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[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[S. 2160 Introduced in Senate (IS)]

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.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Comprehensive Tax Restructuring and 
Simplification Act of 1994''.

SEC. 2. AMENDMENT OF 1986 CODE.

    Except as otherwise expressly provided, whenever in this Act an 
amendment or repeal is expressed in terms of an amendment to, or repeal 
of, a section or other provision, the reference shall be considered to 
be made to a section or other provision of the Internal Revenue Code of 
1986.

                TITLE I--REPEAL OF CORPORATE INCOME TAX

SEC. 101. REPEAL OF CORPORATE INCOME TAX.

    (a) In General.--Chapter 1 (relating to normal taxes and surtaxes) 
is amended by adding at the end the following new subchapter:

          ``Subchapter W--Termination of Corporate 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.

``SEC. 1400. TERMINATION OF CORPORATE INCOME TAX.

    ``(a) Termination.--Except as provided in this section, no tax 
shall be imposed under this chapter on any corporation for any taxable 
year.
    ``(b) Passive Investment Tax.--
            ``(1) Imposition of tax.--
                    ``(A) In general.--If, for any taxable year--
                            ``(i) a C corporation has nonbusiness gross 
                        income, and
                            ``(ii) the percentage determined by 
                        dividing the nonbusiness gross income by the 
                        gross income of the C corporation for such 
                        taxable year exceeds the applicable working 
                        capital percentage,
                then there is hereby imposed on such corporation a tax 
                in the amount determined under subparagraph (B).
                    ``(B) Amount of tax.--The amount of tax determined 
                under this subparagraph shall be equal to the product 
                of--
                            ``(i) the nonbusiness gross income 
                        described in paragraph (1)(A), and
                            ``(ii) the highest rate of tax under 
                        section 1 for taxable years beginning in the 
                        same calendar year as the taxable year of the C 
                        corporation.
                    ``(C) No credit against tax.--No credit shall be 
                allowed under this chapter against the tax imposed by 
                subparagraph (A).
                    ``(D) Special rule for foreign corporations.--No 
                tax shall be imposed under subparagraph (A) on any 
                foreign corporation unless the foreign corporation is 
                exempt from the tax imposed by section 884 (relating to 
                branch profits tax).
            ``(2) Reduction for certain distributions.--
                    ``(A) In general.--The amount of the nonbusiness 
                gross income for any taxable year shall be reduced by 
                the aggregate amount of any distributions by the 
                corporation to its shareholders with respect to its 
                stock--
                            ``(i) which are made during the taxable 
                        year and not taken into account under clause 
                        (ii) for the preceding taxable year, or
                            ``(ii) which--
                                    ``(I) are made after the close of 
                                the taxable year and on or before the 
                                45th day following the close of the 
                                taxable year, and
                                    ``(II) are designated, at such time 
                                and in such manner as the Secretary may 
                                prescribe, as distributions for 
                                purposes of this paragraph.
                    ``(B) Inclusion in income.--Any distribution 
                described in subparagraph (A)(ii) shall be included in 
                the gross income of the shareholder for the 
                shareholder's taxable year which includes the last day 
                of the taxable year of the corporation for which the 
                reduction under subparagraph (A) was made.
            ``(3) Definitions.--For purposes of this subsection--
                    ``(A) Applicable working capital percentage.--
                            ``(i) In general.--The Secretary shall 
                        establish an applicable working capital 
                        percentage which, on the basis of the best 
                        information available, represents the ratio 
                        which the average nonbusiness gross income of 
                        corporations which is derived from assets held 
                        to provide reasonably required working capital 
                        bears to the average gross income of 
                        corporations.
                            ``(ii) Adjustments.--The Secretary may 
                        prescribe more than one percentage under clause 
                        (i) to reflect differences in industries, size, 
                        or other factors which affect reasonably 
                        required working capital.
                    ``(B) Nonbusiness gross income.--For purposes of 
                this subsection--
                            ``(i) In general.--The term `nonbusiness 
                        gross income' means gross income other than 
                        gross income from a business activity 
                        (determined in the same manner as under chapter 
                        100).
                            ``(ii) Exceptions.--The term `nonbusiness 
                        gross income' shall not include any gross 
                        income derived from a transaction to the extent 
                        the gross receipts from the transaction are not 
                        taken into account under chapter 100 by reason 
                        of section 10016.
            ``(4) Special rules.--For purposes of this subsection--
                    ``(A) Aggregation rules.--The Secretary shall 
                prescribe regulations providing for the aggregation of 
                2 or more persons to the extent appropriate to carry 
                out the purposes of this section.
                    ``(B) Startup companies.--A corporation shall not 
                be treated as described in paragraph (1) for the first 
                taxable year the corporation has gross income if--
                            ``(i) no predecessor of the corporation was 
                        described in paragraph (1),
                            ``(ii) it is established to the 
                        satisfaction of the Secretary that the 
                        corporation will not be described in paragraph 
                        (1) for either of the 1st 2 taxable years 
                        following such first taxable year, and
                            ``(iii) the corporation is not described in 
                        paragraph (1) for either of such 2 taxable 
                        years.
                    ``(C) Companies changing business.--A corporation 
                shall not be treated as described in paragraph (1) for 
                any taxable year if--
                            ``(i) neither the corporation nor any 
                        predecessor was described in paragraph (1) for 
                        any taxable year,
                            ``(ii) it is established to the 
                        satisfaction of the Secretary that--
                                    ``(I) substantially all of the 
                                nonbusiness gross income of the 
                                corporation for the taxable year is 
                                attributable to proceeds from the 
                                disposition of 1 or more active trades 
                                or businesses, and
                                    ``(II) the corporation will not be 
                                described in paragraph (1) for either 
                                of the 1st 2 taxable years following 
                                the taxable year, and
                            ``(iii) the corporation is not described in 
                        paragraph (1) for either of such 2 taxable 
                        years.
                    ``(D) Computation of gross receipts.--In 
                determining gross income for purposes of this 
                subsection, gross receipts for any taxable year shall 
                be reduced by returns and allowances made during such 
                taxable year, and bad debt deductions for such taxable 
                year.
                    ``(E) Passive foreign investment company 
                interests.--Any taxpayer who owns (or is treated under 
                section 1297(a) as owning) stock in a passive foreign 
                investment company shall be treated as owning stock in 
                a qualified electing fund without regard to whether the 
                requirements of paragraphs (1) and (2) of section 
                1295(a) are met.
    ``(c) Exception for Certain Taxes on Foreign Corporations.--
Subsection (a) shall not apply to any tax imposed by section 881 or 
884.

``SEC. 1401. CORPORATE DISTRIBUTIONS.

    ``(a) In General.--Except as provided in subsection (b), all 
distributions made by a corporation to a shareholder with respect to 
its stock shall be treated as ordinary income of the shareholder.
    ``(b) Exceptions.--Except as provided in regulations, subsection 
(a) shall not apply to any distribution--
            ``(1) which is pursuant to a plan of liquidation,
            ``(2) which is in complete redemption of all of a 
        shareholder's stock in the corporation,
            ``(3) in the case of a corporation which maintains adequate 
        accounts of its earnings and profits, which does not constitute 
        a dividend under section 316, or
            ``(4) which represents a return of capital to the extent 
        the distribution does not exceed the shareholder's 
        contributions to capital during the 60-day period ending with 
        the date of the distribution.
This subsection shall not apply to any distribution to which section 
1400(b)(2) applies.

``SEC. 1402. ELECTION OF CERTAIN BUSINESSES TO BE TAXED AS DOMESTIC 
              CORPORATIONS.

    ``(a) General Rule.--If an election is made under this section with 
respect to any business which is not a C corporation--
            ``(1) such business shall be treated as a domestic C 
        corporation for purposes of this subtitle (other than chapter 2 
        thereof), and
            ``(2) each owner of an equity interest in such business 
        shall be treated as a shareholder thereof in proportion to such 
        interest.
    ``(b) Election.--
            ``(1) In general.--An election under this section--
                    ``(A) shall be made not later than 2\1/2\ months 
                after the close of the first taxable year to which it 
                applies, and
                    ``(B) shall remain in effect until terminated as 
                provided in paragraph (2).
            ``(2) Termination.--An election may be terminated by an 
        entity if made not later than 2\1/2\ months after the beginning 
        of the first taxable year to which the termination applies. A 
        taxpayer terminating an election under this paragraph may not 
        make an election under paragraph (1) for any succeeding taxable 
        year without the consent of the Secretary.
    ``(c) Special Rules.--For purposes of this section--
            ``(1) Fringe benefits.--Notwithstanding subsection (a), a 
        business to which subsection (a) applies shall not be treated 
        as a domestic C corporation for purposes of applying the 
        provisions of this subtitle which relate to employee fringe 
        benefits (within the meaning of section 1372).
            ``(2) Corporate distributions and adjustments.--The 
        Secretary shall provide regulations to provide for the 
        application of subchapter C of this chapter to distributions 
        (including liquidations) from a business to which subsection 
        (a) applies and to organizations and reorganizations of such a 
        business.''
    (b) Conforming Amendment.--The table of subchapters for chapter 1 
is amended by adding at the end the following new item:

                              ``Subchapter W. Termination of corporate 
                                        income tax.''

SEC. 102. TECHNICAL AND CONFORMING CHANGES.

    The Secretary of the Treasury shall, not later than 6 months after 
the date of the enactment of this Act, submit to the Congress such 
technical and conforming changes as are necessary to implement the 
amendments made by this title.

                 TITLE II--INDIVIDUAL INCOME TAX RELIEF

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

    (a) Reduction of Rate.--
            (1) Employees.--Subsection (a) of section 3101 (relating to 
        old-age, survivors, and disability insurance) is amended to 
        read as follows:
    ``(a) Old-Age, Survivors, and Disability Insurance.--In addition to 
other taxes, there is hereby imposed on the income of every individual 
a tax equal to 3.1 percent of the wages (as defined in section 3121(a)) 
received by such individual with respect to employment (as defined in 
section 3121(b)).''
            (2) Employers.--Subsection (a) of section 3111 (relating to 
        old-age, survivors, and disability insurance) is amended to 
        read as follows:
    ``(a) Old-Age, Survivors, and Disability Insurance.--In addition to 
other taxes, there is hereby imposed on every employer an excise tax, 
with respect to having individuals in such employer's employ, equal to 
3.1 percent of the wages (as defined in section 3121(a)) paid by such 
employer with respect to employment (as defined in section 3121(b)).''
            (3) Self-employed.--Subsection (a) of section 1401 
        (relating to old-age, survivors, and disability insurance) is 
        amended to read as follows:
    ``(a) Old-Age, Survivors, and Disability Insurance.--In addition to 
other taxes, there shall be imposed for each taxable year, on the self-
employment income of every individual, a tax equal to 6.2 percent of 
the amount of self-employment income for such taxable year.''
    (b) Transfer of Revenues to Trust Funds To Reflect Reduced Taxes.--
            (1) OAS trust fund.--Section 201(a) of the Social Security 
        Act (42 U.S.C. 401(a)) is amended by striking ``and'' at the 
        end of paragraph (3), by striking the period at the end of 
        paragraph (4) and inserting ``; and'', and by inserting after 
        paragraph (4) the following new paragraph:
            ``(5) such percentage of the taxes imposed by subtitle K of 
        the Internal Revenue Code of 1986 (relating to business 
        activities tax) as the Secretary of the Treasury determines is 
        necessary to equal the amounts appropriated by clause (4).''
            (2) DI trust fund.--Section 201(b) of such Act (42 U.S.C. 
        401(b)) is amended by striking ``and'' at the end of paragraph 
        (1), by striking the period at the end of paragraph (2) and 
        inserting ``; and'', and by inserting after paragraph (2) the 
        following new paragraph:
            ``(3) such percentage of the taxes imposed by subtitle K of 
        the Internal Revenue Code of 1986 (relating to business 
        activities tax) as the Secretary of the Treasury determines is 
        necessary to equal the amounts appropriated by clause (2).''
            (3) Conforming amendments.--
                    (A) Section 201(a) of such Act (42 U.S.C. 401(a)) 
                is amended--
                            (i) by striking ``amounts equivalent to 100 
                        per centum of'' in the matter preceding 
                        paragraph (1) and inserting ``amounts 
                        equivalent to'',
                            (ii) by inserting ``100 per centum of'' 
                        before ``the taxes'' in paragraphs (1), (2), 
                        (3), and (4),
                            (iii) by striking ``clauses (3) and (4)'' 
                        each place it appears and inserting ``clauses 
                        (3), (4), and (5)'', and
                            (iv) by striking ``clauses (1) and (2)'' 
                        and inserting ``clauses (1), (2), and (3)''.
                    (B) Section 201(b) of such Act (42 U.S.C. 401(b)) 
                is amended--
                            (i) by striking ``amounts equivalent to 100 
                        per centum of'' in the matter preceding 
                        paragraph (1) and inserting ``amounts 
                        equivalent to'',
                            (ii) by inserting ``100 per centum of'' 
                        before ``(A) \1/2\ of 1 per centum'' in 
                        paragraph (1),
                            (iii) by striking ``and before January 1, 
                        2000, and so reported, and (P) 1.42 per centum 
                        of the wages (as so defined) paid after 
                        December 31, 1999, and so reported,'' in 
                        paragraph (1) and inserting ``and before 
                        January 1 of the year following the date of the 
                        enactment of the Comprehensive Tax 
                        Restructuring and Simplification Act, and so 
                        reported, (P) .60 per centum of the wages (as 
                        so defined) paid on and after January 1 or such 
                        year, and before January 1, 2000, and so 
                        reported, and (Q) .71 per centum of the wages 
                        (as so defined) paid after December 31, 1999, 
                        and so reported,'',
                            (iv) by inserting ``100 per centum of'' 
                        before ``(A) \3/8\ of 1 per centum'' in 
                        paragraph (2), and
                            (v) by striking ``and before January 1, 
                        2000, and (P) 1.42 per centum of the self-
                        employment income (as so defined) so reported 
                        for any taxable year beginning after December 
                        31, 1999,'' in paragraph (2) and inserting 
                        ``and before January 1 of the year following 
                        the date of the enactment of the Comprehensive 
                        Tax Restructuring and Simplification Act, (P) 
                        .60 per centum of the self-employment income 
                        (as so defined) so reported for any taxable 
                        year beginning on or after January 1 of such 
                        year, and before January 1, 2000, and (Q) .71 
                        per centum of the self-employment income (as so 
                        defined) so reported for any taxable year 
                        beginning after December 31, 1999,''.

SEC. 202. INCREASE IN STANDARD DEDUCTION.

    (a) In General.--Subsection (f) of section 63 (defining taxable 
income) is amended--
            (1) by redesignating paragraphs (1) through (4) as 
        paragraphs (2) through (5), respectively,
            (2) by inserting before paragraph (2) (as so redesignated) 
        the following new paragraph:
            ``(1) Additional amounts for low-income taxpayers.--
                    ``(A) In general.--The taxpayer shall be entitled 
                to an additional amount equal to--
                            ``(i) $8,650 in the case of --
                                    ``(I) a joint return, or
                                    ``(II) a surviving spouse (as 
                                defined in section 2(a)),
                            ``(ii) $7,600 in the case of a head of 
                        household (as defined in section 2(b)),
                            ``(iii) $5,200 in the case of an individual 
                        who is not married and who is not a surviving 
                        spouse or head of household, or
                            ``(iv) $4,325 in the case of a married 
                        individual filing a separate return.
                    ``(B) Phase out of additional amount.--
                            ``(i) In general.--Each dollar amount 
                        contained in subparagraph (A) shall be reduced 
                        (but not below 0) by $20 for each $100 (or 
                        fraction thereof) by which the individual's 
                        adjusted gross income for such taxable year 
                        exceeds the applicable amount.
                            ``(ii) Applicable amount.--For purposes of 
                        clause (i), the applicable amount for a 
                        taxpayer described in--
                                    ``(I) subparagraph (A)(i), is 
                                $45,000,
                                    ``(II) subparagraph (A)(ii), is 
                                $37,000,
                                    ``(III) subparagraph (A)(iii), is 
                                $27,000, and
                                    ``(IV) subparagraph (A)(iv), is 
                                $22,500.
                    ``(C) Adjustments for inflation.--In the case of 
                any taxable year beginning after the first calendar 
                year beginning after the effective date of this 
                paragraph, each dollar amount contained in 
                subparagraphs (A) and (B)(ii) shall be increased by an 
                amount equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for the 
                        calendar year in which the taxable year begins, 
                        by substituting `the calendar year in which the 
                        effective date of section 63(f)((1) occurs' for 
                        `calendar year 1992' in subparagraph (B) 
                        thereof.'', and
            (3) by striking ``Aged'' in the heading and inserting 
        ``Low-Income, Aged,''.
    (b) Conforming Amendments.--
            (1) Section 1(f)(6) is amended by inserting ``section 
        63(f)(1)(C),'' after ``63(c)(4),''.
            (2) The heading for section 63(c)(3) is amended by striking 
        ``aged'' and inserting ``low-income, aged,''.
            (3) Section 63(c)(4) is amended by inserting ``(other than 
        paragraph (1))'' after ``or subsection (f)''.

SEC. 203. INDIVIDUAL REFUNDABLE TAX CREDIT.

    (a) In General.--Subpart C of part IV of subchapter A of chapter 1 
(relating to refundable personal credits) is amended by inserting after 
section 32 the following new section:

``SEC. 32A. INDIVIDUAL TAX CREDIT.

    ``(a) Allowance of Credit.--
            ``(1) In general.--In the case of an individual, there 
        shall be allowed as a credit against the tax imposed by this 
        subtitle for the taxable year an amount equal to the product 
        of--
                    ``(A) so much of the taxpayer's adjusted gross 
                income for such taxable year as does not exceed the 
                adjusted gross income amount, and
                    ``(B) the rate of tax under section 10001 for the 
                calendar year in which the taxable year begins.
            ``(2) Adjusted gross income amount.--For purposes of 
        paragraph (1), the adjusted gross income amount in the case 
        of--
                    ``(A) a joint return or a surviving spouse (as 
                defined in section 2(a)), is $9,500,
                    ``(B) a head of household (as defined in section 
                2(b)), is $7,900,
                    ``(C) an individual who is not married and who is 
                not a surviving spouse or head of household, is $5,700, 
                and
                    ``(D) a married individual filing a separate 
                return, is $4,750.
    ``(b) Phase Out of Credit Amount.--
            ``(1) In general.--The amount determined under subsection 
        (a)(1) shall be reduced (but not below 0) by $20 for each $100 
        (or fraction thereof) by which the individual's modified 
        adjusted gross income for such taxable year exceeds the 
        applicable amount.
            ``(2) Applicable amount.--For purposes of paragraph (1), 
        the applicable amount for a taxpayer described in--
                    ``(A) subsection (a)(2)(A), is $15,000,
                    ``(B) subsection (a)(2)(B), is $13,200,
                    ``(C) subsection (a)(2)(C), is $9,000, and
                    ``(D) subsection (a)(2)(D), is $7,500.
            ``(3) Modified adjusted gross income.--For purposes of 
        paragraph (1), the term `modified adjusted gross income' means 
        adjusted gross income--
                    ``(A) determined without regard to sections 135, 
                911, 931, and 933,
                    ``(B) without regard to the deduction allowable 
                under section 219,
                    ``(C) increased by the amount of social security 
                benefits not included in gross income under section 86, 
                and
                    ``(D) increased by the amount of interest received 
                or accrued by the taxpayer during the taxable year 
                which is exempt from tax.
    ``(c) Adjustments for Inflation.--In the case of any taxable year 
beginning after the first calendar year beginning after the effective 
date of this section, each dollar amount contained in subsections 
(a)(2) and (b)(2) shall be increased by an amount equal to--
            ``(1) such dollar amount, multiplied by
            ``(2) the cost-of-living adjustment determined under 
        section 1(f)(3) for the calendar year in which the taxable year 
        begins, by substituting `the calendar year in which the 
        effective date of section 32A occurs' for `calendar year 1992' 
        in subparagraph (B) thereof.''
    ``(d) Applicable Rules.--Rules similar to the rules of subsections 
(d), (e), (g), and (h) of section 32 shall apply to any credit to which 
this section applies.''
    (b) Advance Payment of Credit.--Chapter 25 (relating to general 
provisions relating to employment taxes) is amended by inserting after 
section 3507 the following new section:

``SEC. 3507A. ADVANCE PAYMENT OF INDIVIDUAL TAX CREDIT.

    ``(a) General Rule.--Except as otherwise provided in this section, 
every employer making payment of wages with respect to whom an 
individual tax credit eligibility certificate is in effect shall, at 
the time of paying such wages, make an additional payment equal to such 
employee's individual tax credit advance amount.
    ``(b) Individual Tax Credit Eligibility Certificate.--For purposes 
of this title, an individual tax credit eligibility certificate is a 
statement furnished by an employee to the employer which--
            ``(1) certifies that the employee will be eligible to 
        receive the credit provided by section 32A for the taxable 
        year,
            ``(2) certifies that the employee does not have an 
        individual tax credit eligibility certificate in effect for the 
        calendar year with respect to the payment of wages by another 
        employer,
            ``(3) states whether or not the employee's spouse has an 
        individual tax credit eligibility certificate in effect, and
            ``(4) estimates the individual's adjusted gross income and 
        modified adjusted gross income for the calendar year.
For purposes of this section, a certificate shall be treated as being 
in effect with respect to a spouse if such a certificate will be in 
effect on the first status determination date following the date on 
which the employee furnishes the statement in question.
    ``(c) Individual Tax Credit Advance Amount.--
            ``(1) In general.--For purposes of this title, the term 
        `individual tax credit advance amount' means, with respect to 
        any payroll period, the amount determined--
                    ``(A) on the basis of the employee's wages from the 
                employer for such period,
                    ``(B) on the basis of the employee's estimated 
                adjusted gross income and modified adjusted gross 
                income included in the individual tax credit 
                eligibility certificate, and
                    ``(C) in accordance with tables provided by the 
                Secretary.
            ``(2) Advance amount tables.--The tables referred to in 
        paragraph (1)(C) shall be similar in form to the tables 
        prescribed under section 3402 and, to the maximum extent 
        feasible, shall be coordinated with such tables and the tables 
        prescribed under section 3507(c).
    ``(d) Other Rules.--For purposes of this section, rules similar to 
the rules of subsections (d) and (e) of section 3507 shall apply.
    ``(e) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the purposes of this section.''
    (c) Conforming Amendment.--Section 1(f)(6), as amended by section 
202(b)(1), is amended by inserting ``section 32A(c),'' before 
``63(c)(4),''.
    (d) Clerical Amendments.--
            (1) The table of sections for subpart A of part IV of 
        subchapter A of chapter 1 is amended by inserting after the 
        item relating to section 32 the following new item:

                              ``Sec. 32A. Individual tax credit.''
            (2) The table of sections for chapter 25 is amended by 
        adding after the item relating to section 3507 the following 
        new item:

                              ``Sec. 3507A. Advance payment of 
                                        individual tax credit.''

                   TITLE III--BUSINESS ACTIVITIES TAX

SEC. 301. BUSINESS ACTIVITIES TAX IMPOSED.

    The Internal Revenue Code of 1986 is amended by adding at the end 
the following new subtitle:

                 ``Subtitle K--Business Activities Tax

                              ``Chapter 100. Business activities tax.

                 ``CHAPTER 100--BUSINESS ACTIVITIES 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.

                   ``Subchapter A--Imposition of Tax

                              ``Sec. 10001. Tax imposed.

``SEC. 10001. TAX IMPOSED.

    ``In the case of any person engaged in any business activity, there 
is hereby imposed for each taxable period a tax in an amount equal to 
14.5 percent of the taxable amount.

                   ``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.

``SEC. 10011. TAXABLE AMOUNT.

    ``(a) In General.--For purposes of this chapter, the term `taxable 
amount' means the amount by which--
            ``(1) the gross receipts of any person from business 
        activities for a taxable period, exceed
            ``(2) the business purchases of such person for the taxable 
        period.
    ``(b) Cross References.--For special rules, see sections 10022, 
10032, and 10034.

``SEC. 10012. BUSINESS ACTIVITY.

    ``For purposes of this chapter, the term `business activity' 
means--
            ``(1) the sale of property or services in the United States 
        by any person in connection with a business,
            ``(2) the import of property or services into the United 
        States, or
            ``(3) the export of property or services from the United 
        States in connection with a business.

``SEC. 10013. ACTIVITIES NOT TREATED AS BUSINESS ACTIVITY.

    ``For purposes of this chapter, the term `business activity' does 
not include--
            ``(1) the performance of services by an employee for the 
        employee's employer, or
            ``(2) any import of an article that is free of duty under 
        chapter 98 of the Harmonized Tariff Schedule of the United 
        States.

``SEC. 10014. GROSS RECEIPTS FROM BUSINESS ACTIVITIES.

    ``(a) In General.--For purposes of this chapter, the term `gross 
receipts' means all receipts from a business activity.
    ``(b) Exchanges.--For purposes of this chapter, the amount treated 
as gross receipts from the exchange of property or services is the fair 
market value of the property or services received, plus any money 
received.
    ``(c) Exports and Imports.--
            ``(1) Exports of property or services.--For treatment of 
        exports, see section 10031.
            ``(2) Imports of property or services.--For treatment of 
        imports, see section 10032.
            ``(3) International transportation.--For treatment of 
        international transportation services, see section 10033.
    ``(d) Certain Insurance Proceeds.--For purposes of this chapter, 
the term `gross receipts' includes the proceeds of property and 
casualty insurance for losses in connection with business property or 
services.
    ``(e) Taxes.--For purposes of this chapter, the term `gross 
receipts' includes any excise tax, sales tax, customs duty, or other 
separately stated levy imposed by a Federal, State, or local government 
on property or services sold in a business activity received or 
collected by the seller in connection with the sale. Gross receipts 
shall not include any tax imposed by chapter 31, 32, 33, 34, 35, 36, 
39, 51, 52, or 53.
    ``(f) Transfers to Related Persons.--
            ``(1) In general.--For purposes of this chapter, any 
        transfer of property or services to a related person shall be 
        treated as a sale of such property or services for an amount 
        equal to the fair market value of the property or services.
            ``(2) Related person.--For purposes of this subsection, the 
        term `related person' means--
                    ``(A) in the case of an employment relationship, an 
                employer and employee,
                    ``(B) in the case of any entity, an owner of the 
                entity,
                    ``(C) any person specified in regulations, and
                    ``(D) any member of the family (within the meaning 
                of section 267(c)(4)) of any individual described in 
                subparagraph (A), (B), or (C).
            ``(3) Owner.--For purposes of paragraph (2), the term 
        `owner' means--
                    ``(A) the proprietor of a sole proprietorship, and
                    ``(B) any holder of a beneficial interest in a 
                corporation, partnership, trust, or other entity.

``SEC. 10015. BUSINESS PURCHASES.

    ``(a) In General.--For purposes of this chapter, the term `business 
purchase' means any amount paid or incurred to purchase property or 
services for use in a business activity other than--
            ``(1) amounts the payment of which is unlawful under 
        Federal, State, or local law, or
            ``(2) except as provided in subsection (d)--
                    ``(A) interest,
                    ``(B) premiums for insurance other than property 
                and casualty insurance, or
                    ``(C) other implicit intermediation fees.
    ``(b) Compensation Expense Not Included.--The term `business 
purchase' does not include any amount paid or incurred as current or 
deferred compensation to employees, or for employee benefits.
    ``(c) Exports and Imports.--
            ``(1) Exports.--For treatment of exports, see section 
        10033(b)(1).
            ``(2) Imports.--For treatment of imports, see section 
        10032.
            ``(3) International transportation.--For treatment of 
        international transportation services, see section 10033.
    ``(d) Financial Intermediation Services.--
            ``(1) In general.-- For purposes of this chapter, business 
        purchases include amounts allocable to the business activity 
        for which a person has received notice under section 10034(d) 
        (relating to implicit financial intermediation fees) and which 
        have otherwise not been taken into account.
            ``(2) Cross reference.--For additional treatment of 
        financial intermediation services, see section 10034.
    ``(e) Exchanges.--For purposes of this chapter, the amount treated 
as paid or incurred for business purchases in connection with the 
exchange of property or services is the fair market value of the 
property or services exchanged, plus any money paid.
    ``(f) Taxes.--For purposes of this chapter, the term `business 
purchase' includes any excise tax, sales tax, customs duty, or other 
separately stated levy imposed by a Federal, State, or local government 
on property or services purchased for use in a business activity.
    ``(g) Gambling Payments.--Except as provided in subsection (a)(1), 
in the case of a business activity involving gambling, lotteries, or 
other games of chance, business purchases include amounts paid to 
winners.

``SEC. 10016. EXEMPTION FOR CERTAIN NONTAXABLE EXCHANGES.

    ``(a) General Rule.--For purposes of this chapter, gross receipts 
shall not include gross receipts from an applicable nontaxable 
transaction except to the extent attributable to money or other 
property received in the transaction.
    ``(b) Applicable Nontaxable Transactions.--For purposes of this 
section, the term `applicable nontaxable transaction' means any 
transaction--
            ``(1) to which section 332, 351, 368, or 721 applies, or
            ``(2) which is specified by the Secretary and with respect 
        to which gain is not recognized in whole or in part under 
        chapter 1.

                     ``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.

``SEC. 10021. ACCOUNTING METHODS.

    ``(a) In General.--Except as provided in this section, a person 
subject to tax under this chapter may use any of the following methods 
of accounting for purposes of this chapter:
            ``(1) The cash receipts and disbursements method.
            ``(2) An accrual method.
            ``(3) Any other method permitted by the Secretary.
The Secretary may require a person to modify any method to clearly 
reflect gross receipts and business purchases.
    ``(b) Consistency Requirement.--All persons which are members of a 
controlled group of corporations which does not elect to be treated as 
one person for purposes of this chapter under section 10063(a)(2) shall 
use the same method of accounting for purposes of this chapter.
    ``(c) Special Rules for Long-Term Contracts.--
            ``(1) In general.--In the case of any sale pursuant to a 
        long-term contract (as defined in section 460(f))--
                    ``(A) the seller shall use the percentage of 
                completion method in computing gross receipts from the 
                contract, and
                    ``(B) the purchaser shall use the cash receipts and 
                disbursements method in computing business purchases 
                from the contract.
            ``(2) Reporting.--The Secretary may require taxpayers to 
        file statements containing such information with respect to 
        long-term contracts as the Secretary may prescribe.
    ``(d) Installment Method Prohibited.--Gross receipts from the sale 
of property shall not be taken into account for purposes of this 
chapter under the installment method.

``SEC. 10022. GOVERNMENTAL ENTITIES AND EXEMPT ORGANIZATIONS.

    ``(a) Governmental Entities.--For purposes of this chapter, the 
transfer of property or furnishing of services by a governmental entity 
with respect to any of the following activities shall be treated as a 
business activity:
            ``(1) Public utility services.
            ``(2) Mass transit services.
            ``(3) Postal services.
            ``(4) Any activity not involving the exercise of any 
        essential governmental function (within the meaning of section 
        115).
    ``(b) Exempt Organizations.--For purposes of this chapter--
            ``(1) In general.--Except as provided in this subsection, 
        the transfer of property or furnishing of services by an exempt 
        organization shall be treated as a business activity.
            ``(2) Exception for section 501 (c)(3) organizations.--
        Paragraph (1) shall not apply to an exempt organization 
        described in section 501(c)(3) unless the activity constitutes 
        an unrelated trade or business (within the meaning of section 
        513) of the organization.
    ``(c) Gross Receipts.--If there is no separately stated charge with 
respect to any transfer or furnishing to which subsection (a) or (b) 
applies, gross receipts shall be determined on the basis of the fair 
market value of the property transferred or services furnished.
    ``(d) Allocation.--The Secretary shall by regulation provide for 
the proper allocation of gross receipts and business purchases between 
business activities and other activities.
    ``(e) Self-Consumption of Property or Services.--Notwithstanding 
the provisions of this section, the Secretary may by regulation provide 
that property produced, or services furnished, by a governmental entity 
or an exempt organization for use by itself are to be treated as sold 
in a business activity if such treatment is necessary to carry out the 
purposes of this chapter. In any such case the taxable amount shall be 
determined by reference to the fair market value of the property or 
services.

``SEC. 10023. POST-SALE PRICE ADJUSTMENTS AND REFUNDS; BAD DEBTS.

    ``(a) Price Adjustments and Refunds.--
            ``(1) Receipt treated as reduction in business purchases.--
        If a person subject to tax under this chapter receives a post-
        sale price adjustment attributable to a business purchase which 
        was taken into account in computing the taxable amount for a 
        prior taxable period, then the amount of such adjustment shall 
        be treated as a reduction in business purchases for the taxable 
        period in which it is received.
            ``(2) Issuance treated as reduction in gross receipts.--If 
        a person subject to tax under this chapter issues a post-sale 
        price adjustment for a sale the gross receipts from which were 
        taken into account in computing the taxable amount for a prior 
        taxable period, then the amount of such adjustment shall be 
        treated as a reduction in gross receipts for the taxable period 
        in which it is issued.
            ``(3) Post-sale price adjustment.--For purposes of this 
        subsection, the term `post-sale price adjustment' means a 
        refund, rebate, or other price allowance attributable to a sale 
        of property or services.
    ``(b) Bad Debts.--
            ``(1) Seller.--
                    ``(A) Writeoffs and writedowns.--If an amount owed 
                to a seller of business property or services that was 
                taken into account as gross receipts in computing the 
                taxable amount of the seller for a prior taxable period 
                becomes wholly or partially uncollectible during any 
                subsequent taxable period, then the seller shall treat 
                the amount (or part thereof that is uncollectible) as a 
                reduction in gross receipts for the taxable period in 
                which it becomes wholly or partially uncollectible.
                    ``(B) Notice.--Whenever a seller treats an amount 
                as wholly or partially uncollectible under subparagraph 
                (A), the seller shall notify the purchaser of the 
                amount the seller is treating as uncollectible. The 
                notice shall set forth with specificity the purchase or 
                purchases to which the treatment relates and shall be 
                sent to the purchaser at the purchaser's last known 
                address within 10 days after close of the taxable 
                period in which the seller treats the amount as wholly 
                or partially uncollectible.
                    ``(C) Recoveries.--If a seller receives payment for 
                an amount that was treated as a reduction in gross 
                receipts under subparagraph (A) in a prior taxable 
                period, then the seller shall treat the payment as a 
                gross receipt for the taxable period in which it is 
                received.
            ``(2) Purchaser.--
                    ``(A) Writeoffs and writedowns.--If a purchaser 
                receives notice under paragraph (1)(B) from a seller 
                for all or a portion of the amount owed for business 
                property or services that the purchaser treated as a 
                business purchase in a prior taxable period, then the 
                purchaser shall treat such amount as a reduction in 
                business purchases for the taxable period in which the 
                notice is received.
                    ``(B) Repayments.--If a purchaser pays all or part 
                of an amount treated as a reduction in business 
                purchases under subparagraph (A) in a prior taxable 
                period, then the purchaser shall treat the amount paid 
                as a business purchase for the taxable period in which 
                the payment is made.

``SEC. 10024. SOURCE RULES.

    ``(a) Sales of Property.--For purposes of this chapter, a sale of 
property shall be treated as occurring in the United States if the 
property is located in the United States at the time of the sale.
    ``(b) Sales of Services.--
            ``(1) General rule.--For purposes of this chapter, a sale 
        of services shall be treated as occurring in the United States 
        to the extent that--
                    ``(A) the services are provided from a place of 
                business, or with respect to property, in the United 
                States, or
                    ``(B) the services are incidental to the provision 
                of services within the United States.
            ``(2) Cross reference.--For treatment of international 
        transportation services, see section 10033.

``SEC. 10025. TRANSFER IN SATISFACTION OF DEBT.

    ``For purposes of this chapter, the transfer of property or 
services by a debtor to a creditor in exchange for a reduction of debt 
shall be treated as a sale of such property or services for an amount 
equal to the amount by which the debt is reduced.

``SEC. 10026. CONVERSIONS.

    For purposes of this chapter, any conversion of property or 
services from use in a business activity to use in any other activity, 
or from use in any other activity to use in a business activity, shall 
be treated as a sale of the property or services for their fair market 
value.

                     ``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.

``SEC. 10031. EXPORTS OF PROPERTY OR SERVICES.

    ``(a) General Rule.--For purposes of this chapter, the term `gross 
receipts' does not include amounts received by the exporter thereof for 
property or services exported from the United States for use or 
consumption outside the United States.
    ``(b) Export Through Nonbusiness Entity.--For purposes of 
subsection (a), if property or services are sold to a governmental 
entity or exempt organization for export and are exported other than in 
a business activity of such entity or organization, then the seller of 
such property or services is deemed to be the exporter thereof.

``SEC. 10032. IMPORTS OF PROPERTY OR SERVICES.

    ``(a) In General.--For purposes of this chapter, the taxable amount 
with respect to the import of property or services for use or 
consumption within the United States is the sum of--
            ``(1) the amount paid or incurred for the property or 
        services, plus
            ``(2) in the case of property, any amounts paid or incurred 
        for transportation costs (if such costs are not included in the 
        amount paid for the property).
    ``(b) Imports of Previously Exported Property.--
            ``(1) In general.--For purposes of this chapter, the 
        taxable amount for any import of property that is returned to 
        the United States--
                    ``(A) after export for repairs or alterations 
                abroad, or
                    ``(B) after export to undergo assembly, processing, 
                manufacture, or other changes in condition abroad,
        is the net cost to the importer of such repairs, alterations, 
        assembly, processing, manufacture, or other change in 
        condition.
            ``(2) Limitation for previously exported property.--
        Paragraph (1) shall apply only to property--
                    ``(A) that the importer acquired before export, and
                    ``(B) as to which there has been no transfer of 
                ownership between the time of export and import.
    ``(c) Business Purchases of Imports.--For purposes of this 
chapter--
            ``(1) In general.--The term `business purchase' includes--
                    ``(A) the amount determined under subsection (a) 
                for property or services, plus
                    ``(B) the amount of tax payable under this chapter 
                with respect to the import of such property or 
                services.
            ``(2) Business activity required.--A person may not include 
        any amount described in paragraph (1) in business purchases 
        unless the person uses the property or services in a business 
        activity.

``SEC. 10033. INTERNATIONAL TRANSPORTATION SERVICES.

    ``(a) Gross Receipts.--For purposes of this chapter--
            ``(1) Exports.--The term `gross receipts' does not include 
        receipts from transportation of property exported from the 
        United States.
            ``(2) Imports.--The term `gross receipts' does not include 
        receipts from the transportation of property imported into the 
        United States unless such receipts are not taken into account 
        under section 10032 in computing the taxable amount with 
        respect to the property.
    ``(b) Business Purchases.--For purposes of this chapter--
            ``(1) Exports.--The term `business purchase' does not 
        include amounts paid or incurred for transportation of property 
        exported from the United States.
            ``(2) Imports.--For treatment as business purchases of 
        amounts paid or incurred for transportation of property 
        imported into the United States, see section 10032(c).
    ``(c) International Transportation of Passengers.--For purposes of 
this chapter--
            ``(1) Gross receipts.--Gross receipts--
                    ``(A) include receipts from the transportation of 
                passengers from outside the United States to a 
                destination in the United States, but
                    ``(B) do not include receipts from the 
                transportation of passengers from the United States to 
                a destination outside the United States.
            ``(2) Business purchases.--Business purchases--
                    ``(A) include amounts paid or incurred in a 
                business activity for the transportation of passengers 
                from outside the United States to a destination in the 
                United States, but
                    ``(B) do not include amounts paid or incurred in a 
                business activity for the transportation of passengers 
                from the United States to a destination outside the 
                United States.

``SEC. 10034. FINANCIAL INTERMEDIATION SERVICES.

    ``(a) General Rule.--For purposes of this chapter--
            ``(1) the providing of financial intermediation services 
        shall be treated as a business activity, and
            ``(2) this chapter shall be applied to the business 
        activity by substituting financial receipts and adjusted 
        business purchases properly allocable to such business activity 
        for gross receipts and business purchases.
    ``(b) Financial Receipts.--For purposes of this section, the term 
`financial receipts' means all receipts other than amounts received as 
contributions to capital.
    ``(c) Adjusted Business Purchases.--For purposes of this section, 
the term `adjusted business purchases' means business purchases, 
adjusted as follows:
            ``(1) Principal and interest.--Business purchases include 
        any principal or interest payments properly allocable to the 
        business activity described in subsection (a). The preceding 
        sentence shall not apply to any principal or interest payments 
        otherwise allocable to business purchases (determined without 
        regard to this section or section 10015(b)).
            ``(2) Financial instruments.--Notwithstanding section 
        10051(3), business purchases include the cost of, and payments 
        under, financial instruments (other than financial instruments 
        representing equity interests in the person subject to the tax 
        imposed by this chapter).
            ``(3) Insurance claims.--Business purchases include claims 
        and cash surrender values paid in connection with insurance or 
        reinsurance services.
            ``(4) Reinsurance.--Business purchases include amounts paid 
        for reinsurance.
    ``(d) Reporting to Customers.--
            ``(1) Allocation and reporting.--
                    ``(A) In general.--A person engaged in the business 
                activity of providing financial intermediation services 
                shall--
                            ``(i) allocate fees received for such 
                        services (other than services for which 
                        separately stated fees are charged) among 
                        recipients of such services on a reasonable and 
                        consistent basis, and
                            ``(ii) report to each recipient the fees so 
                        allocated.
                    ``(B) Timing.--The report under subparagraph 
                (A)(ii) shall be furnished to the recipient no later 
                than the 45th day after the close of a taxable period.
            ``(2) Exception.--The Secretary shall establish procedures 
        under which notice need not be given under this subsection to 
        persons with respect to whom services are not provided in 
        connection with a business activity.
    ``(e) Definitions.--For purposes of this section--
            ``(1) Financial intermediation service.--The term 
        `financial intermediation service' means--
                    ``(A) lending services,
                    ``(B) insurance services,
                    ``(C) market-making and dealer services, and
                    ``(D) any other service provided as a business 
                activity in which a person acts as an intermediary in--
                            ``(i) the transfer of property, services, 
                        or financial assets, liabilities, risks, or 
                        instruments (or income or expense derived 
                        therefrom) between two or more other persons, 
                        or
                            ``(ii) the pooling of economic risk among 
                        other persons,
                and derives all or a portion of such person's gross 
                receipts from streams of income or expense, discounts, 
                or other financial flows associated with the matter 
                with respect to which such person is acting as an 
                intermediary.
            ``(2) Lending services.--The term `lending services' means 
        the regular making of loans and providing credit to, or taking 
        deposits from, customers, but does not include an installment 
        or delayed payment arrangement provided by a seller of property 
        or services under which additional charges or fees are imposed 
        by the seller for late payment and for which no interest is 
        charged.
            ``(3) Market-making or dealer services.--The term `market-
        making or dealer services' means services provided by a person 
        who--
                    ``(A) regularly purchases financial instruments 
                from or sells financial instruments to customers in the 
                ordinary course of a trade or business, or
                    ``(B) regularly offers to enter into, assume, 
                offset, assign, or otherwise terminate positions in 
                financial instruments with customers in the ordinary 
                course of a trade or business.

``SEC. 10035. OTHER SPECIAL RULES.

    ``(a) Exchanges Classified by Consideration Given.--For purposes of 
this chapter--
            ``(1) an exchange of property for property or services is 
        treated as a sale of property, and
            ``(2) an exchange of services for property or services is 
        treated as a sale of services,
without regard, in either instance, to whether other consideration is 
received.
    ``(b) Special Rule Where Sale of Property Includes Incidental Sale 
of Services.--For purposes of this chapter, if in connection with the 
sale of any property there is an incidental sale of services, such sale 
of services shall be treated as part of the sale of such property.
    ``(c) Special Rule Where Sale of Services Includes Incidental Sale 
of Property.--For purposes of this chapter, if in connection with the 
sale of any services there is an incidental sale of property, such sale 
of property shall be treated as part of the sale of such services.

           ``Subchapter E--Refunds; Small Business Exemption

                              ``Sec. 10041. Refund for excess business 
                                        purchase periods.
                              ``Sec. 10042. Small business exemption.

``SEC. 10041. REFUND FOR EXCESS BUSINESS PURCHASE PERIODS.

    ``(a) Credit Allowed.--There shall be allowed as a credit against 
the tax imposed by section 10001 for any taxable period an amount equal 
to the amount determined under subsection (b), multiplied by the tax 
rate provided in section 10001 in effect for such period.
    ``(b) Determination of Amount.--
            ``(1) In general.--For purposes of subsection (a), the 
        amount determined under this subsection for any taxable period 
        is the amount by which--
                    ``(A) the business purchases of any person for a 
                taxable period, exceed
                    ``(B) the gross receipts of that person for such 
                period.
            ``(2) Governmental entities.--For purposes of paragraph 
        (1), the business purchases of a governmental entity subject to 
        tax under this chapter for a business activity shall be reduced 
        by the amount of any subsidy provided for that activity. For 
        purposes of this paragraph, the term `subsidy' includes the 
        value of property or services used in such activity for which 
        no amount was paid or incurred, together with any amounts paid 
        or obligated from appropriated funds (except to the extent that 
        such funds represent operating revenues or other receipts from 
        the activity).
    ``(c) Refund or Credit of Amount.--The amount of the credit allowed 
under subsection (a) for any taxable period is treated as an 
overpayment of the tax imposed by section 10001 for that taxable 
period.

``SEC. 10042. SMALL BUSINESS EXEMPTION.

    ``(a) Exemption.--Except as provided in subsection (b), if the 
aggregate amount of gross receipts of any person for any taxable period 
and the 3 preceding taxable periods does not exceed the exemption 
amount, no tax shall be imposed under this chapter (and no credit shall 
be allowed under section 10041) for the taxable period.
    ``(b) Exceptions.--
            ``(1) Person must always be exempt.--Subsection (a) shall 
        not apply to any person for a taxable period unless the person 
        was exempt from the tax imposed by this chapter for all 
        preceding taxable periods.
            ``(2) Election.--Subsection (a) shall not apply to any 
        person for a taxable period if the person elects not to have 
        subsection (a) apply for the taxable period.
    ``(c) Statements.--A person to which this section applies for any 
taxable period shall file a statement containing such information as 
the Secretary may prescribe.
    ``(d) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Exemption amount.--The term `exemption amount' means 
        $100,000 (or an equivalent amount if the taxable period is not 
        a calendar quarter).
            ``(2) Persons not engaged in business for entire period.--
        If a person was not engaged in a business activity for the 
        entire period referred to in subsection (a), such subsection 
        shall be applied on the basis of the period the person was so 
        engaged.
            ``(3) Predecessors.--Any reference in this section to a 
        person shall include a reference to any predecessor of the 
        person.

                      ``Subchapter F--Definitions

                              ``Sec. 10051. Definitions.

``SEC. 10051. DEFINITIONS.

    ``For purposes of this chapter--
            ``(1) Sale of services.--The term `sale of services' means 
        the performance of services for consideration, and includes--
                    ``(A) the granting of the right to use property, 
                whether tangible or intangible, for consideration, and
                    ``(B) the granting of a right to the performance of 
                services or to reimbursement (including the granting of 
                warranties, insurance, and similar items) for 
                consideration.
            ``(2) Sale of property.--The term `sale of property' means 
        the transfer of ownership of property from a seller to a 
        purchaser for consideration.
            ``(3) Property.--The term `property' means any tangible or 
        intangible property, other than money or any financial 
        instrument.
            ``(4) Business.--The term `business' includes any activity 
        carried on continuously or regularly, whether or not for 
        profit, that involves or is intended to involve the sale of 
        property or services.
            ``(5) Business property or service.--The term `business 
        property or service' means any property or service the sale of 
        which by the owner or provider thereof would be a business 
        activity or which is used by the owner or provider in a 
        business activity.
            ``(6) Employee.--The term `employee' has the same meaning 
        as when such term is used for purposes of chapter 24 (relating 
        to withholding).
            ``(7) Person.--The term `person' has the meaning given such 
        term by section 7701(a)(1), but also includes any governmental 
        entity.
            ``(8) United states.--The term `United States', when used 
        in a geographic sense, includes the customs territory of the 
        United States (as defined in General Headnote 2 of the 
        Harmonized Tariff Schedules of the United States) and any area 
        seaward of the States lying within the outer boundaries of the 
        outer continental shelf (as defined in section 1331 of title 
        43, United States Code).
            ``(9) Governmental entity.--The term `governmental entity' 
        means the United States, any State or political subdivision 
        thereof, the District of Columbia, a Commonwealth or possession 
        of the United States, or any agency or instrumentality of any 
        of the foregoing.
            ``(10) Exempt organization.--The term `exempt organization' 
        means any organization exempt from taxation under section 501 
        (c) or (d).
            ``(11) Financial instrument defined.--The term `financial 
        instrument' means any--
                    ``(A) share of stock in a corporation,
                    ``(B) partnership or beneficial ownership interest 
                in a widely held or publicly traded partnership or 
                trust,
                    ``(C) note, bond, debenture, or other evidence of 
                indebtedness,
                    ``(D) interest rate, currency, or equity notional 
                principal contract,
                    ``(E) evidence of an interest in, or a derivative 
                financial instrument in, any financial instrument 
                described in subparagraph (A), (B), (C), or (D), or any 
                currency, including any option, forward contract, short 
                position, and any similar financial instrument in such 
                a financial instrument or currency, and
                    ``(F) position which--
                            ``(i) is not a financial instrument 
                        described in subparagraph (A), (B), (C), (D), 
                        or (E),
                            ``(ii) is a hedge with respect to such a 
                        financial instrument, and
                            ``(iii) is clearly identified in the 
                        dealer's records as being described in this 
                        subparagraph before the close of the day on 
                        which it was acquired or entered into (or such 
                        other time as the Secretary may by regulations 
                        prescribe).
            ``(12) Use includes held for use.--Property or services 
        held for use by any person shall be treated as used by that 
        person.

                     ``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.

``SEC. 10061. LIABILITY FOR TAX.

    ``The person selling or importing property or services shall be 
liable for the tax imposed by section 10001.

``SEC. 10062. TIME FOR FILING RETURN; TAXABLE PERIOD.

    ``(a) Filing Return.--Before the sixteenth day of the second 
calendar month beginning after the close of each taxable period, each 
person subject to tax under this chapter shall file a return of the tax 
imposed by section 10001 for such taxable period.
    ``(b) Taxable Period.--For purposes of this chapter--
            ``(1) In general.--The term `taxable period' means a 
        calendar quarter, except that if a taxpayer has a taxable year 
        under chapter 1 other than the calendar year, then such term 
        means a quarter of that taxable year.
            ``(2) Other periods.--To the extent provided in 
        regulations, the term `taxable period' includes a period 
        selected by a person other than a calendar quarter.
            ``(3) Authority to shorten length of tax period.--The 
        Secretary may shorten the length of a person's taxable period 
        under this subsection to the extent the Secretary deems such 
        action necessary to protect the revenue.

``SEC. 10063. TREATMENT OF RELATED BUSINESSES.

    ``(a) General Rule.--For purposes of this chapter--
            ``(1) Affiliated groups and businesses under common 
        control.--Except to the extent otherwise provided in 
        regulations--
                    ``(A) an affiliated group of corporations (as 
                defined in section 1504(a) without regard to paragraphs 
                (2), (4), and (7) of section 1504(b)), or
                    ``(B) two or more businesses (whether or not 
                incorporated) under common control within the meaning 
                of section 52(b) and the regulations thereunder,
        shall be treated as one person.
            ``(2) Controlled group.--A controlled group of 
        corporations, as defined in section 1563(a) (determined without 
        regard to the second sentence of paragraph (4) of such section 
        and without regard to section 1563(e)(3)(C)), may elect to be 
        treated as one person.
    ``(b) Related Party Transactions.--For purposes of this chapter, 
transactions in the United States between corporations or other 
businesses that are treated, or that may elect to be treated, as one 
person under subsection (a) shall not be taken into account in 
computing the gross receipts or business purchases of any such 
corporation or business.

``SEC. 10064. SECRETARY TO BE NOTIFIED OF CERTAIN EVENTS.

    ``To the extent provided in regulations, each person engaged in a 
business shall notify the Secretary (at such time or times as may be 
prescribed by regulation) of--
            ``(1) any change in the form in which the business is 
        conducted, and
            ``(2) any other change that might affect--
                    ``(A) the liability for the tax imposed by section 
                10001,
                    ``(B) the amount of such tax or any credit against 
                such tax, or
                    ``(C) the administration of such tax in the case of 
                such person.

``SEC. 10065. REGULATIONS.

    ``The Secretary shall prescribe such regulations as may be 
necessary to carry out the provisions of this chapter.''

SEC. 302. REFUND AUTHORITY.

    Section 6402 (relating to authority to make credits or refunds) is 
amended by designating subsection (h) as subsection (j) and by 
inserting after subsection (g) the following new subsection:
    ``(h) Repayment of Business Activities Tax.--Within 45 days after 
the date on which a business activities tax return is filed pursuant to 
section 10062 showing an overpayment, the Secretary shall make, to the 
extent the Secretary deems practical, a limited examination of the 
return to discover omissions and errors of computation, and shall 
determine the amount of the overpayment, if any, for the taxable period 
to which the return relates and refund the amount of such overpayment 
to the person who filed the return.''

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