’
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1 (b) TRANSFER OF REVENUES TO TRUST FUNDS TO

2 REFLECT REDUCED TAXES.—

3 (1) OAS TRUST FUND.—Section 201(a) of the

4 Social Security Act (42 U.S.C. 401(a)) is amended

5 by striking ‘‘and’’ at the end of paragraph (3), by

6 striking the period at the end of paragraph (4) and

7 inserting ‘‘; and’’, and by inserting after paragraph

8 (4) the following new paragraph:

9 ‘‘(5) such percentage of the taxes imposed by

10 subtitle K of the Internal Revenue Code of 1986 (re11 lating to business activities tax) as the Secretary of

12 the Treasury determines is necessary to equal the

13 amounts appropriated by clause (4).’’

14 (2) DI TRUST FUND.—Section 201(b) of such

15 Act (42 U.S.C. 401(b)) is amended by striking

16 ‘‘and’’ at the end of paragraph (1), by striking the

17 period at the end of paragraph (2) and inserting ‘‘;

18 and’’, and by inserting after paragraph (2) the fol19 lowing new paragraph:

20 ‘‘(3) such percentage of the taxes imposed by

21 subtitle K of the Internal Revenue Code of 1986 (re22 lating to business activities tax) as the Secretary of

23 the Treasury determines is necessary to equal the

24 amounts appropriated by clause (2).’’

25 (3) CONFORMING AMENDMENTS.—
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1 (A) Section 201(a) of such Act (42 U.S.C.

2 401(a)) is amended—

3 (i) by striking ‘‘amounts equivalent to

4 100 per centum of’’ in the matter preced5 ing paragraph (1) and inserting ‘‘amounts

6 equivalent to’’,

7 (ii) by inserting ‘‘100 per centum of’’

8 before ‘‘the taxes’’ in paragraphs (1), (2),

9 (3), and (4),

10 (iii) by striking ‘‘clauses (3) and (4)’’

11 each place it appears and inserting

12 ‘‘clauses (3), (4), and (5)’’, and

13 (iv) by striking ‘‘clauses (1) and (2)’’

14 and inserting ‘‘clauses (1), (2), and (3)’’.

15 (B) Section 201(b) of such Act (42 U.S.C.

16 401(b)) is amended—

17 (i) by striking ‘‘amounts equivalent to

18 100 per centum of’’ in the matter preced19 ing paragraph (1) and inserting ‘‘amounts

20 equivalent to’’,

21 (ii) by inserting ‘‘100 per centum of’’

before ‘‘(A) 1 22 ⁄2 of 1 per centum’’ in para23 graph (1),

24 (iii) by striking ‘‘and before January

25 1, 2000, and so reported, and (P) 1.42 per
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1 centum of the wages (as so defined) paid

2 after December 31, 1999, and so re3 ported,’’ in paragraph (1) and inserting

4 ‘‘and before January 1 of the year follow5 ing the date of the enactment of the Com6 prehensive Tax Restructuring and Sim7 plification Act, and so reported, (P) .60

8 per centum of the wages (as so defined)

9 paid on and after January 1 or such year,

10 and before January 1, 2000, and so re11 ported, and (Q) .71 per centum of the

12 wages (as so defined) paid after December

13 31, 1999, and so reported,’’,

14 (iv) by inserting ‘‘100 per centum of’’

before ‘‘(A) 3 15 ⁄8 of 1 per centum’’ in para16 graph (2), and

17 (v) by striking ‘‘and before January 1,

18 2000, and (P) 1.42 per centum of the self19 employment income (as so defined) so re20 ported for any taxable year beginning after

21 December 31, 1999,’’ in paragraph (2) and

22 inserting ‘‘and before January 1 of the

23 year following the date of the enactment of

24 the Comprehensive Tax Restructuring and

25 Simplification Act, (P) .60 per centum of
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1 the self-employment income (as so defined)

2 so reported for any taxable year beginning

3 on or after January 1 of such year, and

4 before January 1, 2000, and (Q) .71 per

5 centum of the self-employment income (as

6 so defined) so reported for any taxable

7 year beginning after December 31, 1999,’’.

8 SEC. 202. INCREASE IN STANDARD DEDUCTION.

9 (a) IN GENERAL.—Subsection (f) of section 63 (de10 fining taxable income) is amended—

11 (1) by redesignating paragraphs (1) through

12 (4) as paragraphs (2) through (5), respectively,

13 (2) by inserting before paragraph (2) (as so re14 designated) the following new paragraph:

15 ‘‘(1) ADDITIONAL AMOUNTS FOR LOW-INCOME

16 TAXPAYERS.—

17 ‘‘(A) IN GENERAL.—The taxpayer shall be

18 entitled to an additional amount equal to—

19 ‘‘(i) $8,650 in the case of —

20 ‘‘(I) a joint return, or

21 ‘‘(II) a surviving spouse (as de22 fined in section 2(a)),

23 ‘‘(ii) $7,600 in the case of a head of

24 household (as defined in section 2(b)),
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1 ‘‘(iii) $5,200 in the case of an individ2 ual who is not married and who is not a

3 surviving spouse or head of household, or

4 ‘‘(iv) $4,325 in the case of a married

5 individual filing a separate return.

6 ‘‘(B) PHASE OUT OF ADDITIONAL

7 AMOUNT.—

8 ‘‘(i) IN GENERAL.—Each dollar

9 amount contained in subparagraph (A)

10 shall be reduced (but not below 0) by $20

11 for each $100 (or fraction thereof) by

12 which the individual’s adjusted gross in13 come for such taxable year exceeds the ap14 plicable amount.

15 ‘‘(ii) APPLICABLE AMOUNT.—For pur16 poses of clause (i), the applicable amount

17 for a taxpayer described in—

18 ‘‘(I) subparagraph (A)(i), is

19 $45,000,

20 ‘‘(II) subparagraph (A)(ii), is

21 $37,000,

22 ‘‘(III) subparagraph (A)(iii), is

23 $27,000, and

24 ‘‘(IV) subparagraph (A)(iv), is

25 $22,500.
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1 ‘‘(C) ADJUSTMENTS FOR INFLATION.—In

2 the case of any taxable year beginning after the

3 first calendar year beginning after the effective

4 date of this paragraph, each dollar amount con5 tained in subparagraphs (A) and (B)(ii) shall

6 be increased by an amount equal to—

7 ‘‘(i) such dollar amount, multiplied by

8 ‘‘(ii) the cost-of-living adjustment de9 termined under section 1(f)(3) for the cal10 endar year in which the taxable year be11 gins, by substituting ‘the calendar year in

12 which the effective date of section 63(f)((1)

13 occurs’ for ‘calendar year 1992’ in sub14 paragraph (B) thereof.’’, and

15 (3) by striking ‘‘AGED’’ in the heading and in16 serting ‘‘LOW-INCOME, AGED,’’.

17 (b) CONFORMING AMENDMENTS.—

18 (1) Section 1(f)(6) is amended by inserting

19 ‘‘section 63(f)(1)(C),’’ after ‘‘63(c)(4),’’.

20 (2) The heading for section 63(c)(3) is amend21 ed by striking ‘‘AGED’’ and inserting ‘‘LOW-INCOME,

22 AGED,’’.

23 (3) Section 63(c)(4) is amended by inserting

24 ‘‘(other than paragraph (1))’’ after ‘‘or subsection

25 (f)’’.
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1 SEC. 203. INDIVIDUAL REFUNDABLE TAX CREDIT.

2 (a) IN GENERAL.—Subpart C of part IV of sub3 chapter A of chapter 1 (relating to refundable personal

4 credits) is amended by inserting after section 32 the fol5 lowing new section:

6 ‘‘SEC. 32A. INDIVIDUAL TAX CREDIT.

7 ‘‘(a) ALLOWANCE OF CREDIT.—

8 ‘‘(1) IN GENERAL.—In the case of an individ9 ual, there shall be allowed as a credit against the tax

10 imposed by this subtitle for the taxable year an

11 amount equal to the product of—

12 ‘‘(A) so much of the taxpayer’s adjusted

13 gross income for such taxable year as does not

14 exceed the adjusted gross income amount, and

15 ‘‘(B) the rate of tax under section 10001

16 for the calendar year in which the taxable year

17 begins.

18 ‘‘(2) ADJUSTED GROSS INCOME AMOUNT.—For

19 purposes of paragraph (1), the adjusted gross in20 come amount in the case of—

21 ‘‘(A) a joint return or a surviving spouse

22 (as defined in section 2(a)), is $9,500,

23 ‘‘(B) a head of household (as defined in

24 section 2(b)), is $7,900,
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1 ‘‘(C) an individual who is not married and

2 who is not a surviving spouse or head of house3 hold, is $5,700, and

4 ‘‘(D) a married individual filing a separate

5 return, is $4,750.

6 ‘‘(b) PHASE OUT OF CREDIT AMOUNT.—

7 ‘‘(1) IN GENERAL.—The amount determined

8 under subsection (a)(1) shall be reduced (but not

9 below 0) by $20 for each $100 (or fraction thereof)

10 by which the individual’s modified adjusted gross in11 come for such taxable year exceeds the applicable

12 amount.

13 ‘‘(2) APPLICABLE AMOUNT.—For purposes of

14 paragraph (1), the applicable amount for a taxpayer

15 described in—

16 ‘‘(A) subsection (a)(2)(A), is $15,000,

17 ‘‘(B) subsection (a)(2)(B), is $13,200,

18 ‘‘(C) subsection (a)(2)(C), is $9,000, and

19 ‘‘(D) subsection (a)(2)(D), is $7,500.

20 ‘‘(3) MODIFIED ADJUSTED GROSS INCOME.—

21 For purposes of paragraph (1), the term ‘modified

22 adjusted gross income’ means adjusted gross in23 come—

24 ‘‘(A) determined without regard to sections

25 135, 911, 931, and 933,
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1 ‘‘(B) without regard to the deduction al2 lowable under section 219,

3 ‘‘(C) increased by the amount of social se4 curity benefits not included in gross income

5 under section 86, and

6 ‘‘(D) increased by the amount of interest

7 received or accrued by the taxpayer during the

8 taxable year which is exempt from tax.

9 ‘‘(c) ADJUSTMENTS FOR INFLATION.—In the case of

10 any taxable year beginning after the first calendar year

11 beginning after the effective date of this section, each dol12 lar amount contained in subsections (a)(2) and (b)(2)

13 shall be increased by an amount equal to—

14 ‘‘(1) such dollar amount, multiplied by

15 ‘‘(2) the cost-of-living adjustment determined

16 under section 1(f)(3) for the calendar year in which

17 the taxable year begins, by substituting ‘the calendar

18 year in which the effective date of section 32A oc19 curs’ for ‘calendar year 1992’ in subparagraph (B)

20 thereof.’’

21 ‘‘(d) APPLICABLE RULES.—Rules similar to the rules

22 of subsections (d), (e), (g), and (h) of section 32 shall

23 apply to any credit to which this section applies.’’

24 (b) ADVANCE PAYMENT OF CREDIT.—Chapter 25

25 (relating to general provisions relating to employment
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1 taxes) is amended by inserting after section 3507 the fol2 lowing new section:

3 ‘‘SEC. 3507A. ADVANCE PAYMENT OF INDIVIDUAL TAX

4 CREDIT.

5 ‘‘(a) GENERAL RULE.—Except as otherwise provided

6 in this section, every employer making payment of wages

7 with respect to whom an individual tax credit eligibility

8 certificate is in effect shall, at the time of paying such

9 wages, make an additional payment equal to such employ10 ee’s individual tax credit advance amount.

11 ‘‘(b) INDIVIDUAL TAX CREDIT ELIGIBILITY CERTIFI12 CATE.—For purposes of this title, an individual tax credit

13 eligibility certificate is a statement furnished by an em14 ployee to the employer which—

15 ‘‘(1) certifies that the employee will be eligible

16 to receive the credit provided by section 32A for the

17 taxable year,

18 ‘‘(2) certifies that the employee does not have

19 an individual tax credit eligibility certificate in effect

20 for the calendar year with respect to the payment of

21 wages by another employer,

22 ‘‘(3) states whether or not the employee’s

23 spouse has an individual tax credit eligibility certifi24 cate in effect, and
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1 ‘‘(4) estimates the individual’s adjusted gross

2 income and modified adjusted gross income for the

3 calendar year.

4 For purposes of this section, a certificate shall be treated

5 as being in effect with respect to a spouse if such a certifi6 cate will be in effect on the first status determination date

7 following the date on which the employee furnishes the

8 statement in question.

9 ‘‘(c) INDIVIDUAL TAX CREDIT ADVANCE AMOUNT.—

10 ‘‘(1) IN GENERAL.—For purposes of this title,

11 the term ‘individual tax credit advance amount’

12 means, with respect to any payroll period, the

13 amount determined—

14 ‘‘(A) on the basis of the employee’s wages

15 from the employer for such period,

16 ‘‘(B) on the basis of the employee’s esti17 mated adjusted gross income and modified ad18 justed gross income included in the individual

19 tax credit eligibility certificate, and

20 ‘‘(C) in accordance with tables provided by

21 the Secretary.

22 ‘‘(2) ADVANCE AMOUNT TABLES.—The tables

23 referred to in paragraph (1)(C) shall be similar in

24 form to the tables prescribed under section 3402

25 and, to the maximum extent feasible, shall be coordi-
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1 nated with such tables and the tables prescribed

2 under section 3507(c).

3 ‘‘(d) OTHER RULES.—For purposes of this section,

4 rules similar to the rules of subsections (d) and (e) of sec5 tion 3507 shall apply.

6 ‘‘(e) REGULATIONS.—The Secretary shall prescribe

7 such regulations as may be necessary to carry out the pur8 poses of this section.’’

9 (c) CONFORMING AMENDMENT.—Section 1(f)(6), as

10 amended by section 202(b)(1), is amended by inserting

11 ‘‘section 32A(c),’’ before ‘‘63(c)(4),’’.

12 (d) CLERICAL AMENDMENTS.—

13 (1) The table of sections for subpart A of part

14 IV of subchapter A of chapter 1 is amended by in15 serting after the item relating to section 32 the fol16 lowing new item:

‘‘Sec. 32A. Individual tax credit.’’

17 (2) The table of sections for chapter 25 is

18 amended by adding after the item relating to section

19 3507 the following new item:

‘‘Sec. 3507A. Advance payment of individual tax credit.’’

20 TITLE III—BUSINESS ACTIVITIES

21 TAX

22 SEC. 301. BUSINESS ACTIVITIES TAX IMPOSED.

23 The Internal Revenue Code of 1986 is amended by

24 adding at the end the following new subtitle:
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1 ‘‘Subtitle K—Business Activities

2 Tax

‘‘CHAPTER 100. Business activities tax.

3 ‘‘CHAPTER 100—BUSINESS ACTIVITIES

4 TAX

‘‘SUBCHAPTER A. Imposition of tax.

‘‘SUBCHAPTER B. Computation of tax.

‘‘SUBCHAPTER C. General rules.

‘‘SUBCHAPTER D. Special rules.

‘‘SUBCHAPTER E. Refunds; small business exemption.

‘‘SUBCHAPTER F. Definitions.

‘‘SUBCHAPTER G. Administration.

5 ‘‘Subchapter A—Imposition of Tax

‘‘Sec. 10001. Tax imposed.

6 ‘‘SEC. 10001. TAX IMPOSED.

7 ‘‘In the case of any person engaged in any business

8 activity, there is hereby imposed for each taxable period

9 a tax in an amount equal to 14.5 percent of the taxable

10 amount.

11 ‘‘Subchapter B—Computation of Tax

‘‘Sec. 10011. Taxable amount.

‘‘Sec. 10012. Business activity.

‘‘Sec. 10013. Activities not treated as business activity.

‘‘Sec. 10014. Gross receipts from business activities.

‘‘Sec. 10015. Business purchases.

‘‘Sec. 10016. Exemption for certain nontaxable exchanges.

12 ‘‘SEC. 10011. TAXABLE AMOUNT.

13 ‘‘(a) IN GENERAL.—For purposes of this chapter, the

14 term ‘taxable amount’ means the amount by which—

15 ‘‘(1) the gross receipts of any person from busi16 ness activities for a taxable period, exceed
26

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1 ‘‘(2) the business purchases of such person for

2 the taxable period.

3 ‘‘(b) CROSS REFERENCES.—For special rules, see

4 sections 10022, 10032, and 10034.

5 ‘‘SEC. 10012. BUSINESS ACTIVITY.

6 ‘‘For purposes of this chapter, the term ‘business ac7 tivity’ means—

8 ‘‘(1) the sale of property or services in the

9 United States by any person in connection with a

10 business,

11 ‘‘(2) the import of property or services into the

12 United States, or

13 ‘‘(3) the export of property or services from the

14 United States in connection with a business.

15 ‘‘SEC. 10013. ACTIVITIES NOT TREATED AS BUSINESS ACTIV16 ITY.

17 ‘‘For purposes of this chapter, the term ‘business ac18 tivity’ does not include—

19 ‘‘(1) the performance of services by an em20 ployee for the employee’s employer, or

21 ‘‘(2) any import of an article that is free of

22 duty under chapter 98 of the Harmonized Tariff

23 Schedule of the United States.
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1 ‘‘SEC. 10014. GROSS RECEIPTS FROM BUSINESS ACTIVITIES.

2 ‘‘(a) IN GENERAL.—For purposes of this chapter, the

3 term ‘gross receipts’ means all receipts from a business

4 activity.

5 ‘‘(b) EXCHANGES.—For purposes of this chapter, the

6 amount treated as gross receipts from the exchange of

7 property or services is the fair market value of the prop8 erty or services received, plus any money received.

9 ‘‘(c) EXPORTS AND IMPORTS.—

10 ‘‘(1) EXPORTS OF PROPERTY OR SERVICES.—

11 For treatment of exports, see section 10031.

12 ‘‘(2) IMPORTS OF PROPERTY OR SERVICES.—

13 For treatment of imports, see section 10032.

14 ‘‘(3) INTERNATIONAL TRANSPORTATION.—For

15 treatment of international transportation services,

16 see section 10033.

17 ‘‘(d) CERTAIN INSURANCE PROCEEDS.—For pur18 poses of this chapter, the term ‘gross receipts’ includes

19 the proceeds of property and casualty insurance for losses

20 in connection with business property or services.

21 ‘‘(e) TAXES.—For purposes of this chapter, the term

22 ‘gross receipts’ includes any excise tax, sales tax, customs

23 duty, or other separately stated levy imposed by a Federal,

24 State, or local government on property or services sold in

25 a business activity received or collected by the seller in

26 connection with the sale. Gross receipts shall not include
28

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1 any tax imposed by chapter 31, 32, 33, 34, 35, 36, 39,

2 51, 52, or 53.

3 ‘‘(f) TRANSFERS TO RELATED PERSONS.—

4 ‘‘(1) IN GENERAL.—For purposes of this chap5 ter, any transfer of property or services to a related

6 person shall be treated as a sale of such property or

7 services for an amount equal to the fair market

8 value of the property or services.

9 ‘‘(2) RELATED PERSON.—For purposes of this

10 subsection, the term ‘related person’ means—

11 ‘‘(A) in the case of an employment rela12 tionship, an employer and employee,

13 ‘‘(B) in the case of any entity, an owner of

14 the entity,

15 ‘‘(C) any person specified in regulations,

16 and

17 ‘‘(D) any member of the family (within the

18 meaning of section 267(c)(4)) of any individual

19 described in subparagraph (A), (B), or (C).

20 ‘‘(3) OWNER.—For purposes of paragraph (2),

21 the term ‘owner’ means—

22 ‘‘(A) the proprietor of a sole proprietor23 ship, and
29

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1 ‘‘(B) any holder of a beneficial interest in

2 a corporation, partnership, trust, or other en3 tity.

4 ‘‘SEC. 10015. BUSINESS PURCHASES.

5 ‘‘(a) IN GENERAL.—For purposes of this chapter, the

6 term ‘business purchase’ means any amount paid or in7 curred to purchase property or services for use in a busi8 ness activity other than—

9 ‘‘(1) amounts the payment of which is unlawful

10 under Federal, State, or local law, or

11 ‘‘(2) except as provided in subsection (d)—

12 ‘‘(A) interest,

13 ‘‘(B) premiums for insurance other than

14 property and casualty insurance, or

15 ‘‘(C) other implicit intermediation fees.

16 ‘‘(b) COMPENSATION EXPENSE NOT INCLUDED.—

17 The term ‘business purchase’ does not include any amount

18 paid or incurred as current or deferred compensation to

19 employees, or for employee benefits.

20 ‘‘(c) EXPORTS AND IMPORTS.—

21 ‘‘(1) EXPORTS.—For treatment of exports, see

22 section 10033(b)(1).

23 ‘‘(2) IMPORTS.—For treatment of imports, see

24 section 10032.
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1 ‘‘(3) INTERNATIONAL TRANSPORTATION.—For

2 treatment of international transportation services,

3 see section 10033.

4 ‘‘(d) FINANCIAL INTERMEDIATION SERVICES.—

5 ‘‘(1) IN GENERAL.— For purposes of this chap6 ter, business purchases include amounts allocable to

7 the business activity for which a person has received

8 notice under section 10034(d) (relating to implicit

9 financial intermediation fees) and which have other10 wise not been taken into account.

11 ‘‘(2) CROSS REFERENCE.—For additional treat12 ment of financial intermediation services, see section

13 10034.

14 ‘‘(e) EXCHANGES.—For purposes of this chapter, the

15 amount treated as paid or incurred for business purchases

16 in connection with the exchange of property or services

17 is the fair market value of the property or services ex18 changed, plus any money paid.

19 ‘‘(f) TAXES.—For purposes of this chapter, the term

20 ‘business purchase’ includes any excise tax, sales tax, cus21 toms duty, or other separately stated levy imposed by a

22 Federal, State, or local government on property or services

23 purchased for use in a business activity.

24 ‘‘(g) GAMBLING PAYMENTS.—Except as provided in

25 subsection (a)(1), in the case of a business activity involv-
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1 ing gambling, lotteries, or other games of chance, business

2 purchases include amounts paid to winners.

3 ‘‘SEC. 10016. EXEMPTION FOR CERTAIN NONTAXABLE EX4 CHANGES.

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

6 gross receipts shall not include gross receipts from an ap7 plicable nontaxable transaction except to the extent attrib8 utable to money or other property received in the trans9 action.

10 ‘‘(b) APPLICABLE NONTAXABLE TRANSACTIONS.—

11 For purposes of this section, the term ‘applicable non12 taxable transaction’ means any transaction—

13 ‘‘(1) to which section 332, 351, 368, or 721 ap14 plies, or

15 ‘‘(2) which is specified by the Secretary and

16 with respect to which gain is not recognized in whole

17 or in part under chapter 1.

18 ‘‘Subchapter C—General Rules

‘‘Sec. 10021. Accounting methods.

‘‘Sec. 10022. Governmental entities and exempt organizations.

‘‘Sec. 10023. Post-sale price adjustments and refunds; bad debts.

‘‘Sec. 10024. Source rules.

‘‘Sec. 10025. Transfer in satisfaction of debt.

‘‘Sec. 10026. Conversions.

19 ‘‘SEC. 10021. ACCOUNTING METHODS.

20 ‘‘(a) IN GENERAL.—Except as provided in this sec21 tion, a person subject to tax under this chapter may use
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1 any of the following methods of accounting for purposes

2 of this chapter:

3 ‘‘(1) The cash receipts and disbursements

4 method.

5 ‘‘(2) An accrual method.

6 ‘‘(3) Any other method permitted by the Sec7 retary.

8 The Secretary may require a person to modify any method

9 to clearly reflect gross receipts and business purchases.

10 ‘‘(b) CONSISTENCY REQUIREMENT.—All persons

11 which are members of a controlled group of corporations

12 which does not elect to be treated as one person for pur13 poses of this chapter under section 10063(a)(2) shall use

14 the same method of accounting for purposes of this chap15 ter.

16 ‘‘(c) SPECIAL RULES FOR LONG-TERM CON17 TRACTS.—

18 ‘‘(1) IN GENERAL.—In the case of any sale pur19 suant to a long-term contract (as defined in section

20 460(f))—

21 ‘‘(A) the seller shall use the percentage of

22 completion method in computing gross receipts

23 from the contract, and
33

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1 ‘‘(B) the purchaser shall use the cash re2 ceipts and disbursements method in computing

3 business purchases from the contract.

4 ‘‘(2) REPORTING.—The Secretary may require

5 taxpayers to file statements containing such infor6 mation with respect to long-term contracts as the

7 Secretary may prescribe.

8 ‘‘(d) INSTALLMENT METHOD PROHIBITED.—Gross

9 receipts from the sale of property shall not be taken into

10 account for purposes of this chapter under the installment

11 method.

12 ‘‘SEC. 10022. GOVERNMENTAL ENTITIES AND EXEMPT OR13 GANIZATIONS.

14 ‘‘(a) GOVERNMENTAL ENTITIES.—For purposes of

15 this chapter, the transfer of property or furnishing of serv16 ices by a governmental entity with respect to any of the

17 following activities shall be treated as a business activity:

18 ‘‘(1) Public utility services.

19 ‘‘(2) Mass transit services.

20 ‘‘(3) Postal services.

21 ‘‘(4) Any activity not involving the exercise of

22 any essential governmental function (within the

23 meaning of section 115).

24 ‘‘(b) EXEMPT ORGANIZATIONS.—For purposes of

25 this chapter—
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1 ‘‘(1) IN GENERAL.—Except as provided in this

2 subsection, the transfer of property or furnishing of

3 services by an exempt organization shall be treated

4 as a business activity.

5 ‘‘(2) EXCEPTION FOR SECTION 501 (c)(3) ORGA6 NIZATIONS.—Paragraph (1) shall not apply to an ex7 empt organization described in section 501(c)(3) un8 less the activity constitutes an unrelated trade or

9 business (within the meaning of section 513) of the

10 organization.

11 ‘‘(c) GROSS RECEIPTS.—If there is no separately

12 stated charge with respect to any transfer or furnishing

13 to which subsection (a) or (b) applies, gross receipts shall

14 be determined on the basis of the fair market value of

15 the property transferred or services furnished.

16 ‘‘(d) ALLOCATION.—The Secretary shall by regula17 tion provide for the proper allocation of gross receipts and

18 business purchases between business activities and other

19 activities.

20 ‘‘(e) SELF-CONSUMPTION OF PROPERTY OR SERV21 ICES.—Notwithstanding the provisions of this section, the

22 Secretary may by regulation provide that property pro23 duced, or services furnished, by a governmental entity or

24 an exempt organization for use by itself are to be treated

25 as sold in a business activity if such treatment is necessary
35

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1 to carry out the purposes of this chapter. In any such case

2 the taxable amount shall be determined by reference to

3 the fair market value of the property or services.

4 ‘‘SEC. 10023. POST-SALE PRICE ADJUSTMENTS AND RE5 FUNDS; BAD DEBTS.

6 ‘‘(a) PRICE ADJUSTMENTS AND REFUNDS.—

7 ‘‘(1) RECEIPT TREATED AS REDUCTION IN

8 BUSINESS PURCHASES.—If a person subject to tax

9 under this chapter receives a post-sale price adjust10 ment attributable to a business purchase which was

11 taken into account in computing the taxable amount

12 for a prior taxable period, then the amount of such

13 adjustment shall be treated as a reduction in busi14 ness purchases for the taxable period in which it is

15 received.

16 ‘‘(2) ISSUANCE TREATED AS REDUCTION IN

17 GROSS RECEIPTS.—If a person subject to tax under

18 this chapter issues a post-sale price adjustment for

19 a sale the gross receipts from which were taken into

20 account in computing the taxable amount for a prior

21 taxable period, then the amount of such adjustment

22 shall be treated as a reduction in gross receipts for

23 the taxable period in which it is issued.

24 ‘‘(3) POST-SALE PRICE ADJUSTMENT.—For

25 purposes of this subsection, the term ‘post-sale price
36

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1 adjustment’ means a refund, rebate, or other price

2 allowance attributable to a sale of property or serv3 ices.

4 ‘‘(b) BAD DEBTS.—

5 ‘‘(1) SELLER.—

6 ‘‘(A) WRITEOFFS AND WRITEDOWNS.—If

7 an amount owed to a seller of business property

8 or services that was taken into account as gross

9 receipts in computing the taxable amount of the

10 seller for a prior taxable period becomes wholly

11 or partially uncollectible during any subsequent

12 taxable period, then the seller shall treat the

13 amount (or part thereof that is uncollectible) as

14 a reduction in gross receipts for the taxable pe15 riod in which it becomes wholly or partially

16 uncollectible.

17 ‘‘(B) NOTICE.—Whenever a seller treats

18 an amount as wholly or partially uncollectible

19 under subparagraph (A), the seller shall notify

20 the purchaser of the amount the seller is treat21 ing as uncollectible. The notice shall set forth

22 with specificity the purchase or purchases to

23 which the treatment relates and shall be sent to

24 the purchaser at the purchaser’s last known ad25 dress within 10 days after close of the taxable
37

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1 period in which the seller treats the amount as

2 wholly or partially uncollectible.

3 ‘‘(C) RECOVERIES.—If a seller receives

4 payment for an amount that was treated as a

5 reduction in gross receipts under subparagraph

6 (A) in a prior taxable period, then the seller

7 shall treat the payment as a gross receipt for

8 the taxable period in which it is received.

9 ‘‘(2) PURCHASER.—

10 ‘‘(A) WRITEOFFS AND WRITEDOWNS.—If a

11 purchaser receives notice under paragraph

12 (1)(B) from a seller for all or a portion of the

13 amount owed for business property or services

14 that the purchaser treated as a business pur15 chase in a prior taxable period, then the pur16 chaser shall treat such amount as a reduction

17 in business purchases for the taxable period in

18 which the notice is received.

19 ‘‘(B) REPAYMENTS.—If a purchaser pays

20 all or part of an amount treated as a reduction

21 in business purchases under subparagraph (A)

22 in a prior taxable period, then the purchaser

23 shall treat the amount paid as a business pur24 chase for the taxable period in which the pay25 ment is made.
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1 ‘‘SEC. 10024. SOURCE RULES.

2 ‘‘(a) SALES OF PROPERTY.—For purposes of this

3 chapter, a sale of property shall be treated as occurring

4 in the United States if the property is located in the

5 United States at the time of the sale.

6 ‘‘(b) SALES OF SERVICES.—

7 ‘‘(1) GENERAL RULE.—For purposes of this

8 chapter, a sale of services shall be treated as occur9 ring in the United States to the extent that—

10 ‘‘(A) the services are provided from a place

11 of business, or with respect to property, in the

12 United States, or

13 ‘‘(B) the services are incidental to the pro14 vision of services within the United States.

15 ‘‘(2) CROSS REFERENCE.—For treatment of

16 international transportation services, see section

17 10033.

18 ‘‘SEC. 10025. TRANSFER IN SATISFACTION OF DEBT.

19 ‘‘For purposes of this chapter, the transfer of prop20 erty or services by a debtor to a creditor in exchange for

21 a reduction of debt shall be treated as a sale of such prop22 erty or services for an amount equal to the amount by

23 which the debt is reduced.

24 ‘‘SEC. 10026. CONVERSIONS.

25 For purposes of this chapter, any conversion of prop26 erty or services from use in a business activity to use in
39

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1 any other activity, or from use in any other activity to

2 use in a business activity, shall be treated as a sale of

3 the property or services for their fair market value.

4 ‘‘Subchapter D—Special Rules

‘‘Sec. 10031. Exports of property or services.

‘‘Sec. 10032. Imports of property or services.

‘‘Sec. 10033. International transportation services.

‘‘Sec. 10034. Financial intermediation services.

‘‘Sec. 10035. Other special rules.

5 ‘‘SEC. 10031. EXPORTS OF PROPERTY OR SERVICES.

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

7 the term ‘gross receipts’ does not include amounts received

8 by the exporter thereof for property or services exported

9 from the United States for use or consumption outside

10 the United States.

11 ‘‘(b) EXPORT THROUGH NONBUSINESS ENTITY.—

12 For purposes of subsection (a), if property or services are

13 sold to a governmental entity or exempt organization for

14 export and are exported other than in a business activity

15 of such entity or organization, then the seller of such prop16 erty or services is deemed to be the exporter thereof.

17 ‘‘SEC. 10032. IMPORTS OF PROPERTY OR SERVICES.

18 ‘‘(a) IN GENERAL.—For purposes of this chapter, the

19 taxable amount with respect to the import of property or

20 services for use or consumption within the United States

21 is the sum of—

22 ‘‘(1) the amount paid or incurred for the prop23 erty or services, plus
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1 ‘‘(2) in the case of property, any amounts paid

2 or incurred for transportation costs (if such costs

3 are not included in the amount paid for the prop4 erty).

5 ‘‘(b) IMPORTS OF PREVIOUSLY EXPORTED PROP6 ERTY.—

7 ‘‘(1) IN GENERAL.—For purposes of this chap8 ter, the taxable amount for any import of property

9 that is returned to the United States—

10 ‘‘(A) after export for repairs or alterations

11 abroad, or

12 ‘‘(B) after export to undergo assembly,

13 processing, manufacture, or other changes in

14 condition abroad,

15 is the net cost to the importer of such repairs, alter16 ations, assembly, processing, manufacture, or other

17 change in condition.

18 ‘‘(2) LIMITATION FOR PREVIOUSLY EXPORTED

19 PROPERTY.—Paragraph (1) shall apply only to prop20 erty—

21 ‘‘(A) that the importer acquired before ex22 port, and

23 ‘‘(B) as to which there has been no trans24 fer of ownership between the time of export and

25 import.
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1 ‘‘(c) BUSINESS PURCHASES OF IMPORTS.—For pur2 poses of this chapter—

3 ‘‘(1) IN GENERAL.—The term ‘business pur4 chase’ includes—

5 ‘‘(A) the amount determined under sub6 section (a) for property or services, plus

7 ‘‘(B) the amount of tax payable under this

8 chapter with respect to the import of such prop9 erty or services.

10 ‘‘(2) BUSINESS ACTIVITY REQUIRED.—A person

11 may not include any amount described in paragraph

12 (1) in business purchases unless the person uses the

13 property or services in a business activity.

14 ‘‘SEC. 10033. INTERNATIONAL TRANSPORTATION SERVICES.

15 ‘‘(a) GROSS RECEIPTS.—For purposes of this chap16 ter—

17 ‘‘(1) EXPORTS.—The term ‘gross receipts’ does

18 not include receipts from transportation of property

19 exported from the United States.

20 ‘‘(2) IMPORTS.—The term ‘gross receipts’ does

21 not include receipts from the transportation of prop22 erty imported into the United States unless such re23 ceipts are not taken into account under section

24 10032 in computing the taxable amount with respect

25 to the property.
42

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1 ‘‘(b) BUSINESS PURCHASES.—For purposes of this

2 chapter—

3 ‘‘(1) EXPORTS.—The term ‘business purchase’

4 does not include amounts paid or incurred for trans5 portation of property exported from the United

6 States.

7 ‘‘(2) IMPORTS.—For treatment as business pur8 chases of amounts paid or incurred for transpor9 tation of property imported into the United States,

10 see section 10032(c).

11 ‘‘(c) INTERNATIONAL TRANSPORTATION OF PAS12 SENGERS.—For purposes of this chapter—

13 ‘‘(1) GROSS RECEIPTS.—Gross receipts—

14 ‘‘(A) include receipts from the transpor15 tation of passengers from outside the United

16 States to a destination in the United States,

17 but

18 ‘‘(B) do not include receipts from the

19 transportation of passengers from the United

20 States to a destination outside the United

21 States.

22 ‘‘(2) BUSINESS PURCHASES.—Business pur23 chases—

24 ‘‘(A) include amounts paid or incurred in

25 a business activity for the transportation of
43

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1 passengers from outside the United States to a

2 destination in the United States, but

3 ‘‘(B) do not include amounts paid or in4 curred in a business activity for the transpor5 tation of passengers from the United States to

6 a destination outside the United States.

7 ‘‘SEC. 10034. FINANCIAL INTERMEDIATION SERVICES.

8 ‘‘(a) GENERAL RULE.—For purposes of this chap9 ter—

10 ‘‘(1) the providing of financial intermediation

11 services shall be treated as a business activity, and

12 ‘‘(2) this chapter shall be applied to the busi13 ness activity by substituting financial receipts and

14 adjusted business purchases properly allocable to

15 such business activity for gross receipts and business

16 purchases.

17 ‘‘(b) FINANCIAL RECEIPTS.—For purposes of this

18 section, the term ‘financial receipts’ means all receipts

19 other than amounts received as contributions to capital.

20 ‘‘(c) ADJUSTED BUSINESS PURCHASES.—For pur21 poses of this section, the term ‘adjusted business pur22 chases’ means business purchases, adjusted as follows:

23 ‘‘(1) PRINCIPAL AND INTEREST.—Business

24 purchases include any principal or interest payments

25 properly allocable to the business activity described
44

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1 in subsection (a). The preceding sentence shall not

2 apply to any principal or interest payments other3 wise allocable to business purchases (determined

4 without regard to this section or section 10015(b)).

5 ‘‘(2) FINANCIAL INSTRUMENTS.—Notwithstand6 ing section 10051(3), business purchases include the

7 cost of, and payments under, financial instruments

8 (other than financial instruments representing eq9 uity interests in the person subject to the tax im10 posed by this chapter).

11 ‘‘(3) INSURANCE CLAIMS.—Business purchases

12 include claims and cash surrender values paid in

13 connection with insurance or reinsurance services.

14 ‘‘(4) REINSURANCE.—Business purchases in15 clude amounts paid for reinsurance.

16 ‘‘(d) REPORTING TO CUSTOMERS.—

17 ‘‘(1) ALLOCATION AND REPORTING.—

18 ‘‘(A) IN GENERAL.—A person engaged in

19 the business activity of providing financial

20 intermediation services shall—

21 ‘‘(i) allocate fees received for such

22 services (other than services for which sep23 arately stated fees are charged) among re24 cipients of such services on a reasonable

25 and consistent basis, and
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1 ‘‘(ii) report to each recipient the fees

2 so allocated.

3 ‘‘(B) TIMING.—The report under subpara4 graph (A)(ii) shall be furnished to the recipient

5 no later than the 45th day after the close of a

6 taxable period.

7 ‘‘(2) EXCEPTION.—The Secretary shall estab8 lish procedures under which notice need not be given

9 under this subsection to persons with respect to

10 whom services are not provided in connection with a

11 business activity.

12 ‘‘(e) DEFINITIONS.—For purposes of this section—

13 ‘‘(1) FINANCIAL INTERMEDIATION SERVICE.—

14 The term ‘financial intermediation service’ means—

15 ‘‘(A) lending services,

16 ‘‘(B) insurance services,

17 ‘‘(C) market-making and dealer services,

18 and

19 ‘‘(D) any other service provided as a busi20 ness activity in which a person acts as an

21 intermediary in—

22 ‘‘(i) the transfer of property, services,

23 or financial assets, liabilities, risks, or in24 struments (or income or expense derived
46

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1 therefrom) between two or more other per2 sons, or

3 ‘‘(ii) the pooling of economic risk

4 among other persons,

5 and derives all or a portion of such person’s

6 gross receipts from streams of income or ex7 pense, discounts, or other financial flows associ8 ated with the matter with respect to which such

9 person is acting as an intermediary.

10 ‘‘(2) LENDING SERVICES.—The term ‘lending

11 services’ means the regular making of loans and pro12 viding credit to, or taking deposits from, customers,

13 but does not include an installment or delayed pay14 ment arrangement provided by a seller of property

15 or services under which additional charges or fees

16 are imposed by the seller for late payment and for

17 which no interest is charged.

18 ‘‘(3) MARKET-MAKING OR DEALER SERVICES.—

19 The term ‘market-making or dealer services’ means

20 services provided by a person who—

21 ‘‘(A) regularly purchases financial instru22 ments from or sells financial instruments to

23 customers in the ordinary course of a trade or

24 business, or
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1 ‘‘(B) regularly offers to enter into, assume,

2 offset, assign, or otherwise terminate positions

3 in financial instruments with customers in the

4 ordinary course of a trade or business.

5 ‘‘SEC. 10035. OTHER SPECIAL RULES.

6 ‘‘(a) EXCHANGES CLASSIFIED BY CONSIDERATION

7 GIVEN.—For purposes of this chapter—

8 ‘‘(1) an exchange of property for property or

9 services is treated as a sale of property, and

10 ‘‘(2) an exchange of services for property or

11 services is treated as a sale of services,

12 without regard, in either instance, to whether other con13 sideration is received.

14 ‘‘(b) SPECIAL RULE WHERE SALE OF PROPERTY IN15 CLUDES INCIDENTAL SALE OF SERVICES.—For purposes

16 of this chapter, if in connection with the sale of any prop17 erty there is an incidental sale of services, such sale of

18 services shall be treated as part of the sale of such prop19 erty.

20 ‘‘(c) SPECIAL RULE WHERE SALE OF SERVICES IN21 CLUDES INCIDENTAL SALE OF PROPERTY.—For purposes

22 of this chapter, if in connection with the sale of any serv23 ices there is an incidental sale of property, such sale of

24 property shall be treated as part of the sale of such serv25 ices.
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1 ‘‘Subchapter E—Refunds; Small Business

2 Exemption

‘‘Sec. 10041. Refund for excess business purchase periods.

‘‘Sec. 10042. Small business exemption.

3 ‘‘SEC. 10041. REFUND FOR EXCESS BUSINESS PURCHASE

4 PERIODS.

5 ‘‘(a) CREDIT ALLOWED.—There shall be allowed as

6 a credit against the tax imposed by section 10001 for any

7 taxable period an amount equal to the amount determined

8 under subsection (b), multiplied by the tax rate provided

9 in section 10001 in effect for such period.

10 ‘‘(b) DETERMINATION OF AMOUNT.—

11 ‘‘(1) IN GENERAL.—For purposes of subsection

12 (a), the amount determined under this subsection

13 for any taxable period is the amount by which—

14 ‘‘(A) the business purchases of any person

15 for a taxable period, exceed

16 ‘‘(B) the gross receipts of that person for

17 such period.

18 ‘‘(2) GOVERNMENTAL ENTITIES.—For purposes

19 of paragraph (1), the business purchases of a gov20 ernmental entity subject to tax under this chapter

21 for a business activity shall be reduced by the

22 amount of any subsidy provided for that activity.

23 For purposes of this paragraph, the term ‘subsidy’

24 includes the value of property or services used in
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1 such activity for which no amount was paid or in2 curred, together with any amounts paid or obligated

3 from appropriated funds (except to the extent that

4 such funds represent operating revenues or other re5 ceipts from the activity).

6 ‘‘(c) REFUND OR CREDIT OF AMOUNT.—The amount

7 of the credit allowed under subsection (a) for any taxable

8 period is treated as an overpayment of the tax imposed

9 by section 10001 for that taxable period.

10 ‘‘SEC. 10042. SMALL BUSINESS EXEMPTION.

11 ‘‘(a) EXEMPTION.—Except as provided in subsection

12 (b), if the aggregate amount of gross receipts of any per13 son for any taxable period and the 3 preceding taxable

14 periods does not exceed the exemption amount, no tax

15 shall be imposed under this chapter (and no credit shall

16 be allowed under section 10041) for the taxable period.

17 ‘‘(b) EXCEPTIONS.—

18 ‘‘(1) PERSON MUST ALWAYS BE EXEMPT.—Sub19 section (a) shall not apply to any person for a tax20 able period unless the person was exempt from the

21 tax imposed by this chapter for all preceding taxable

22 periods.

23 ‘‘(2) ELECTION.—Subsection (a) shall not apply

24 to any person for a taxable period if the person
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1 elects not to have subsection (a) apply for the tax2 able period.

3 ‘‘(c) STATEMENTS.—A person to which this section

4 applies for any taxable period shall file a statement con5 taining such information as the Secretary may prescribe.

6 ‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur7 poses of this section—

8 ‘‘(1) EXEMPTION AMOUNT.—The term ‘exemp9 tion amount’ means $100,000 (or an equivalent

10 amount if the taxable period is not a calendar quar11 ter).

12 ‘‘(2) PERSONS NOT ENGAGED IN BUSINESS FOR

13 ENTIRE PERIOD.—If a person was not engaged in a

14 business activity for the entire period referred to in

15 subsection (a), such subsection shall be applied on

16 the basis of the period the person was so engaged.

17 ‘‘(3) PREDECESSORS.—Any reference in this

18 section to a person shall include a reference to any

19 predecessor of the person.

20 ‘‘Subchapter F—Definitions

‘‘Sec. 10051. Definitions.

21 ‘‘SEC. 10051. DEFINITIONS.

22 ‘‘For purposes of this chapter—
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1 ‘‘(1) SALE OF SERVICES.—The term ‘sale of

2 services’ means the performance of services for con3 sideration, and includes—

4 ‘‘(A) the granting of the right to use prop5 erty, whether tangible or intangible, for consid6 eration, and

7 ‘‘(B) the granting of a right to the per8 formance of services or to reimbursement (in9 cluding the granting of warranties, insurance,

10 and similar items) for consideration.

11 ‘‘(2) SALE OF PROPERTY.—The term ‘sale of

12 property’ means the transfer of ownership of prop13 erty from a seller to a purchaser for consideration.

14 ‘‘(3) PROPERTY.—The term ‘property’ means

15 any tangible or intangible property, other than

16 money or any financial instrument.

17 ‘‘(4) BUSINESS.—The term ‘business’ includes

18 any activity carried on continuously or regularly,

19 whether or not for profit, that involves or is intended

20 to involve the sale of property or services.

21 ‘‘(5) BUSINESS PROPERTY OR SERVICE.—The

22 term ‘business property or service’ means any prop23 erty or service the sale of which by the owner or pro24 vider thereof would be a business activity or which
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1 is used by the owner or provider in a business activ2 ity.

3 ‘‘(6) EMPLOYEE.—The term ‘employee’ has the

4 same meaning as when such term is used for pur5 poses of chapter 24 (relating to withholding).

6 ‘‘(7) PERSON.—The term ‘person’ has the

7 meaning given such term by section 7701(a)(1), but

8 also includes any governmental entity.

9 ‘‘(8) UNITED STATES.—The term ‘United

10 States’, when used in a geographic sense, includes

11 the customs territory of the United States (as de12 fined in General Headnote 2 of the Harmonized

13 Tariff Schedules of the United States) and any area

14 seaward of the States lying within the outer bound15 aries of the outer continental shelf (as defined in

16 section 1331 of title 43, United States Code).

17 ‘‘(9) GOVERNMENTAL ENTITY.—The term ‘gov18 ernmental entity’ means the United States, any

19 State or political subdivision thereof, the District of

20 Columbia, a Commonwealth or possession of the

21 United States, or any agency or instrumentality of

22 any of the foregoing.

23 ‘‘(10) EXEMPT ORGANIZATION.—The term ‘ex24 empt organization’ means any organization exempt

25 from taxation under section 501 (c) or (d).
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1 ‘‘(11) FINANCIAL INSTRUMENT DEFINED.—The

2 term ‘financial instrument’ means any—

3 ‘‘(A) share of stock in a corporation,

4 ‘‘(B) partnership or beneficial ownership

5 interest in a widely held or publicly traded part6 nership or trust,

7 ‘‘(C) note, bond, debenture, or other evi8 dence of indebtedness,

9 ‘‘(D) interest rate, currency, or equity no10 tional principal contract,

11 ‘‘(E) evidence of an interest in, or a deriv12 ative financial instrument in, any financial in13 strument described in subparagraph (A), (B),

14 (C), or (D), or any currency, including any op15 tion, forward contract, short position, and any

16 similar financial instrument in such a financial

17 instrument or currency, and

18 ‘‘(F) position which—

19 ‘‘(i) is not a financial instrument de20 scribed in subparagraph (A), (B), (C), (D),

21 or (E),

22 ‘‘(ii) is a hedge with respect to such

23 a financial instrument, and

24 ‘‘(iii) is clearly identified in the deal25 er’s records as being described in this sub-
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1 paragraph before the close of the day on

2 which it was acquired or entered into (or

3 such other time as the Secretary may by

4 regulations prescribe).

5 ‘‘(12) USE INCLUDES HELD FOR USE.—Prop6 erty or services held for use by any person shall be

7 treated as used by that person.

8 ‘‘Subchapter G—Administration

‘‘Sec. 10061. Liability for tax.

‘‘Sec. 10062. Time for filing return; taxable period.

‘‘Sec. 10063. Treatment of related businesses.

‘‘Sec. 10064. Secretary to be notified of certain events.

‘‘Sec. 10065. Regulations.

9 ‘‘SEC. 10061. LIABILITY FOR TAX.

10 ‘‘The person selling or importing property or services

11 shall be liable for the tax imposed by section 10001.

12 ‘‘SEC. 10062. TIME FOR FILING RETURN; TAXABLE PERIOD.

13 ‘‘(a) FILING RETURN.—Before the sixteenth day of

14 the second calendar month beginning after the close of

15 each taxable period, each person subject to tax under this

16 chapter shall file a return of the tax imposed by section

17 10001 for such taxable period.

18 ‘‘(b) TAXABLE PERIOD.—For purposes of this chap19 ter—

20 ‘‘(1) IN GENERAL.—The term ‘taxable period’

21 means a calendar quarter, except that if a taxpayer

22 has a taxable year under chapter 1 other than the
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1 calendar year, then such term means a quarter of

2 that taxable year.

3 ‘‘(2) OTHER PERIODS.—To the extent provided

4 in regulations, the term ‘taxable period’ includes a

5 period selected by a person other than a calendar

6 quarter.

7 ‘‘(3) AUTHORITY TO SHORTEN LENGTH OF TAX

8 PERIOD.—The Secretary may shorten the length of

9 a person’s taxable period under this subsection to

10 the extent the Secretary deems such action nec11 essary to protect the revenue.

12 ‘‘SEC. 10063. TREATMENT OF RELATED BUSINESSES.

13 ‘‘(a) GENERAL RULE.—For purposes of this chap14 ter—

15 ‘‘(1) AFFILIATED GROUPS AND BUSINESSES

16 UNDER COMMON CONTROL.—Except to the extent

17 otherwise provided in regulations—

18 ‘‘(A) an affiliated group of corporations (as

19 defined in section 1504(a) without regard to

20 paragraphs (2), (4), and (7) of section

21 1504(b)), or

22 ‘‘(B) two or more businesses (whether or

23 not incorporated) under common control within

24 the meaning of section 52(b) and the regula25 tions thereunder,
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1 shall be treated as one person.

2 ‘‘(2) CONTROLLED GROUP.—A controlled group

3 of corporations, as defined in section 1563(a) (deter4 mined without regard to the second sentence of

5 paragraph (4) of such section and without regard to

6 section 1563(e)(3)(C)), may elect to be treated as

7 one person.

8 ‘‘(b) RELATED PARTY TRANSACTIONS.—For pur9 poses of this chapter, transactions in the United States

10 between corporations or other businesses that are treated,

11 or that may elect to be treated, as one person under sub12 section (a) shall not be taken into account in computing

13 the gross receipts or business purchases of any such cor14 poration or business.

15 ‘‘SEC. 10064. SECRETARY TO BE NOTIFIED OF CERTAIN

16 EVENTS.

17 ‘‘To the extent provided in regulations, each person

18 engaged in a business shall notify the Secretary (at such

19 time or times as may be prescribed by regulation) of—

20 ‘‘(1) any change in the form in which the busi21 ness is conducted, and

22 ‘‘(2) any other change that might affect—

23 ‘‘(A) the liability for the tax imposed by

24 section 10001,
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1 ‘‘(B) the amount of such tax or any credit

2 against such tax, or

3 ‘‘(C) the administration of such tax in the

4 case of such person.

5 ‘‘SEC. 10065. REGULATIONS.

6 ‘‘The Secretary shall prescribe such regulations as

7 may be necessary to carry out the provisions of this chap8 ter.’’

9 SEC. 302. REFUND AUTHORITY.

10 Section 6402 (relating to authority to make credits

11 or refunds) is amended by designating subsection (h) as

12 subsection (j) and by inserting after subsection (g) the fol13 lowing new subsection:

14 ‘‘(h) REPAYMENT OF BUSINESS ACTIVITIES TAX.—

15 Within 45 days after the date on which a business activi16 ties tax return is filed pursuant to section 10062 showing

17 an overpayment, the Secretary shall make, to the extent

18 the Secretary deems practical, a limited examination of

19 the return to discover omissions and errors of computa20 tion, and shall determine the amount of the overpayment,

21 if any, for the taxable period to which the return relates

22 and refund the amount of such overpayment to the person

23 who filed the return.’’

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