I

106TH CONGRESS

1ST SESSION H. R. 2001

To promote freedom, fairness, and economic opportunity for families by repealing the income tax, abolishing the Internal Revenue Service, and

enacting a national retail sales tax to be administered primarily by

the States.

IN THE HOUSE OF REPRESENTATIVES

MAY 26, 1999

Mr. TAUZIN (for himself, Mr. TRAFICANT, Mr. BRADY of Texas, Mr. CALLAHAN, Mr. CAMPBELL, Mrs. CHENOWETH, Mr. DEMINT, Mr. HALL of

Texas, Mr. HEFLEY, Mr. HUNTER, Mr. LINDER, Mrs. MYRICK, Mr. NORWOOD, Mr. PACKARD, Mr. PETERSON of Minnesota, Mr. SCARBOROUGH,

Mr. STUMP, Mr. TANCREDO, and Mr. BURTON of Indiana) introduced the

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

and in addition to the Committee on Rules, for a period to be subsequently determined by the Speaker, in each case for consideration of such

provisions as fall within the jurisdiction of the committee concerned

A BILL

To promote freedom, fairness, and economic opportunity for

families by repealing the income tax, abolishing the Internal Revenue Service, and enacting a national retail

sales tax to be administered primarily by the States.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

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

3 ‘‘National Retail Sales Tax Act of 1999’’.

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

5 this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Congressional findings.

Sec. 3. Repeal of the income tax, estate and gift taxes, and certain excise taxes.

Sec. 4. Sales tax.

‘‘CHAPTER 1—SALES TAX

‘‘SUBCHAPTER A—IMPOSITION OF TAX

‘‘Sec. 1. Imposition of tax.

‘‘Sec. 2. Exemptions.

‘‘Sec. 3. Rules relating to collection and remittance of tax.

‘‘SUBCHAPTER B—CREDITS; REFUNDS; INSTALLMENT PAYMENTS OF TAX ON

PURCHASES OF RESIDENCES

‘‘Sec. 11. Credits and refunds.

‘‘Sec. 12. Installment payments of tax on purchase of principal residences.

‘‘Sec. 13. Family consumption refund.

‘‘SUBCHAPTER C—DEFINITIONS AND SPECIAL RULES; FINANCIAL

INTERMEDIATION SERVICES

‘‘Sec. 21. Definitions.

‘‘Sec. 22. Special rules.

‘‘Sec. 23. Determination of financial intermediation services amount.

‘‘Sec. 24. Bad debts.

‘‘Sec. 25. Timing of tax on financial intermediation services.

‘‘Sec. 26. Alternative method for calculating tax due.

‘‘Sec. 27. Basic interest rate.

‘‘Sec. 28. Applicable interest rate.

‘‘SUBCHAPTER D—AUTHORITY FOR STATES TO COLLECT TAX

‘‘Sec. 31. Authority for States to collect tax.

‘‘Sec. 32. Federal administrative support for States.

‘‘Sec. 33. Federal administration option for multistate vendors.

‘‘Sec. 34. General administrative matters.

‘‘SUBCHAPTER E—OTHER ADMINISTRATIVE PROVISIONS

‘‘Sec. 41. Monthly reports and payments.

‘‘Sec. 42. Records.

‘‘Sec. 43. Registration.

‘‘Sec. 44. Certificate.

‘‘Sec. 45. Penalties.

‘‘Sec. 46. Burden of persuasion and burden of production.

‘‘Sec. 47. Attorneys and accountancy fees.
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‘‘Sec. 48. Appeals.

‘‘Sec. 49. Taxpayer subject to subpoena on production.

‘‘Sec. 50. Tax Court jurisdiction.

‘‘Sec. 51. Power to levy.

‘‘Sec. 52. Problem resolution officers.

‘‘Sec. 53. Jurisdiction and interstate allocation.

‘‘Sec. 54. Tax to be stated and charged separately.

‘‘Sec. 55. Installment agreements; compromises.

‘‘Sec. 56. Accounting.

‘‘Sec. 57. Hobby activities.

Sec. 5. Phase-out of the Internal Revenue Service.

Sec. 6. Social Security Administration to collect payroll taxes.

Sec. 7. Self-employment tax.

Sec. 8. Social Security benefits indexed on sales tax inclusive basis.

Sec. 9. Compensating payments to certain persons on fixed income.

Sec. 10. Interest.

Sec. 11. Supermajority required to raise rate.

1 SEC. 2. CONGRESSIONAL FINDINGS.

2 (a) The Congress finds that the income tax—

3 (1) retards economic growth and has reduced

4 the standard of living of the American public;

5 (2) impedes the international competitiveness of

6 United States industry;

7 (3) reduces savings and investment in the

8 United States;

9 (4) lowers productivity;

10 (5) imposes unacceptable administrative costs

11 on taxpayers, individuals and businesses alike;

12 (6) is unfair and inequitable; and

13 (7) unnecessarily intrudes upon the privacy and

14 civil rights of United States citizens.

15 (b) The Congress finds further that national sales,

16 services and use tax on final consumption of goods and

17 services—
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1 (1) is similar in many respects to those in place

2 in 45 of the 50 States;

3 (2) will promote savings;

4 (3) will promote fairness;

5 (4) will promote economic growth;

6 (5) will raise the standard of living;

7 (6) will increase savings and investment;

8 (7) will enhance productivity and international

9 competitiveness;

10 (8) will reduce administrative burdens on the

11 taxpayer; and

12 (9) will respect the privacy interests and civil

13 rights of taxpayers.

14 (c) The Congress further finds that—

15 (1) most of the practical experience admin16 istering sales taxes is found at the State Govern17 mental level;

18 (2) it is desirable to harmonize Federal and

19 State collection and enforcement efforts to the max20 imum extent possible;

21 (3) it is sound tax administration policy to ad22 minister and collect the Federal sales and service tax

23 at the State level in return for a reasonable adminis24 tration fee to the States;
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1 (4) businesses that must collect and remit taxes

2 should receive reasonable compensation for the cost

3 of doing so; and

4 (5) the sixteenth amendment to the Constitu5 tion should be repealed.

6 SEC. 3. REPEAL OF THE INCOME TAX, ESTATE AND GIFT

7 TAXES, AND CERTAIN EXCISE TAXES.

8 (a) IN GENERAL.—The following provisions of the In9 ternal Revenue Code of 1986 are hereby repealed:

10 (1) Chapter 1 (relating to income tax).

11 (2) Chapter 5 (relating to tax on transfers to

12 avoid income tax).

13 (3) Chapter 6 (relating to consolidated returns).

14 (4) Chapter 24 (relating to collection of income

15 tax at source).

16 (5) Subtitle B (relating to estate and gift

17 taxes).

18 (6) Chapter 31 (relating to retail excise taxes).

19 (7) Chapter 32 (relating to manufacturers ex20 cise taxes).

21 (8) Subtitle E (relating to alcohol, tobacco, and

22 certain other excise taxes).

23 (9) Subtitle F (relating to procedure and ad24 ministration of the income tax and certain other

25 taxes) except for section 6103 (relating to confiden-
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1 tiality), chapter 66 (relating to limitations), chapter

2 67 (relating to interest), section 6656 (relating to

3 failure to make deposit of taxes), section 6657 (re4 lating to bad checks), section 6658 (relating to co5 ordination with title 11), chapter 75 (relating to

6 crimes), chapter 76 (relating to Judicial Pro7 ceedings), section 7431 (relating to damages for un8 authorized disclosure), section 7432 (relating to

9 damages for failure to release lien), section 7433

10 (relating to damages for unauthorized collection

11 data) and chapter 77 (relating to miscellaneous pro12 visions). References to provisions repealed by the

13 preceding sentence shall be treated as references to

14 such provisions as in effect on the day before the

15 date of the enactment of this Act.

16 (b) EFFECTIVE DATE.—

17 (1) IN GENERAL.—Except as provided in para18 graph (2), the amendments made by subsection (a)

19 shall take effect on July 1, 2001.

20 (2) INCOME TAX.—The amendment made by

21 subsection (a)(1) shall apply to taxable years begin22 ning after June 30, 2001.

23 (3) SALES TAX.—The amendment made by sec24 tion 4 shall take effect on July 1, 2001.
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1 (4) SOCIAL SECURITY BENEFITS.—The amend2 ment made by section 9 shall take effect on January

3 1, 2001.

4 (5) SUPERMAJORITY REQUIRED.—The amend5 ment made by section 11 shall take effect on Janu6 ary 1, 2001.

7 SEC. 4. SALES TAX.

8 Subtitle A of the Internal Revenue Code of 1986 is

9 amended by inserting at the beginning the following new

10 chapter:

11 ‘‘CHAPTER 1—SALES TAX

‘‘SUBCHAPTER A. Imposition of tax.

‘‘SUBCHAPTER B. Credits; refunds; installment payments of tax

on purchases of residences.

‘‘SUBCHAPTER C. Definitions and special rules; financial intermediation services.

‘‘SUBCHAPTER D. Authority for States to collect tax.

‘‘SUBCHAPTER E. Other administrative provisions.

12 ‘‘Subchapter A—Imposition of Tax

‘‘Sec. 1. Imposition of tax.

‘‘Sec. 2. Exemptions.

‘‘Sec. 3. Special rules relating to collection and remittance of tax.

13 ‘‘SECTION 1. IMPOSITION OF TAX.

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

15 of 15 percent on the gross payments for the use, consump16 tion or enjoyment in the United States of any taxable

17 property or service, whether produced or rendered within

18 or without the United States.

19 ‘‘(b) COORDINATION WITH IMPORT DUTIES.—The

20 taxes imposed by this section are in addition to any import
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1 duties imposed by law. The Secretary shall provide by reg2 ulation that, to the maximum extent practicable, the taxes

3 imposed by this section on imported property and services

4 are collected and administered in conjunction with any ap5 plicable import duties.

6 ‘‘(c) LIABILITY FOR COLLECTION AND REMITTANCE

7 OF THE TAX.—

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

9 subsection (a) shall be collected and remitted by the

10 seller, except as provided in subsection (2).

11 ‘‘(2) TAX TO BE PAID BY PURCHASER IN CER12 TAIN CIRCUMSTANCES.—

13 ‘‘(A) GENERAL RULE.—In the case of tax14 able property or services purchased outside of

15 the United States for use, consumption or en16 joyment in the United States, the purchaser

17 shall remit the tax imposed by subsection (a).

18 ‘‘(B) In the case of a purchaser electing to

19 pay tax in installments pursuant to section 12,

20 the purchaser shall remit the tax imposed by

21 subsection (a).

22 ‘‘(C) Employers that pay wages that are

23 taxable services within the meaning of section

24 21(n) shall be responsible for paying and remit25 ting the tax.
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1 ‘‘(D) The Secretary may provide by regula2 tion that the tax imposed by subsection (a) is

3 to be collected and remitted by the purchaser

4 rather than the seller.

5 ‘‘SEC. 2. EXEMPTIONS.

6 ‘‘(a) IN GENERAL.—Except as provided in section

7 3(b)(2), no tax shall be imposed under section 1 on any

8 taxable property or service purchased for—

9 ‘‘(1) a business purpose in an active trade or

10 business, or

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

12 consumption outside the United States, provided

13 that the purchaser provided the seller with—

14 ‘‘(A) an intermediate sales certificate, or

15 ‘‘(B) an export sales certificate.

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

17 section, the term ‘purchased for a business purpose in an

18 active trade or business’ means purchased by a person en19 gaged in an active trade or business and used in that ac20 tive trade or business—

21 ‘‘(1) for resale,

22 ‘‘(2) to produce taxable property or services (as

23 defined in section 21(e)), or

24 ‘‘(3) in furtherance of other bona fide business

25 purposes.
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1 ‘‘(c) DE MINIMIS PAYMENTS.—Up to $400 of gross

2 payments per calendar year—

3 ‘‘(1) made by a person not engaged in an active

4 trade or business at any time during such calendar

5 year prior to making such gross payments, and

6 ‘‘(2) made to purchase any taxable property or

7 service which is imported into the United States by

8 such person for use or consumption by such person

9 in the United States,

10 shall be exempt from the tax imposed by section 1.

11 ‘‘(d) DE MINIMIS SALES.—Up to $2,500 per cal12 endar year of gross payments received—

13 ‘‘(1) by a person not engaged in an active trade

14 or business during such calendar year prior to the

15 receipt of such gross payments, and

16 ‘‘(2) in connection with a casual or isolated

17 sale,

18 shall be exempt from the tax imposed by section 1.

19 ‘‘(e) AFFILIATED FIRMS.—Firms that make pur20 chases from or sell to affiliated firms which are exempt

21 pursuant to subsection (a) shall not need to comply with

22 the requirements of subsection (g) for such purchases to

23 remain exempt. For purposes of this section, a firm is af24 filiated with another if 1 firm owns 50 percent of the vot25 ing shares or interest in the other.
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1 ‘‘(f) DE MINIMIS SALE OF FINANCIAL INTERMEDI2 ATION SERVICES.—The first $10,000 per calendar year

3 of gross payments received by a person from the sale of

4 financial intermediation services shall be exempt from the

5 tax imposed by section 1. The exemption provided by this

6 subsection is in addition to other exemptions afforded by

7 this chapter.

8 ‘‘(g) SELLER RELIEVED OF LIABILITY IN CERTAIN

9 CASES.—In the case of any property or service which is

10 sold exempt from tax pursuant to subsection (a), if the

11 seller—

12 ‘‘(1) has on file a copy of an exemption certifi13 cate (whether an intermediate sale or export sale

14 certificate) from the purchaser, and

15 ‘‘(2) did not have reasonable cause to believe

16 that an exemption from the tax imposed by section

17 1 was unavailable to the purchaser with respect to

18 such purchase, then the seller shall be relieved of li19 ability to collect and remit the tax imposed by sec20 tion 1 on such purchase.

21 ‘‘SEC. 3. RULES RELATING TO COLLECTION AND REMIT22 TANCE OF TAX.

23 ‘‘(a) OBLIGATION OF GOVERNMENTAL UNITS AND

24 NOT-FOR-PROFIT ORGANIZATIONS TO COLLECT, REMIT

25 AND PAY TAXES.—
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1 ‘‘(1) GOVERNMENTAL UNITS.—Nothing in this

2 subtitle shall be construed to exempt any Federal,

3 State, or local governmental unit or political subdivi4 sion from paying any tax imposed by this subtitle on

5 any sale, purchase, use, consumption or enjoyment

6 by such a unit.

7 ‘‘(2) NOT-FOR-PROFIT ORGANIZATIONS.—

8 ‘‘(A) IN GENERAL.—Dues, contributions

9 and payments to qualified not-for-profit organi10 zations shall not be considered gross payments

11 for taxable property or services for purposes of

12 this subtitle.

13 ‘‘(B) EXCEPTION.—Notwithstanding sub14 paragraph (2)(A), payments of any form to a

15 qualified not-for-profit organization shall be

16 considered gross payments for taxable property

17 or services unless said organization establishes

18 that the property or service provided in ex19 change is—

20 ‘‘(i) substantially related to the pur21 poses of the qualified not-for-profit organi22 zation, or

23 ‘‘(ii) is not commercially available.

24 ‘‘(C) For purposes of this section, qualified

25 not-for-profit organization means a not-for-prof-
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1 it organization organized and operated

2 exclusively—

3 ‘‘(i) for religious, charitable, scientific,

4 testing for public safety, literary or edu5 cational purposes;

6 ‘‘(ii) as civic leagues or social welfare

7 organizations;

8 ‘‘(iii) as labor, agricultural or horti9 cultural organizations;

10 ‘‘(iv) as chambers of commerce, busi11 ness leagues or trade associations; or

12 ‘‘(v) as fraternal beneficiary societies,

13 orders or associations;

14 no part of the net earnings of which inures to

15 the benefit of any private shareholder or indi16 vidual.

17 ‘‘(D) Upon application in a form pre18 scribed by the State Administrator, the State

19 Administrator shall provide qualification certifi20 cates to qualified not-for-profit organizations.

21 ‘‘(E) If a not-for-profit organization pro22 vides taxable property or services in connection

23 with contributions or dues to the organizations,

24 then it shall be required to treat the provision

25 of said taxable property or services as a pur-
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1 chase taxable pursuant to this subtitle at the

2 fair market value of said property or personal

3 services.

4 ‘‘(F) Taxable property and services pur5 chased by not-for-profit organizations for resale

6 or for use in the production of taxable property

7 or services shall be eligible for the exemptions

8 provided in section 2.

9 ‘‘(b) TAX COLLECTED ON CERTAIN EXEMPT PUR10 CHASES.—

11 ‘‘(1) IN GENERAL.—In the case of a purchase

12 which would (but for this subsection (b)) be exempt

13 from the tax imposed by section 1 by reason of sec14 tion 2(a), such subsection shall not apply to such

15 purchase if the seller—

16 ‘‘(A) elects the application of this sub17 section, and

18 ‘‘(B) immediately provides the purchaser

19 with a receipt reflecting the information re20 quired by section 54. Seller may elect to exer21 cise the application of this section with respect

22 to some or all purchases or purchasers.

23 ‘‘(2) The Secretary may by regulation provide

24 that certain industries or specific products are such

25 that the vendor must collect the tax on otherwise ex-
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1 empt purchases if, in the Secretary’s judgment, said

2 industry or products are such that consumers buy

3 25 percent or more of the product sold by the indus4 try or the product. A registered vendor may by ap5 plication for good cause shown elect to opt out of

6 the application of this paragraph.

7 ‘‘(3) CROSS REFERENCE.—

‘‘For credit to purchaser where seller collects tax

on exempt purchase, see section 11(a)(3).

‘‘For tax to be separately stated and charged, see

section 54.

8 ‘‘(c) GOVERNMENT ENTERPRISES.—

9 ‘‘(1) GOVERNMENT ENTERPRISES TO COLLECT

10 AND REMIT TAXES ON SALES.—Nothing in this sub11 title shall be construed to exempt any Federal,

12 State, or local governmental unit or political subdivi13 sion (whether or not the State is a conforming

14 State) operating a government enterprise from col15 lecting and remitting tax imposed by this subtitle on

16 any sale of taxable property or services. Government

17 enterprises shall comply with all duties imposed on

18 private enterprises by this subtitle and shall be liable

19 for penalties and subject to enforcement action in

20 the same manner as private enterprises.

21 ‘‘(2) GOVERNMENT ENTERPRISE.—Any entity

22 owned or operated by a Federal, State, or local gov23 ernmental unit or political subdivision that receives
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1 gross payments from selling taxable property or

2 services to private persons is a government enter3 prise, provided, however, that a government-owned

4 entity shall not become a government enterprise for

5 purposes of this section unless in any quarter it has

6 revenues from the sale of taxable property or serv7 ices that exceed $2,500.

8 ‘‘(3) GOVERNMENT ENTERPRISES’ INTER9 MEDIATE AND EXPORT SALES.—

10 ‘‘(A) Government enterprises shall not be

11 subject to tax on purchases that would not be

12 subject to tax pursuant to section 2 if the gov13 ernment enterprise were a private enterprise.

14 ‘‘(B) Government enterprises may not use

15 the exemption afforded by section 2 to serve as

16 a conduit for tax-free purchases by government

17 units that would otherwise be subject to tax18 ation on purchases pursuant to section 1.

19 Transfers of taxable property or services pur20 chased exempt from tax by a government enter21 prise to such government unit shall be taxable.

22 ‘‘(4) SEPARATE BOOKS OF ACCOUNT.—Any gov23 ernment enterprise must maintain books of account,

24 separate from the nonenterprise government ac-
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1 counts, maintained in accordance with generally ac2 cepted accounting principles.

3 ‘‘(5) ACTIVE TRADE OR BUSINESS.—A govern4 ment enterprise shall be treated as an active trade

5 or business.

6 ‘‘(6) CROSS REFERENCE.—

‘‘For obligation of government units, see section

3(a)(1).

7 ‘‘Subchapter B—Credits; Refunds; Install8 ment Payments of Tax on Purchases of

9 Residences

‘‘Sec. 11. Credits and refunds.

‘‘Sec. 12. Installment payments of tax on purchases of principal

residences.

‘‘Sec. 13. Family Consumption Refund.

10 ‘‘SEC. 11. CREDITS AND REFUNDS.

11 ‘‘(a) GENERAL CREDITS.—Each person shall be al12 lowed a credit against the taxes imposed by section 1 for

13 any month in an amount equal to the sum of—

14 ‘‘(1) such person’s used property credit under

15 subsection (c) for such month,

16 ‘‘(2) such person’s business use conversion

17 credit under subsection (d) for such month,

18 ‘‘(3) the amount paid by such person with re19 spect to a purchase during such month by reason of

20 a tax collected on an exempt purchase pursuant to

21 section 3(b) (relating to election to collect tax on

22 certain nontaxable purchases),
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1 ‘‘(4) the administration credit under section (e),

2 ‘‘(5) the compliance equipment cost credit

3 under section (f),

4 ‘‘(6) the bad debt credit under subsection (g),

5 ‘‘(7) the insurance proceeds credit under sub6 section (h),

7 ‘‘(8) the transition inventory credit under sub8 section (i), and

9 ‘‘(9) any amount paid in excess of amount due.

10 ‘‘(b) REFUNDS.—

11 ‘‘(1) FILERS.—If a person files two consecutive

12 monthly tax reports with a credit balance, then,

13 upon application in a form prescribed by the State

14 Administrator, then the credit balance shown on the

15 second monthly report shall be refunded to the tax16 payer within 60 days of said application.

17 ‘‘(2) NONFILERS.—If a person other than a

18 monthly filer has an excess credit for any month,

19 then, upon application in a form prescribed by the

20 State Administrator, then the credit balance due

21 shall be refunded to the taxpayer within 60 days of

22 said application.

23 ‘‘(3) INTEREST.—No interest shall be required

24 to be paid on any overpayment under this subsection
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1 for any month if such overpayment is paid within 60

2 days after the close of such month.

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

4 ONLY IF FEDERAL COURT RULING.—The 60-day pe5 riods under paragraphs (1) and (2) shall be sus6 pended with respect to a purported credit balance

7 (or portion thereof) only during any period that

8 there is in effect a preliminary ruling from a Federal

9 court that there is reasonable cause to believe that

10 such credit balance is not actually the amount due.

11 ‘‘(5) FILER.—For purposes of this subsection,

12 the term ‘filer’ means, with respect to any month,

13 any person required to register under section 43 for

14 such month.

15 ‘‘(c) USED PROPERTY CREDIT.—

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

17 (a), a seller shall receive credit for previous sales tax

18 paid on the resale of taxable property or services, as

19 provided in this subsection (c).

20 ‘‘(2) DETERMINATION OF USED PROPERTY

21 CREDIT AMOUNT.—The used property credit amount

22 determined under this paragraph with respect to any

23 property is the lesser of—
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1 ‘‘(A) the amount of tax due and paid by

2 virtue of the present transaction (without re3 gard to any credits), or

4 ‘‘(B) the most recent prior tax imposed by

5 section 1 with respect to such property trans6 action (without regard to any credits).

7 ‘‘(3) TRANSITIONAL DEEMED PAID RULE FOR

8 PROPERTY OWNED ON EFFECTIVE DATE OF ACT.—

9 In the case of property which was acquired by the

10 seller before July 1, 2001, the amount under para11 graph (2)(B) shall be the amount which is the prod12 uct of—

13 ‘‘(A) that which would be determined

14 under paragraph (2)(B) as if this subtitle had

15 been in effect at the time of such acquisition,

16 and

17 ‘‘(B) the equity ratio (as defined in para18 graph (4)).

19 ‘‘(4) The equity ratio is the quotient of—

20 ‘‘(A) the income tax basis in the property

21 at the end of the taxable year 2001, less the

22 mortgage or debt secured by said property at

23 the end of said taxable year, divided by

24 ‘‘(B) the income tax basis in the property

25 at the end of the taxable year 2001,
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1 provided, however, that the quantity defined in sub2 paragraph (1) cannot be less than zero and further

3 providing that the equity ratio so calculated cannot

4 be less than zero or greater than one.

5 ‘‘(d) BUSINESS USE CONVERSION CREDIT.—

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

7 (a), a person’s business use conversion credit for any

8 month is the aggregate of the amounts determined

9 under paragraph (2) with respect to property—

10 ‘‘(A) on which a prior tax was imposed by

11 section 1 on the purchase by such person, and

12 ‘‘(B) which commences to be exclusively

13 used during such month in the production by

14 such person of other taxable property or serv15 ices.

16 ‘‘(2) AMOUNT OF CREDIT.—The amount deter17 mined under this paragraph with respect to any

18 property is lesser of—

19 ‘‘(A) the product of the rate imposed by

20 section 1 and the fair market value of the prop21 erty when its use is converted, and

22 ‘‘(B) the prior tax referred to in paragraph

23 (1)(A).

24 ‘‘(3) Property converted from business use to

25 personal use shall be subject to tax pursuant to sec-
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1 tion 1 on the book value of the converted property

2 as of the date of conversion, provided that the books

3 are kept in accordance with generally accepted ac4 counting principles.

5 ‘‘(e) ADMINISTRATION CREDIT.—Every taxpayer fil6 ing a timely monthly report in compliance with section 41

7 shall be entitled to a taxpayer administrative credit equal

8 to the greater of—

9 ‘‘(1) $200, or

10 ‘‘(2) one-half of 1 percent of the tax remitted,

11 provided, however, that in no event will the credit af12 forded by this section exceed 20 percent of the tax

13 due to be remitted prior to the application of this

14 credit.

15 ‘‘(f) COMPLIANCE EQUIPMENT COST CREDIT.—Ven16 dors required to purchase new equipment to comply with

17 the provisions of section 54 shall be entitled to a credit

18 in the amount of 50 percent of the cost of such equipment.

19 ‘‘(g) BAD DEBT CREDIT.—

20 ‘‘(1) FINANCIAL INTERMEDIATION SERVICES.—

21 Any person registered pursuant to section 43 who

22 has experienced a bad debt (other than unpaid in23 voices within the meaning of paragraph (2)) shall be

24 entitled to a credit equal to the product of—

25 ‘‘(A) the rate imposed by section 1, and
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1 ‘‘(B) the quotient that is—

2 ‘‘(i) the amount of the bad debt (as

3 defined in section 24), divided by

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

5 rate imposed by section 1.

6 ‘‘(2) UNPAID INVOICES.—Any person electing

7 the accrual method pursuant to section 56 that has

8 with respect to a transaction—

9 ‘‘(A) invoiced the tax imposed by section 1,

10 ‘‘(B) remitted the invoiced tax,

11 ‘‘(C) actually delivered the taxable prop12 erty or performed the taxable services invoiced,

13 and

14 ‘‘(D) not been paid 90 days after the date

15 the invoice was due to be paid,

16 shall be entitled to a credit equal to the amount of

17 tax remitted and unpaid by the purchaser.

18 ‘‘(3) SUBSEQUENT PAYMENT.—Any payment

19 made with respect to a transaction subsequent to a

20 subsection (g) credit being taken with respect to

21 that transaction shall be subject to tax in the month

22 the payment was received as if a tax inclusive sale

23 of taxable property and services in the amount of

24 the payment had been made.
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1 ‘‘(4) PARTIAL PAYMENTS.—Partial payments

2 shall be treated as pro rata payments of the under3 lying obligation and shall be allocated proportion4 ately among payment for the taxable property and

5 service, tax and otherwise (in the case of partially

6 nontaxable payments).

7 ‘‘(5) RELATED PARTIES.—The credit provided

8 by this section shall not be available with respect to

9 sales made to affiliated firms (within the meaning of

10 section 2(e)).

11 ‘‘(h) INSURANCE PROCEEDS CREDIT.—

12 ‘‘(1) IN GENERAL.—A person receiving a pay13 ment from an insurer by virtue of an insurance con14 tract shall be entitled to a credit in an amount de15 termined by paragraph (2), less any amount paid to

16 the insured by the insurer pursuant to paragraph

17 (3), if the entire premium (except that portion allo18 cable to the investment account of the underlying

19 policy) for the insurance contract giving rise to the

20 insurer’s obligation to make a payment to the in21 sured was subject to the tax imposed by section 1

22 and such tax was paid.

23 ‘‘(2) CREDIT AMOUNT.—The amount of the

24 credit shall be the product of—

25 ‘‘(A) the rate imposed by section 1, and
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1 ‘‘(B) the quotient that is—

2 ‘‘(i) the amount of the payment made

3 by the insurer to the insured, divided by

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

5 rate imposed by section 1.

6 ‘‘(3) ADMINISTRATIVE OPTION.—The credit de7 termined in accordance with paragraph (2) shall be

8 paid by the insurer to the insured and the insurer

9 shall be entitled to the credit in lieu of the insured

10 provided, however, the insurer may elect, in a form

11 prescribed by the Secretary, to not pay the credit

12 and require the insured to make application for the

13 credit. In the event of such election, the insurer shall

14 provide to the Secretary and the insured the name

15 and tax identification number of the insurer and of

16 the insured and indicate the proper amount of the

17 credit.

18 ‘‘(4) COORDINATION WITH RESPECT TO EXEMP19 TION.—If taxable property or services purchased by

20 an insurer on behalf of an insured are purchased

21 free of tax by virtue of section 21(e)(3), then the

22 credit provided by this section shall not be available

23 with respect to that purchase.

24 ‘‘(5) INSURANCE CONTRACT.—For purposes of

25 paragraph (1), the term ‘insurance contract’ in-
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1 cludes a life insurance contract, a health insurance

2 contract, a property and casualty loss insurance con3 tract, a general liability insurance contract, a marine

4 insurance contract, a fire insurance contract, an ac5 cident insurance contract, a disability insurance con6 tract, a long-term care insurance contract, and an

7 insurance contract that provides a combination of

8 these types of insurance.

9 ‘‘(i) TRANSITIONAL INVENTORY CREDIT.—

10 ‘‘(1) TRANSITION INVENTORY CREDIT.—A cred11 it shall be allowed equal to the product of the rate

12 of tax imposed by section 1 and the cost of qualified

13 inventory.

14 ‘‘(2) INVENTORY.—

15 ‘‘(A) QUALIFIED INVENTORY.—Inventory

16 held by an active trade or business on the close

17 of business June 30, 2001, that is subsequently

18 sold subject to the tax imposed by section 1

19 shall be qualified inventory.

20 ‘‘(B) COST.—For purposes of this section,

21 qualified inventory shall have the cost that it

22 had on the income tax return of the active

23 trade or business filed for the period ending

24 June 30, 2001 (including any amounts capital-
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1 ized by virtue of section 263A as in effect on

2 June 30, 2001).

3 ‘‘(3) TIMING OF CREDIT.—The credit provided

4 under paragraph (1) shall be allowed on the sales

5 tax return where the taxable sale of the qualified in6 ventory is reported. The person claiming such credit

7 shall attach supporting schedules in the form that

8 the Secretary may prescribe.

9 ‘‘SEC. 12. INSTALLMENT PAYMENTS OF TAX ON PURCHASE

10 OF PRINCIPAL RESIDENCES.

11 ‘‘(a) IN GENERAL.—If—

12 ‘‘(1) property is purchased and used as the

13 principal residence of any purchaser of such prop14 erty, and

15 ‘‘(2) such purchaser elects the application of

16 this section, then the tax imposed by section 1 with

17 respect to such purchase shall be paid in equal an18 nual installments over the 30-year period beginning

19 on the date of such sale together with simple inter20 est at the rate imposed by section 6621.

21 ‘‘(b) TERMINATION OF INSTALLMENTS IF PROPERTY

22 IS SOLD OR OTHERWISE CEASES TO BE PRINCIPAL RESI23 DENCE.—

24 ‘‘(1) IN GENERAL.—If, before the close of the

25 30-year period referred to in subsection (a), any
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1 property to which an election under subsection (a)

2 applies—

3 ‘‘(A) is sold, or

4 ‘‘(B) otherwise ceases to be used as the

5 principal residence of any purchaser making

6 such election,

7 then the unpaid installments shall be due no later

8 than two years after the time of such sale or ces9 sation. To the extent that such sale or cessation is

10 only of a portion of such residential property, the

11 preceding sentence shall apply only to a like portion

12 (based on value) of such unpaid installments.

13 ‘‘(2) SPECIAL RULE.—In a case to which para14 graph (1)(B) applies with respect to any

15 purchaser—

16 ‘‘(A) if such purchaser purchases within

17 two years another property which property is

18 purchased and used as the principal residence

19 of such purchaser, the remaining unpaid install20 ments shall be due at the time of such pur21 chase,

22 ‘‘(B) if subparagraph (A) does not apply to

23 such purchaser, the remaining unpaid install24 ments shall be due at the close of the two-year
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1 period beginning on the date of the cessation

2 referred to in paragraph (1); and

3 ‘‘(C) the two-year period referred to in

4 subparagraph (B) shall be suspended during

5 any period that such purchaser uses such prop6 erty as his principal residence.

7 ‘‘(3) If any purchaser exercises the right to in8 stallment payments under this section, then the re9 sponsibility to remit the tax due is the purchaser’s

10 rather than the seller’s provided that the seller has

11 on file a copy of the election form prescribed by the

12 Secretary.

13 ‘‘SEC. 13. FAMILY CONSUMPTION REFUND.

14 ‘‘(a) GENERAL RULE.—Each qualified family unit

15 (as defined in subsection (b)) shall be eligible to receive

16 a sales tax rebate in an amount no greater than the prod17 uct of—

18 ‘‘(1) the rate of tax imposed by section 1, and

19 ‘‘(2) the lesser of—

20 ‘‘(A) the poverty level (as defined in sub21 section (c)), or

22 ‘‘(B) the wage income of the family unit,

23 in the manner prescribed and subject to the limitations

24 set forth by this section.
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1 ‘‘(b) QUALIFIED FAMILY UNIT DEFINED.—For pur2 poses of this section, the term qualified family unit shall

3 mean any family sharing a common residence. Any family

4 members (as defined in subsection (e)) sharing a common

5 residence shall be considered part of one integrated family

6 unit.

7 ‘‘(c) POVERTY LEVEL DEFINED.—The poverty level

8 shall be the quotient that is—

9 ‘‘(1) the level determined by the Department of

10 Health and Human Services poverty guidelines re11 quired by sections 652 and 673(2) of the Omnibus

12 Reconciliation Act of 1981 (all States and the Dis13 trict of Columbia) for family units of a particular

14 size, divided by

15 ‘‘(2) the quantity that is one minus the tax rate

16 imposed by section 1.

17 ‘‘(d) REBATE MECHANISM.—

18 ‘‘(1) GENERAL RULE.—The rebate provided by

19 section (a) shall be provided to each qualified family

20 unit by including the pay period rebate amount in

21 each paycheck.

22 ‘‘(2) PAY PERIOD REBATE AMOUNT.—The pay

23 period rebate amount shall be the lesser of product

24 of the rate of tax imposed by the section 1 and—
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1 ‘‘(A) the wages paid during the pay period,

2 or

3 ‘‘(B) the quotient that is the poverty level

4 for the family unit (determined in accordance

5 with subsection (c)) divided by the number of

6 pay periods in a year.

7 ‘‘(3) ADJUSTED WITHHOLDING TABLES TO BE

8 PROVIDED TO EMPLOYERS.—The Social Security

9 Administration shall publish revised withholding ta10 bles for use by employers.

11 ‘‘(4) COORDINATION.—The family member re12 ceiving the family consumption rebate shall set

13 forth, in a form prescribed by the Social Security

14 Administration, the names and Social Security num15 bers of all members of the family unit for which a

16 rebate is claimed. Employers shall provide this infor17 mation in the form prescribed to the Social Security

18 Administration.

19 ‘‘(e) FAMILY MEMBERS DEFINED.—For purposes of

20 determining the size of the family unit, family members

21 shall include each spouse or the head of household, chil22 dren, grandchildren, parents and grandparents.

23 ‘‘(f) DISQUALIFIED FAMILY MEMBERS.—In order for

24 a family member to be counted for purposes of deter25 mining family unit size, said family member must—
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1 ‘‘(1) if over the age of two years, have a bona

2 fide Social Security number; and

3 ‘‘(2) be a lawful resident of the United States.

4 ‘‘(g) STUDENTS LIVING AWAY FROM HOME.—A stu5 dent during each of five months in a calendar year living

6 away from the common residence of a family unit but who

7 receives over 50 percent of his support from the family

8 unit shall be included as part of that family unit for pur9 poses of this section.

10 ‘‘(h) CHANGE IN FAMILY CIRCUMSTANCES.—The

11 residence of family members, marital status and number

12 of persons in a family unit on the first day of the calendar

13 year shall govern determinations required to be made

14 under this section for purposes of said calendar year.

15 ‘‘(i) TWO OR MORE FAMILY MEMBERS WORKING.—

16 The family unit may elect to divide the rebate between

17 two family members. Family members shall make this

18 election in a form prescribed by the Social Security Ad19 ministration and shall when making said election disclose

20 the name and Social Security number of the other family

21 members. Creditable wages for families making this elec22 tion shall not exceed one half of the poverty level for that

23 family unit.

24 ‘‘(j) EMPLOYERS TO ADJUST REMITTANCES.—Em25 ployers shall reduce their payroll tax remittances to the
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1 Social Security Administration by the amount of Family

2 Consumption Rebate provided in employee paychecks.

3 ‘‘(k) NO DOUBLE COUNTING.—In no event shall any

4 person be considered part of more than one family unit.

5 ‘‘(l) SOCIAL SECURITY ADMINISTRATION.—The So6 cial Security Administration shall provide to multiple

7 wage-earner family units who received a lower rebate

8 amount than that to which that were entitled under sub9 section (a) due to the application of the limitations in sub10 section (d)(2) and subsection (i) any payment due within

11 30 days of the close of the calendar year.

12 ‘‘Subchapter C—Definitions and Special

13 Rules; Financial Intermediation Services

‘‘Sec. 21. Definitions.

‘‘Sec. 22. Special rules.

‘‘Sec. 23. Determination of financial intermediation services

amount.

‘‘Sec. 24. Bad debts.

‘‘Sec. 25. Timing of tax on financial intermediation services.

‘‘Sec. 26. Alternative method for calculating tax due.

‘‘Sec. 27. Basic interest rate.

‘‘Sec. 28. Applicable interest rate.

14 ‘‘SEC. 21. DEFINITIONS.

15 ‘‘(a) FINANCIAL INTERMEDIATION SERVICES.—The

16 term ‘financial intermediation services’ means financial

17 intermediation services determined in accordance with sec18 tion 23.

19 ‘‘(b) GROSS PAYMENTS.—For purposes of this sub20 title, the term ‘gross payments’ shall mean gross payments

21 inclusive of Federal tax imposed by, and State taxes im-
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1 posed in conformity with, this chapter but exclusive of cus2 toms duties. Gross payment shall be the product of the

3 pre-tax factor and the payments for the taxable property

4 or service exclusive of State and Federal taxes imposed

5 by, and State taxes imposed in conformity with, this sub6 title. For purposes of this section, the pre-tax factor shall

7 be one divided by the quantity that is one minus the sum

8 of—

9 ‘‘(1) the Federal tax rate imposed by section 1,

10 and

11 ‘‘(2) the State tax rate imposed in conformity

12 with this subtitle.

13 ‘‘(c) Primary residence shall mean residential real

14 property used predominantly as the place of abode for a

15 person or persons. A person shall have only one primary

16 residence for purposes of this section. A married couple

17 shall have only one primary residence.

18 ‘‘(d) PURCHASED FOR RESALE.—For purposes of

19 section 2(b)(1), a property or service is purchased for re20 sale if such property or service is purchased by a person

21 in an active trade or business for the purpose of reselling

22 the taxable property or service in the ordinary course of

23 that active trade or business.

24 ‘‘(e) PURCHASED TO PRODUCE TAXABLE PROPERTY

25 OR SERVICES.—For purposes of section 2(b)(2)—
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1 ‘‘(1) IN GENERAL.—A property or service is

2 purchased to produce a taxable property or service

3 if such property or service is purchased by a person

4 in an active trade or business for the purpose of em5 ploying or using such property or service in the pro6 duction or sale of other taxable property or services

7 in the ordinary course of that active trade or busi8 ness.

9 ‘‘(2) RESEARCH EXPERIMENTATION AND DE10 VELOPMENT.—Taxable property or services used in

11 an active trade or business for the purpose of re12 search, experimentation and development shall be

13 treated as purchased to produce taxable property or

14 services.

15 ‘‘(3) INSURANCE PAYMENTS.—Taxable property

16 or services purchased by an insurance company on

17 behalf of an insured shall be treated as a property

18 or service purchased to produce a taxable property

19 or service if the entire premium for the insurance

20 contract giving rise to the insurer’s obligation was

21 subject to tax in accordance with subsection (a) (re22 lating to financial intermediation services).

23 ‘‘(4) EDUCATION AND TRAINING.—Education

24 and training shall be treated as purchased to

25 produce taxable property or services. For purposes
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1 of this section, education and training shall mean

2 tuition for general primary, secondary, or university

3 level education, and tuition for job-related training

4 courses. Tuition shall not include amounts attrib5 utable to room or board for the student.

6 ‘‘(f) Qualified fixtures shall include only those fix7 tures that are a permanent, integral, incorporated and

8 irremovable part of the structure and shall exclude fur9 niture, furnishings, appliances or similar tangible personal

10 property.

11 ‘‘(g) REAL PROPERTY.—For purposes of this chap12 ter, the term real property shall have the meaning ascribed

13 to it at common law. The Secretary shall by regulation

14 establish uniform national rules for purposes of admin15 istering this chapter to the extent that jurisdictions within

16 the United States may provide different holdings as to the

17 scope of the term real property.

18 ‘‘(h) RESIDENCE.—Whenever this chapter requires

19 that the State of ‘residence’ need be determined, it shall

20 be determined in descending order of priority as the State

21 of permanent abode, the center of vital interests, or the

22 habitual abode. If the State of residence is still undeter23 mined, if the person is a resident of the United States,

24 the determination will be made by the Federal Office of

25 Revenue Allocation.
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1 ‘‘(i) Residential real property is real property, includ2 ing structures, land, and qualified fixtures and appur3 tenances thereto that—

4 ‘‘(1) is held in fee simple and

5 ‘‘(2) is predominantly used as a residence or

6 dwelling.

7 ‘‘(j) SECRETARY.—For purposes of this chapter, the

8 term ‘Secretary’ means the United States Secretary of

9 Treasury.

10 ‘‘(k) STATE ADMINISTRATOR.—For purposes of this

11 chapter, the term ‘State Administrator’ shall mean the

12 highest State official responsible for administering the

13 taxes imposed by this subtitle in the conforming State. In

14 States that are not conforming States, the ‘State Adminis15 trator’ shall mean the person designated by the Secretary

16 as the Federal official responsible for administering the

17 taxes imposed by this chapter in a non-conforming State.

18 State Administrator shall also mean, when the context so

19 requires, the Federal official responsible for administering

20 the multi-State vendor program.

21 ‘‘(l) Structures, for purposes of subsection (i) shall

22 include homes that are manufactured housing but not self23 propelled and not on wheels.

24 ‘‘(m) TANGIBLE PERSONAL PROPERTY.—For pur25 poses of this chapter, the term tangible personal property
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1 shall have the meaning ascribed to it at common law. The

2 Secretary shall by regulation establish uniform national

3 rules for purposes of administering this chapter to the ex4 tent that jurisdictions within the United States may pro5 vide different holdings as to the scope of the term tangible

6 personal property.

7 ‘‘(n) TAXABLE PROPERTY OR SERVICES.—

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

9 chapter, the term ‘taxable property or service’

10 means—

11 ‘‘(A) any property (including leaseholds of

12 any term or rents with respect to such prop13 erty) other than intangible property, and

14 ‘‘(B) any service (including any financial

15 intermediation services).

16 ‘‘(2) WAGES.—For purposes of the preceding

17 sentence, services shall not include wages paid by an

18 employer engaged in an active trade or business that

19 is registered pursuant to section 43. Services shall

20 include wages paid by an employer (including gov21 ernment employers) not engaged in an active trade

22 or business unless those wages are paid by a quali23 fied not-for-profit organization (as defined in section

24 3(a)(2)(C).

25 ‘‘(3) INTANGIBLE PROPERTY.—
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1 ‘‘(A) IN GENERAL.—For purposes of this

2 subtitle, intangible property shall include copy3 rights, trademarks, patents, goodwill, financial

4 instruments, and other property deemed intan5 gible at common law.

6 ‘‘(B) CERTAIN TYPES OF PROPERTY.—For

7 purposes of this subtitle, intangible property

8 shall not include tangible personal property (or

9 rents or leaseholds of any term thereon), real

10 property (or rents or leaseholds of any term

11 thereon), and computer software.

12 ‘‘(C) ANTI-AVOIDANCE RULE.—Notwith13 standing subparagraph (A), the sale of a copy14 right or trademark shall be treated as the sale

15 of taxable services (within the meaning of sec16 tion 1) if the substance of the transaction sell17 ing said copyright or trademark constituted the

18 sale of the services that produced the copy19 righted material or the trademark.

20 ‘‘(o) UNITED STATES.—For purposes of this chapter,

21 the term ‘United States’, when used in the geographical

22 sense, means the 50 States, the District of Columbia, and

23 any commonwealth, territory or possession of the United

24 States.
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1 ‘‘SEC. 22. SPECIAL RULES.

2 ‘‘(a) FOREIGN FINANCIAL INTERMEDIATION SERV3 ICES.—

4 ‘‘(1) SPECIAL RULES RELATING TO INTER5 NATIONAL FINANCIAL INTERMEDIATION SERVICES.—

6 Financial intermediation services shall be deemed as

7 used or consumed within the United States if the

8 person (or any related party within the meaning of

9 section 2(e)) purchasing the services is a resident of

10 the United States.

11 ‘‘(2) Any person that provides financial inter12 mediation services to United States residents must,

13 as a condition of lawfully providing such services,

14 designate, in a form prescribed by the Secretary, a

15 United States tax representative. This United States

16 tax representative shall be responsible for ensuring

17 that the taxes imposed by this chapter are collected

18 and remitted and shall be jointly and severally liable

19 for collecting and remitting these taxes. The Sec20 retary may require reasonable bond of the United

21 States tax representative.

22 ‘‘(b) FINANCING LEASES.—

23 ‘‘(1) DEFINED.—For purposes of this section, a

24 financing lease shall be any lease under which the

25 lessee shall have the right to acquire the property
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1 for 50 percent or less of its fair market value at

2 the end of the lease term.

3 ‘‘(2) TAX.—Financing leases shall be taxed in

4 the method set forth in this section.

5 ‘‘(3) DETERMINATION OF PRINCIPLE AND IN6 TEREST COMPONENTS OF FINANCING LEASE.—The

7 Secretary shall promulgate rules for disaggregating

8 the principle and interest components of a financing

9 lease. The principle amount shall be determined to

10 the extent possible by examination of the contem11 poraneous sales price or prices of the same or simi12 lar property as the leased property.

13 ‘‘(4) ALTERNATIVE METHOD.—In the event

14 that contemporaneous sales prices of the same or

15 similar property as the lease property are not avail16 able, the principle and interest components of a fi17 nancing lease shall be disaggregating using the ap18 plicable interest rate (as defined in section 28), plus

19 4 percent.

20 ‘‘(5) PRINCIPAL COMPONENT.—The principal

21 component of the financing lease shall be subject to

22 tax as if a purchase in the amount of the principal

23 component had been made on the day the lease was

24 entered into.
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1 ‘‘(6) INTEREST COMPONENT.—The financial

2 intermediation services amount with respect to the

3 interest component of the financing lease shall be

4 subject to tax.

5 ‘‘(7) COORDINATION.—If the principal compo6 nent and financial intermediation services amount

7 with respect to the interest component of a lease

8 have been taxed pursuant to this section, then the

9 gross lease or rental payments shall not be subject

10 to additional tax.

11 ‘‘(c) INSTALLMENT SALES, ACCOUNTING, RE12 TURNS.—

13 ‘‘(1) GENERAL RULE.—Tax will be due when

14 payment for the taxable property and services sold,

15 consumed, used or enjoyed is actually received.

16 ‘‘(2) ALTERNATIVE RULE.—A vendor may elect

17 to adopt the accrual method of accounting for pur18 poses of determining when the tax will be due. Said

19 election must apply to all sales made by vendor in

20 a particular calendar year.

21 ‘‘(3) INSTALLMENT SALES.—Tax will be due on

22 taxable property and services sold under the install23 ment method when payment for the taxable property

24 and services sold is actually received.
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1 ‘‘(4) RETURNS.—A credit shall be provided to

2 the vendor for returned taxable property and serv3 ices when actual payment for the returned taxable

4 property and services is made by the vendor to the

5 person returning the taxable property and services.

6 ‘‘(d) MIXED USE PROPERTY OR SERVICES.—

7 ‘‘(1) MIXED USE PROPERTY OR SERVICE DE8 FINED.—Mixed Use Property or Service is taxable

9 property or services purchased both for a purpose

10 that would give rise to an exemption pursuant to

11 section 2 and for taxable use, consumption or enjoy12 ment.

13 ‘‘(2) EXEMPTION THRESHOLD.—Mixed Use

14 Property or Service shall not be exempt pursuant to

15 section 2 unless said property is used more than 95

16 percent for purposes that would give rise to an ex17 emption pursuant to section 2.

18 ‘‘(3) MIXED USE PROPERTY OR SERVICES

19 CREDIT.—A business registered pursuant to section

20 43 is entitled to a business use conversion credit

21 (pursuant to section 11(d)) equal to product of—

22 ‘‘(A) the mixed use property amount,

23 ‘‘(B) the business use ratio, and

24 ‘‘(C) the rate of tax imposed by section 1.
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1 ‘‘(4) MIXED USE PROPERTY AMOUNT.—The

2 mixed use property amount for each year shall be—

3 ‘‘(A) one-thirtieth of the purchase price for

4 real property for thirty years or until the prop5 erty is sold,

6 ‘‘(B) one-seventh of the purchase price for

7 tangible personal property for seven years or

8 until the property is sold,

9 ‘‘(C) one-fifth of the purchase price for ve10 hicles for five years or until the property is

11 sold, and

12 ‘‘(D) a reasonable amount for other types

13 of taxable property or services or in accordance

14 with regulations.

15 ‘‘(5) BUSINESS USE RATIO.—The business use

16 ratio is the ratio of business use to total use for a

17 particular year. For vehicles, the business use ratio

18 will be the ratio of business purpose miles to total

19 miles. For real property, the business use ratio is

20 the ratio of floor space used for business purposes

21 to total floor space. For tangible personal property

22 (except for vehicles), the business use ratio is the

23 ratio of total time used for business purposes to

24 total time used. For other property or services, the

25 business ratio shall be calculated using a reasonable
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1 method. Reasonable records must be maintained to

2 support a taxpayer’s business use of the mixed use

3 property or service.

4 ‘‘(e) GAMING.—There is hereby imposed a 15-percent

5 tax on taxable gaming services. Taxable gaming services

6 shall be the gross gaming receipts less total gaming pay7 offs. This tax shall be paid and remitted by the person

8 offering the gaming services.

9 ‘‘SEC. 23. DETERMINATION OF FINANCIAL INTERMEDI10 ATION SERVICES AMOUNT.

11 ‘‘(a) FINANCIAL INTERMEDIATION SERVICES.—For

12 purposes of this subtitle—

13 ‘‘(1) IN GENERAL.—The term ‘financial inter14 mediation services’ means the sum of—

15 ‘‘(A) explicitly charged financial intermedi16 ation services, and

17 ‘‘(B) implicitly charged financial intermedi18 ation services.

19 ‘‘(2) EXPLICITLY CHARGED FINANCIAL INTER20 MEDIATION SERVICES.—The term ‘explicitly charged

21 financial intermediation services’ includes—

22 ‘‘(A) brokerage fees,

23 ‘‘(B) explicitly stated banking, loan origi24 nation, processing, documentation, credit check

25 fees or other similar fees,
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1 ‘‘(C) safe-deposit box fees,

2 ‘‘(D) insurance premiums, to the extent

3 such premiums are not allocable to the invest4 ment account of the underlying insurance pol5 icy,

6 ‘‘(E) trustees’ fees, and

7 ‘‘(F) other financial service fees (including,

8 but not limited to, mutual fund management,

9 sales, and exit fees).

10 ‘‘(3) IMPLICITLY CHARGED FINANCIAL INTER11 MEDIATION SERVICES.—

12 ‘‘(A) IN GENERAL.—The term ‘implicitly

13 charged financial intermediation services’ in14 cludes the gross imputed amount in relation to

15 any underlying interest bearing investment, ac16 count, or debt.

17 ‘‘(B) GROSS IMPUTED AMOUNT.—For pur18 poses of subparagraph (A), the term ‘gross im19 puted amount’ means—

20 ‘‘(i) with respect to any underlying in21 terest bearing investment or account, the

22 product of—

23 ‘‘(I) the excess (if any) of the

24 basic interest rate (as defined in sec-
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1 tion 27) over the rate paid on such in2 vestment, and

3 ‘‘(II) such account balance, and

4 ‘‘(ii) with respect to any underlying

5 interest bearing debt, the product of—

6 ‘‘(I) the excess (if any) of the

7 rate paid on such debt over the basic

8 interest rate (as defined in section

9 27), and

10 ‘‘(II) such debt balance.

11 ‘‘(b) For purposes of section 1(c), the seller of finan12 cial intermediation services shall be—

13 ‘‘(1) in the case of explicitly charged financial

14 intermediation services (as defined in subsection

15 (a)(2)), the person who receives the gross payments

16 for the charged financial intermediation services,

17 ‘‘(2) in the case of implicit financial intermedi18 ation services (as defined in subsection (a)(3)) with

19 respect to any underlying interest bearing invest20 ment or account, the person making the interest

21 payments on the interest bearing investment or ac22 count, and

23 ‘‘(3) in the case of implicit financial intermedi24 ation services (as defined in subsection (a)(2)) with

25 respect to any interest bearing debt, the person re-
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1 ceiving the interest payments on the interest bearing

2 debt.

3 ‘‘SEC. 24. BAD DEBTS.

4 ‘‘(a) For purposes of section 11, a bad debt shall be

5 a business loan or debt that becomes wholly or partially

6 worthless.

7 ‘‘(b) For purposes of subsection (a), a business loan

8 or debt is a bona fide loan or debt made for a business

9 purpose that both parties intended be repaid.

10 ‘‘(c) No loan or debt shall be considered wholly or

11 partially worthless unless it has been in arrears for 90

12 days or more, provided, however, that if a debt is dis13 charged wholly or partially in bankruptcy before 90 days

14 has elapsed, then it shall be deemed wholly or partially

15 worthless on the date of discharge.

16 ‘‘(d) A loan or debt that has been in arrears for 90

17 days or more may be deemed wholly or partially worthless

18 by the holder unless a payment schedule has been entered

19 into between the debtor and the lender.

20 ‘‘(e) CROSS REFERENCE.—

‘‘For tax on subsequent payments, see section

11(g)(3).

21 ‘‘SEC. 25. TIMING OF TAX ON FINANCIAL INTERMEDIATION

22 SERVICES.

23 ‘‘The tax on financial intermediation services pro24 vided in connection to an underlying investment account
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1 or debt shall be calculated and collected with the same

2 frequency that statements are rendered by the financial

3 institution in connection with the investment account or

4 debt but not less frequently than quarterly.

5 ‘‘SEC. 26. ALTERNATIVE METHOD FOR CALCULATING TAX

6 DUE.

7 ‘‘(a) ALTERNATIVE METHOD PERMISSIBLE.—A pro8 vider of financial intermediation services need not cal9 culate its liability on a transaction-by-transaction or ac10 count-by-account basis provided that the method used by

11 the financial intermediation services provider—

12 ‘‘(1) is reasonable, and

13 ‘‘(2) will lead to a tax liability that is substan14 tially similar to that projected under ordinary sales

15 tax principles. The provider of financial intermedi16 ation services shall set forth his proposed method

17 and the reasons why it meets the criteria set forth

18 in the preceding sentence in a petition to the Sec19 retary.

20 ‘‘(b) SECRETARY TO RULE.—An alternative method

21 proposed in a petition pursuant to subsection (a) shall be

22 accepted by the Secretary unless the Secretary rules that

23 the proposed alternative method—

24 ‘‘(1) is unreasonable, or
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1 ‘‘(2) will lead to a tax liability that is substan2 tially different from that projected under ordinary

3 sales tax principles.

4 The Secretary shall set forth the reasons for his ruling

5 in a finding. The Secretary must make his ruling within

6 120 days of receiving the petition and notify the petitioner

7 of his decision. In the event the Secretary fails to render

8 a ruling within 120 days, then the proposed method shall

9 be permissible. He must provide the petitioner with a copy

10 of the finding within 30 days of a ruling. He must publish

11 the permissible method (including those methods that be12 come permissible by virtue of the Secretary’s failure to

13 rule).

14 ‘‘(c) EFFECTIVE DATES OF ALTERNATIVE METH15 OD.—An alternative method ruled permissible or permis16 sible by virtue of the Secretary’s failure to rule shall be

17 effective indefinitely and may take effect as early as the

18 month after the alternative method becomes permissible.

19 The Secretary may, however, after an investigation, audit,

20 or otherwise, subsequently rule on his own initiative that

21 the method is not permissible. Such subsequent ruling

22 shall be prospective in effect and not take effect until the

23 latter of—

24 ‘‘(1) the first day of the calendar year following

25 the ruling, or
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1 ‘‘(2) 120 days after the ruling.

2 If judicial review is sought pursuant to subsection (d), said

3 subsequent ruling shall not take effect until a final judg4 ment is rendered by the court.

5 ‘‘(d) JUDICIAL REVIEW.—A ruling by the Secretary

6 with respect to a petition for use of an alternative method

7 pursuant to subsection (a) shall be subject to judicial re8 view in any court of competent jurisdiction, provided, how9 ever, that the standard of review shall be whether the peti10 tioner establishes by clear and convincing evidence that

11 the decision of the Secretary should be reversed.

12 ‘‘(e) REGULATIONS.—The Secretary may provide by

13 regulation permissible alternative methods for calculating

14 tax due including methods based on annual flows of rev15 enue and expense.

16 ‘‘SEC. 27. BASIC INTEREST RATE.

17 ‘‘For purposes of this subchapter, the basic interest

18 rate with respect to a debt instrument, investment, financ19 ing lease, or account shall be the applicable interest rate

20 (as determined in section 28). For debt instruments, in21 vestments, or accounts of contractually fixed interest, the

22 applicable interest rate of the month of issuance shall

23 apply. For debt instruments, investments, or accounts of

24 variable interest rates and which have no reference inter25 est rate, the applicable interest rate shall be the Federal
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1 short-term interest rate for each month. For debt instru2 ments, investments or accounts of variable interest rates

3 and which have a reference interest rate, the applicable

4 interest rate shall be the applicable interest rate for the

5 reference interest rate for each month.

6 ‘‘SEC. 28. APPLICABLE INTEREST RATE.

7 ‘‘(a) IN GENERAL.—

8 ‘‘(1) In the case of a debt instrument, invest9 ment, financing lease, or account with a term of not

10 over 3 years, the applicable interest rate is the Fed11 eral short-term rate.

12 ‘‘(2) In the case of a debt instrument, invest13 ment, financing lease, or account with a term of over

14 3 years but not over 9 years, the applicable interest

15 rate is the Federal mid-term rate.

16 ‘‘(3) In the case of a debt instrument, invest17 ment, financing lease, or account with a term of over

18 9 years, the applicable interest rate is the Federal

19 long-term rate.

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

21 short-term rate shall be the rate determined by the Sec22 retary based on the average market yield (during any 1

23 month) on outstanding marketable obligations of the

24 United States with remaining periods to maturity of 3

25 years or less.
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1 ‘‘(c) FEDERAL MID-TERM RATE.—The Federal mid2 term rate determined by the Secretary based on the aver3 age market yield (during any 1 month) on outstanding

4 marketable obligations of the United States with remain5 ing periods to maturity of more than 3 years and not over

6 9 years.

7 ‘‘(d) FEDERAL LONG-TERM RATE.—The Federal

8 long-term rate shall be the rate determined by the Sec9 retary based on the average market yield (during any 1

10 month) on outstanding marketable obligations of the

11 United States with remaining periods to maturity of over

12 9 years.

13 ‘‘(e) DETERMINATION OF RATES.—During each cal14 endar month, the Secretary shall determine the Federal

15 short-term rate, the Federal mid-term rate, and the Fed16 eral long-term rate which shall apply during the following

17 calendar month.

18 ‘‘Subchapter D—Authority for States to

19 Collect Tax

‘‘Sec. 31. Authority for States to collect tax.

‘‘Sec. 32. Federal administrative support for States.

‘‘Sec. 33. Federal administration option for multi-State vendors.

‘‘Sec. 34. General administrative matters.

20 ‘‘SEC. 31. AUTHORITY FOR STATES TO COLLECT TAX.

21 ‘‘(a) IN GENERAL.—The tax imposed by this chapter

22 on gross payments for the use, consumption or enjoyment

23 of taxable property or services within a State which is an
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1 administering State shall be administered, collected, and

2 remitted to the United States Treasury by such State.

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

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

5 ‘‘(1) which maintains a conforming sales tax,

6 and

7 ‘‘(2) which enters into a cooperative agreement

8 with the Secretary containing reasonable provisions,

9 limited in scope and detail, governing the adminis10 tration by such State of the taxes imposed by this

11 chapter and the remittance to the United States in

12 a timely manner of taxes collected under this chap13 ter.

14 ‘‘(c) CONFORMING SALES TAX.—For purposes of

15 subsection (b), a State maintains a conforming sales tax

16 if such State imposes, administers, and collects a sales

17 tax—

18 ‘‘(1) which conforms to the tax imposed by this

19 chapter in all significant respects (other than the

20 rate of tax), including—

21 ‘‘(A) the same taxable property and serv22 ices,

23 ‘‘(B) the same exemptions, and

24 ‘‘(C) the same credits and refunds (other

25 than section 11(a)(4) (relating to the taxpayer
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1 administrative credit) and section 13 (relating

2 to the family consumption refund)), and

3 ‘‘(2) which is imposed at a rate of no less than

4 1 percent.

5 ‘‘(d) COOPERATIVE AGREEMENTS.—The agreement

6 under subsection (b)(2) shall be limited in scope and detail

7 but include provisions for the expeditious transfer of

8 funds, contact officers, dispute resolution, information ex9 change, confidentiality, taxpayer rights, and other matters

10 of importance.

11 ‘‘(e) TIMELY REMITTANCE OF TAX.—

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

13 remit and pay over taxes collected under this chap14 ter on behalf of the United States (less the adminis15 tration fee allowable under paragraph (2)) no later

16 than 15 days after receipt.

17 ‘‘(2) ADMINISTRATION FEE.—Administering

18 States may retain an administration fee equal to one

19 percent of the amounts otherwise required to be re20 mitted to the United States under this chapter by

21 the State.

22 ‘‘(f) LIMITATION ON ADMINISTRATION OF TAX BY

23 UNITED STATES.—The Secretary may administer the tax

24 imposed by this chapter in an administering State only

25 if—
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1 ‘‘(1)(A) such State has failed on a regular and

2 sustained basis to timely remit to the United States

3 taxes collected under this chapter on behalf of the

4 United States, or

5 ‘‘(B) such State has on a regular and sustained

6 basis otherwise materially breached the agreement

7 referred to in subsection (b)(2),

8 ‘‘(2) the State has failed to cure such failures

9 and alleged breaches within a reasonable time,

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

11 written notice of such failures and alleged breaches,

12 and

13 ‘‘(4) a district court of the United States within

14 such State has rendered a decision permitting such

15 administration.

16 ‘‘(g) The Secretary shall administer the tax imposed

17 by this chapter in any State or other jurisdiction that is

18 not an administering State.

19 ‘‘(h) It shall be permissible for a conforming State

20 to contract with another conforming State to administer

21 its sales tax for an agreed fee. In this case, the agreement

22 contemplated by subsection (d) shall have both States and

23 the Federal Government as parties.

24 ‘‘(i) COORDINATION AMONG CONFORMING STATES.—
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1 ‘‘(1) EXEMPTION CERTIFICATES.—Conforming

2 States shall honor exemption certificates issued by

3 other conforming States.

4 ‘‘(2) AUDITS.—Conforming States shall not

5 conduct audits at facilities in other Conforming

6 States but shall instead cooperate with other Con7 forming States using the mechanisms established by

8 section 32 of this subchapter or by other agreement

9 or Compact.

10 ‘‘SEC. 32. FEDERAL ADMINISTRATIVE SUPPORT FOR

11 STATES.

12 ‘‘(a) The Secretary shall administer a program to fa13 cilitate information sharing among States.

14 ‘‘(b) The Secretary shall facilitate and may be a party

15 to a Compact Among Conforming States for purposes of

16 facilitating the taxation of interstate purchases and for

17 other purposes that may facilitate implementation of this

18 chapter.

19 ‘‘(c) The Secretary shall have the authority to pro20 mulgate regulations and guidelines to assist States in ad21 ministering the national sales tax, to provide for uni22 formity in the administration of the tax and to provide

23 guidance to taxpayers and administrators.
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1 ‘‘SEC. 33. FEDERAL ADMINISTRATION OPTION FOR

2 MULTISTATE VENDORS.

3 ‘‘(a) IN GENERAL.—Vendors that maintain retail es4 tablishments in five or more conforming States may elect,

5 in a form prescribed by the Secretary, to have their sales

6 tax obligations administered by the Federal Government

7 under the multistate vendor program.

8 ‘‘(b) FEDERAL GOVERNMENT TO COLLECT AND

9 REMIT STATE SALES TAXES.—Under the multistate ven10 dor program, the Federal Government will collect Federal

11 and conforming State sales taxes and remit the State sales

12 taxes to the States within 10 days of receiving said rev13 enue.

14 ‘‘(c) FEDERAL ADMINISTRATION.—The Federal Gov15 ernment will serve in the place of the State Administrator

16 with respect to multi-State vendors exercising the election

17 under this section. With respect to electing multi-State

18 vendors, the Federal Government exclusively will—

19 ‘‘(1) audit;

20 ‘‘(2) provide certificates; and

21 ‘‘(3) otherwise administer the Federal and con22 forming State sales tax in place of the administering

23 State.

24 ‘‘SEC. 34. GENERAL ADMINISTRATIVE MATTERS.

25 ‘‘(a) IN GENERAL.—The Secretary and each State

26 Administrator may employ accountants, auditors, inves-
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1 tigators, assistants, and clerks for the administration of

2 this subtitle and may delegate to employees the authority

3 to conduct interviews, hearings, prescribe rules, promul4 gate regulations, and perform such other duties as are re5 quired by this subtitle.

6 ‘‘(b) RESOLUTION OF ANY INCONSISTENT RULES

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

8 any State Administrator have issued inconsistent rules or

9 regulations, the rule or regulation issued by the Secretary

10 shall govern provided that the Secretary possessed the

11 statutory authority to issue the rule or regulation.

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

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

14 not his designee), no rule or regulation issued by the Sec15 retary with respect to any internal revenue law shall take

16 effect before 90 days have elapsed after its publication in

17 the Federal Register. Upon issuance, the Secretary shall

18 provide copies of all rules or regulations issued under this

19 title to each sales tax administering authority.

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

21 RETROACTIVE EFFECT.—

22 ‘‘(1) IN GENERAL.—No rule, ruling, or regula23 tion issued or promulgated by the Secretary relating

24 to any internal revenue law or by a State Adminis25 trator that constitutes a change in law (including a
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1 reversal of prior law and new law) shall be retro2 active in effect.

3 ‘‘(2) Notwithstanding paragraph (1), a rule,

4 ruling, or regulation that provides guidance or clari5 fies existing law may lawfully apply to cases prior to

6 its issuance.

7 ‘‘(3) For purposes of this subsection, the term

8 ‘law’ includes State and Federal statutes, regula9 tions, rules, rulings, and court decisions.

10 ‘‘(4) A rule, ruling, or regulation issued in con11 travention to paragraph (1) shall be void as to tax12 able events arising prior to the issuance of such rule,

13 ruling, or regulation.

14 ‘‘(5) REVIEW OF IMPACT OF RULES, RULINGS,

15 AND REGULATIONS ON SMALL BUSINESS.—

16 ‘‘(A) SUBMISSION TO SMALL BUSINESS AD17 MINISTRATION.—After publication of any pro18 posed or temporary regulation by the Secretary

19 relating to internal revenue laws, the Secretary

20 shall submit such regulation to the Chief Coun21 sel for Advocacy of the Small Business Admin22 istration for comment on the impact of such

23 regulation on small businesses. Not later than

24 the date 4 weeks after the date of such submis25 sion, the Chief Counsel for Advocacy of the
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1 Small Business Administration shall submit

2 comments on such regulation to the Secretary.

3 ‘‘(B) CONSIDERATION OF COMMENTS.—In

4 prescribing any final regulation which super5 sedes a proposed or temporary regulation which

6 had been submitted under this subsection to the

7 Chief Counsel for Advocacy of the Small Busi8 ness Administration, the Secretary shall—

9 ‘‘(i) consider the comments of the

10 Chief Counsel for Advocacy of the Small

11 Business Administration on such proposed

12 or temporary regulation, and

13 ‘‘(ii) discuss any response to such

14 comments in the preamble to the regula15 tion.

16 ‘‘(C) SUBMISSION OF CERTAIN FINAL REG17 ULATIONS.—In the case of promulgation by the

18 Secretary of any final regulations (other than a

19 temporary regulation) which do not supersede a

20 proposed regulation, the requirements of sub21 paragraphs (A) and (B) shall apply, except that

22 the submission under subparagraph (A) shall be

23 made at least 4 weeks before the date of such

24 promulgation, and the consideration and discus25 sion required under subparagraph (B) shall be
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1 made in connection with the promulgation of

2 such final regulation.

3 ‘‘Subchapter E—Other Administrative

4 Provisions

‘‘Sec. 41. Monthly reports and payments.

‘‘Sec. 42. Records.

‘‘Sec. 43. Registration.

‘‘Sec. 44. Certificates.

‘‘Sec. 45. Penalties.

‘‘Sec. 46. Burden of persuasion and burden of production.

‘‘Sec. 47. Attorneys and accountancy fees.

‘‘Sec. 48. Appeals.

‘‘Sec. 49. Taxpayer subject to subpoena on production.

‘‘Sec. 50. Tax Court jurisdiction.

‘‘Sec. 51. Power to levy.

‘‘Sec. 52. Problem resolution officers.

‘‘Sec. 53. Jurisdiction and interstate allocation.

‘‘Sec. 54. Tax to be separately stated and charged.

‘‘Sec. 55. Installment agreements; compromises.

‘‘Sec. 56. Accounting.

‘‘Sec. 57. Hobby activities.

5 ‘‘SEC. 41. MONTHLY REPORTS AND PAYMENTS.

6 ‘‘(a) REPORTS.—On or before the 20th of each

7 month, every person who is liable to collect and remit the

8 tax imposed by this chapter, or pay the tax imposed by

9 this chapter by reason of gross payments described in sec10 tion (1) (hereafter in this section referred to as the ‘tax11 payer’), shall submit to the appropriate tax authority (in

12 a form satisfactory to the Secretary) a report relating to

13 the previous month that sets forth—

14 ‘‘(1) the gross payments referred to in section

15 1,

16 ‘‘(2) the tax collected under this chapter in con17 nection with such payments, and
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1 ‘‘(3) the amount and type of any credit claimed.

2 ‘‘(b) PAYMENTS OF TAX.—The tax imposed by this

3 chapter with respect to any use, consumption or enjoy4 ment during any month shall be paid on or before the 20th

5 of the succeeding month. One payment shall pay both Fed6 eral and conforming State tax liability.

7 ‘‘(c) INTEREST ON AMOUNTS REMITTED LATE.—

8 ‘‘(1) IN GENERAL.—If any amount required to

9 be paid on or before the 20th of any month is paid

10 after such 20th day, the taxpayer shall pay simple

11 interest from such 20th day at the rate of—

12 ‘‘(A) 1 percent per month (or any fraction

13 thereof) for the first month, and

14 ‘‘(B) 1.5 percent per month (or any frac15 tion thereof) thereafter.

16 ‘‘(2) AMOUNTS PAID AFTER COLLECTION AC17 TION.—

18 ‘‘(A) IN GENERAL.—The rate of interest

19 under paragraph (1) shall be 2 percent per

20 month (or any fraction thereof) with respect to

21 amounts paid only after the commencement of

22 a collection action with respect to such

23 amounts.

24 ‘‘(B) COLLECTION ACTION.—For purposes

25 of subparagraph (A), the term ‘collection ac-
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1 tion’ includes administrative levies or garnish2 ments and the commencement of legal action in

3 any court.

4 ‘‘(d) PENALTY FOR LATE FILING.—

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

6 any person to file a report required by subsection (a)

7 on or before due date (determined with regard to

8 any extension) for such report, such person shall pay

9 a penalty equal to the greater of—

10 ‘‘(A) $50, or

11 ‘‘(B) 0.5 percent of the gross payments re12 ferred to in section 1 required to be shown on

13 the report.

14 ‘‘(2) INCREASED PENALTY ON RETURNS FILED

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

18 respect to such report is received by the taxpayer

19 from the State Administrator.

20 ‘‘(3) EXCEPTIONS.—

21 ‘‘(A) REASONABLE CAUSE.—No penalty

22 shall be imposed under paragraph (1) with re23 spect to any failure if it is shown that such fail24 ure is due to reasonable cause.
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1 ‘‘(B) OTHER WAIVER AUTHORITY.—In ad2 dition to penalties not imposed by reason of

3 subparagraph (A), the State Administrator, on

4 application, shall waive the penalty imposed by

5 paragraph (1) once per taxpayer per 2-year pe6 riod. The preceding sentence shall not apply to

7 a penalty determined under paragraph (2).

8 ‘‘(e) EXTENSIONS FOR FILING REPORTS.—

9 ‘‘(1) AUTOMATIC EXTENSIONS FOR LESS THAN

10 30 DAYS.—On application, extensions of less than 30

11 days to file reports under subsection (a) shall be

12 automatically granted.

13 ‘‘(2) OTHER EXTENSIONS.—Extensions of 30 to

14 90 days to file such reports shall be liberally granted

15 by the State Administrator for reasonable cause. Ex16 tensions greater than 90 days may be granted by the

17 State Administrator to avoid hardship.

18 ‘‘(3) NO EXTENSION FOR PAYMENT OF

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

20 no extension shall be granted with respect to the

21 time for paying the taxes under this chapter.

22 ‘‘(f) PENALTY FOR WILLFULLY OR RECKLESSLY AC23 CEPTING A FALSE EXEMPTION CERTIFICATE.—A person

24 who willingly or recklessly accepts a false exemption cer25 tificate shall pay a penalty equal to 20 percent of the tax
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1 not collected on gross payments for taxable property and

2 services by virtue of said acceptance.

3 ‘‘(g) The Secretary shall establish a system whereby

4 violation of the National Retail Sales Tax Act of 1999 can

5 be brought to the attention of the Secretary for investiga6 tion through the use of a toll-free telephone number and

7 otherwise.

8 ‘‘SEC. 42. RECORDS.

9 ‘‘Any person liable to collect and remit taxes pursu10 ant to this chapter or pay the tax imposed by this chapter

11 by reason of gross payments described in section 1, shall

12 keep records (including, but not limited to, copies of all

13 section 54 receipts provided and complete records of ex14 empt purchases including exempt purchaser’s exemption

15 certificates and tax number and the net of tax amount

16 of purchase) sufficient to provide a reasonable basis for

17 determining the amounts reported, collected, and remitted

18 for a period of 3 years after the filing of the report for

19 which the records formed the basis. Any purchaser who

20 purchased taxable property or services but did not pay tax

21 by reason of asserting an exemption shall keep records

22 sufficient to provide a reasonable basis for determining

23 whether the exemption was valid for a period of 3 years

24 after the purchase of taxable property or services.
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1 ‘‘SEC. 43. REGISTRATION.

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

3 remit taxes pursuant to section 1 who is engaged in an

4 active trade or business shall register with the State or

5 Federal taxing authorities administering the taxes im6 posed by this chapter.

7 ‘‘(b) DESIGNATION OF TAX MATTERS PERSON.—

8 Every person registered pursuant to subsection (a) shall

9 designate a tax matters person. Each person registered

10 must provide notice of a change in the identity of the tax

11 matters person within 30 days of said change.

12 ‘‘SEC. 44. CERTIFICATE.

13 ‘‘The State Administrator shall issue certificates of

14 registration and qualification certificates to qualified not15 for-profit organizations and may issue such other certifi16 cates as may prove useful in the administration of the

17 taxes imposed by this chapter.

18 ‘‘SEC. 45. PENALTIES.

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

20 required to register pursuant to section 43 but fails to do

21 so prior to notification by the State Administrator shall

22 be liable for a penalty of $500.

23 ‘‘(b) FAILURE TO COLLECT OR REMIT TAX.—

24 ‘‘(1) CIVIL PENALTY.—Each person who reck25 lessly or willfully fails to collect or remit taxes im26 posed by section 1 shall be liable for a penalty equal
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1 to the greater of $500 or 20 percent of the tax not

2 collected or remitted.

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

4 willfully fails as part of an active trade or business

5 to collect or remit taxes imposed by this chapter

6 may be imprisoned for a period of up to one year.

7 ‘‘(c) FAILURE TO PAY TAX.—

8 ‘‘(1) CIVIL PENALTY.—Each person who will9 fully fails to pay taxes imposed by section 1 shall be

10 liable for a penalty equal to the greater of $500 or

11 20 percent of the tax not paid.

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

13 willfully fails to pay taxes imposed by this chapter

14 may be imprisoned for a period of up to six months.

15 ‘‘SEC. 46. BURDEN OF PERSUASION AND BURDEN OF PRO16 DUCTION.

17 ‘‘In all disputes concerning taxes imposed by this

18 chapter, the person engaged in a dispute with the State

19 Administrator shall have the burden of production of doc20 uments and records but the State Administrator shall

21 have the burden of persuasion. In all disputes concerning

22 the legitimacy of an exemption claimed by a purchaser,

23 if the seller has on file a copy of a bona fide exemption

24 certificate and did not have reasonable cause to believe

25 that an exemption from the tax was unavailable to the
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1 purchaser with respect to such purchase, then the burden

2 of production of documents and records relating to that

3 exemption shall rest with the purchaser and not with the

4 seller.

5 ‘‘SEC. 47. ATTORNEYS AND ACCOUNTANCY FEES.

6 ‘‘In all disputes concerning taxes imposed by this

7 chapter, the person engaged in a dispute with the State

8 Administrator or the Secretary, as the case may be, shall

9 be entitled to reasonable attorneys and accountancy fees

10 incurred in direct relation to the dispute unless the State

11 Administrator or the Secretary, as the case may be, estab12 lishes that his position was substantially justified.

13 ‘‘SEC. 48. APPEALS.

14 ‘‘The State Administrator and the Secretary shall es15 tablish an administrative appeals process wherein the tax16 payer is provided a full and fair hearing in connection with

17 any disputes he has with the State Administrator or the

18 Secretary.

19 ‘‘SEC. 49. TAXPAYER SUBJECT TO SUBPOENA ON PRODUC20 TION.

21 ‘‘Taxpayers are subject to subpoena for records and

22 documents required by the State Administrator or the Sec23 retary, as the case may be, to accurately determine liabil24 ity for tax under this chapter.
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1 ‘‘SEC. 50. TAX COURT JURISDICTION.

2 ‘‘The United States Tax Court shall have jurisdiction

3 pursuant to section 7442 in connection with all disputes

4 with taxpayers arising under this chapter.

5 ‘‘SEC. 51. POWER TO LEVY.

6 ‘‘Pursuant to enforcement of a judgment duly ren7 dered by a court of law, the State Administrator or the

8 Secretary, as the case may be, shall have the right to levy

9 and seize property and garnish wages to collect amounts

10 due under this chapter.

11 ‘‘SEC. 52. PROBLEM RESOLUTION OFFICERS.

12 ‘‘The State Administrator shall establish a Problem

13 Resolution Office. Problem Resolution Officers shall have

14 the authority to investigate taxpayer complaints and en15 join collection activity if, in the opinion of the Problem

16 Resolution Officer, said collection activity is reasonably

17 likely to not be in compliance with law. Said administra18 tive injunction may only be reversed by the highest official

19 in the relevant State or Federal taxing authority or by

20 its General Counsel upon a finding that the collection ac21 tivity is justified by clear and convincing evidence. The

22 authority to reverse this administrative injunction may not

23 be delegated. Problem Resolution Officers shall not be dis24 ciplined or adversely affected for the issuance of adminis25 trative injunctions unless a pattern or issuing injunctions

26 that are manifestly unreasonable is proven in an adminis-
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1 trative hearing. Nothing in this section shall limit the au2 thority of the State Administrators or the taxpayer to pur3 sue any legal remedy in any court with jurisdiction over

4 the dispute at issue.

5 ‘‘SEC. 53. JURISDICTION AND INTERSTATE ALLOCATION.

6 ‘‘(a) ALLOCATION RULES.—For purposes of allo7 cating revenue between or among administering states

8 from taxes imposed by this subtitle, the revenue shall be

9 allocated to those states that are the destination of the

10 taxable property or services. The destination of the pur11 chase of taxable property and services shall be determined

12 in accordance with this section.

13 ‘‘(b) FEDERAL OFFICE OF REVENUE ALLOCATION.—

14 The Secretary shall establish an Office of Revenue Alloca15 tion to arbitrate any claims or disputes among admin16 istering states as to the destination of taxable property

17 and services for purposes of allocating revenue between or

18 among the states from taxes imposed by this subtitle. The

19 determination of the Administrator of the Office of Rev20 enue Allocation shall be subject to judicial review in any

21 federal court with competent jurisdiction provided, how22 ever, that the standard of review shall be abuse of discre23 tion.

24 ‘‘(c) TANGIBLE PERSONAL PROPERTY.—The destina25 tion of tangible personal property shall be the state or ter-
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1 ritory in which the property was first delivered to the pur2 chaser. Tangible personal property shipped by means of

3 the mail or common carrier shall be deemed delivered to

4 the location of the purchaser for purposes of this sub5 section upon shipment by mail or common carrier.

6 ‘‘(d) REAL PROPERTY.—The destination of real prop7 erty or rents or leaseholds on real property shall be state

8 or territory in which the real property is located.

9 ‘‘(e) OTHER PROPERTY.—The destination of other

10 property shall be residence of the purchaser.

11 ‘‘(f) SERVICES.—

12 ‘‘(1) GENERAL RULE.—The destination of serv13 ices shall be state or territory in which the use, con14 sumption or enjoyment of the services occurred. Al15 location of service invoices relating to more than one

16 jurisdiction shall be on the basis of time.

17 ‘‘(2) TELECOMMUNICATIONS SERVICES.—The

18 destination of telecommunications services shall be

19 the residence of the purchaser. Telecommunications

20 services shall include telephone, telegraph, cable tele21 vision, satellite and computer on-line or network

22 services.

23 ‘‘(3) DOMESTIC TRANSPORTATION SERVICES.—

24 For transportation services where all of the final

25 destinations are within the United States, the des-
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1 tination of transportation services shall be the final

2 destination of the trip (in the case of round or mul3 tiple trip fares, the services amount shall be equally

4 allocated among the final destinations).

5 ‘‘(4) INTERNATIONAL TRANSPORTATION SERV6 ICES.—For transportation services where the final

7 destination or origin of the trip is without the

8 United States, the service amount shall be deemed

9 50 percent attributable to the United States destina10 tion or origin.

11 ‘‘(g) FINANCIAL INTERMEDIATION SERVICES.—The

12 destination of financial intermediation services shall be the

13 residence of the purchase.

14 ‘‘(h) A State Tax Administrator shall have jurisdic15 tion over any gross payments made which have a destina16 tion (as determined in accordance with this section) within

17 the state of said State Tax Administrator. This grant of

18 jurisdiction is not exclusive of other jurisdiction that said

19 State Tax Administrator may have.

20 ‘‘(i) RENTS AND ROYALTIES PAID FOR THE LEASE

21 OF TANGIBLE PROPERTY.—

22 ‘‘(1) GENERAL RULE.—The destination of rents

23 and royalties paid for the lease of tangible property

24 shall be where the property is located.
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1 ‘‘(2) VEHICLES.—The destination of rent and

2 lease payments on vehicles shall be—

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

4 term one month or less, the location where the

5 vehicle was originally delivered to the lessee;

6 and

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

8 term greater than one month, the residence of

9 the lessee.

10 ‘‘SEC. 54. TAX TO BE STATED AND CHARGED SEPARATELY.

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

12 property or services for which a tax is imposed pursuant

13 to section 1, the sales tax shall be charged separately from

14 the purchase price by the vendor or seller. For purchase

15 of taxable property or services for which a tax is imposed

16 pursuant to section 1, the vendor shall provide to the pur17 chaser a receipt that sets forth at least the following infor18 mation:

19 ‘‘(1) The property or services price exclusive of

20 tax.

21 ‘‘(2) The amount of tax paid.

22 ‘‘(3) The property or service price inclusive of

23 tax.
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1 ‘‘(4) The tax rate (the amount of tax paid (per

2 subparagraph 2) divided by the property or service

3 price inclusive of tax (per subparagraph 3)).

4 ‘‘(5) The date that the good or service was sold.

5 ‘‘(6) The name of the vendor.

6 ‘‘(7) The vendor registration number.

7 ‘‘(b) VENDING MACHINE EXCEPTION.—The require8 ments of subsection (a) shall be inapplicable in the case

9 of sales by vending machines. Vending machines for pur10 poses of this subsection shall mean machines—

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

12 for coins, one, five, ten or twenty dollar bills, and

13 ‘‘(2) that sell no single item exceeding ten dol14 lars per unit in price.

15 ‘‘SEC. 55. INSTALLMENT AGREEMENTS; COMPROMISES.

16 ‘‘The State Administrator or the Secretary, as the

17 case may be, is authorized to enter into written agree18 ments with any person under which the person is allowed

19 to satisfy liability for payment of any tax in installment

20 payments if he determines that such agreement will facili21 tate the collection of such liability. The agreement shall

22 remain in effect for the term of the agreement unless the

23 information that the person provided to the Secretary or

24 the State Administrator was materially inaccurate or in-
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1 complete. The Secretary and the State Administrator may

2 compromise any amounts alleged to be due.

3 ‘‘SEC. 56. ACCOUNTING.

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

5 Vendors and other persons shall remit taxes and report

6 transactions with respect to the month for which payment

7 was received or the tax imposed by this chapter otherwise

8 becomes due.

9 ‘‘(b) ELECTION TO USE ACCRUAL METHOD.—A per10 son may elect with respect to a calendar year, in a form

11 prescribed by the Secretary, to remit taxes and report

12 transactions with respect to the month where a sale was

13 invoiced and accrued.

14 ‘‘(c) CROSS REFERENCE.—

‘‘For rules relating to bad debts for vendors electing the accrual method, see section 11(g).

15 ‘‘SEC. 57. HOBBY ACTIVITIES.

16 ‘‘(a) The exemption afforded by section 2(a)(1) shall

17 not be available for any taxable property or service used

18 by a trade or business if that trade or business is not en19 gaged in for profit.

20 ‘‘(b) If the trade or business has received gross pay21 ments for the sale of taxable property or services that ex22 ceed the sum of—

23 ‘‘(1) taxable property and services purchased,

24 ‘‘(2) wages paid, and
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1 ‘‘(3) taxes paid,

2 in 2 or more of the most recent 4 calendar years during

3 which it operated, then the business activity shall be con4 clusively deemed to be engaged in for profit.’’.

5 SEC. 5. PHASE-OUT OF THE INTERNAL REVENUE SERVICE.

6 (a) Appropriations for any expenses of the Internal

7 Revenue Service including processing income tax returns

8 for years prior to the repeal of the income tax, revenue

9 accounting, management, transfer of payroll tax data to

10 the Social Security Administration and otherwise for years

11 after fiscal year 2003 are not authorized.

12 (b) Section 7801 is amended by adding the following

13 new subsections:

14 ‘‘(d) EXCISE TAX BUREAU.—There shall be in the

15 Department of Treasury an Excise Tax Bureau to admin16 ister those excise taxes not repealed by this Act.

17 ‘‘(e) SALES TAX BUREAU.—There shall be in the De18 partment of Treasury a Sales Tax Bureau to administer

19 the national sales tax in those States where it is required

20 pursuant to section 31(g), and to discharge other Federal

21 duties and powers relating to the national sales tax (in22 cluding those required by sections 32, 33, and 53(b)). The

23 Office of Revenue Allocation shall be within the Sales Tax

24 Bureau.’’.

25 (c) Section 7801(b)(2) is amended to read as follows:
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1 ‘‘(2) ASSISTANT GENERAL COUNSELS.—The

2 Secretary of the Treasury may appoint, without re3 gard to the provisions of the civil service laws, and

4 fix the duties of not more than 5 Assistant General

5 Counsel.’’.

6 (d) SHORT YEAR.—

7 (1) For purposes of the Federal income tax, the

8 tax imposed by section 1 and section 11 for taxable

9 years ending June 30, 2001, shall be modified as set

10 forth in this subsection.

11 (2) For calendar year taxpayers, the dollar fig12 ures in section 1 and section 11 shall be reduced by

13 dividing by 2 all dollar figures that would be applica14 ble but for this subsection.

15 (3) For fiscal year taxpayers, the dollar figures

16 in section 1 and section 11 shall be equal to the

17 product of—

18 (A) the dollar amount that would be appli19 cable but for this subsection, and

20 (B) the ratio that has as its numerator the

21 number of months in the taxpayer’s taxable

22 year ending June 30, 2001, and as its denomi23 nator 12.

24 (4) The Secretary shall publish tax rate sched25 ules in accordance with this subsection.
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1 SEC. 6. SOCIAL SECURITY ADMINISTRATION TO COLLECT

2 PAYROLL TAXES.

3 (a) Commencing January 1, 2001, the Social Secu4 rity Administration shall collect and administer the taxes

5 imposed pursuant to chapter 2 of subtitle A (relating to

6 self employment income taxes) and subtitle C (relating to

7 employment taxes) of the Internal Revenue Code of 1986.

8 (b) CROSS REFERENCES.—

For revised rules relating to the self-employment

tax, see section 7 of this Act.

For rules relating to revised withholding tax

schedules and family consumption refund, see section 13.

9 SEC. 7. SELF-EMPLOYMENT TAX.

10 (a) Subsection 1402(a) of the Internal Revenue Code

11 of 1986 is amended to read as follows:

12 ‘‘(a) IN GENERAL.—‘Self employment income’ shall

13 mean gross payments received in a calendar year from the

14 sale of taxable property or services (without regard to ex15 emption) less the sum in a calendar year of—

16 ‘‘(1) purchases of taxable property or services

17 (without regard to exemption) in furtherance of a

18 business purpose,

19 ‘‘(2) any wages paid (whether to the self-em20 ployed person or others) in furtherance of a business

21 purpose,

22 ‘‘(3) unused transition amounts, and
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1 ‘‘(4) undeducted negative self employment in2 come amounts from prior periods.

3 ‘‘(b) TRANSITION AMOUNTS.—

4 ‘‘(1) GENERAL RULE.—The transition amount

5 for the ten calendar years commencing in 2001 shall

6 be the unrecovered basis amount as of the end of

7 December 31, 2000 divided by ten.

8 ‘‘(2) UNRECOVERED BASIS AMOUNT.—The un9 recovered basis amount shall be remaining income

10 tax basis relating to—

11 ‘‘(A) prior law section 167 property placed

12 in service prior to January 1, 2001, and

13 ‘‘(B) inventory held as of the end of 2000

14 (including any amounts capitalized in accord15 ance with prior law section 263A).’’.

16 (b) CONFORMING AMENDMENTS.—Subsections

17 1402(b) and 1402(c) are hereby repealed. Subsections

18 1402(d) et seq. are hereby renumbered as subsections

19 1402(b) et seq.

20 SEC. 8. SOCIAL SECURITY BENEFITS INDEXED ON SALES

21 TAX INCLUSIVE BASIS.

22 Subparagraph (D) of paragraph (1) of subsection (i)

23 of section 215 of the Social Security Act (42 U.S.C. 415)

24 (relating to cost-of-living increases in Social Security bene25 fits) is amended to read as follows:
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1 ‘‘(D)(i) the term ‘CPI increase percentage’,

2 with respect to a base quarter or cost-of-living quar3 ter in any calendar year, means the percentage

4 (rounded to the nearest one-tenth of 1 percent) by

5 which the Consumer Price Index for that quarter (as

6 prepared by the Department of Labor) exceeds such

7 index for the most recent prior calendar quarter

8 which was a base quarter under subparagraph

9 (A)(ii) or, if later, the most recent cost-of-living

10 computation quarter under subparagraph (B);

11 ‘‘(ii) if the Consumer Price Index (as prepared

12 by the Department of Labor) does not include the

13 national sales tax paid, then the term ‘CPI increase

14 percentage’ with respect to a base quarter or cost15 of-living quarter in any calendar year, means the

16 percentage (rounded to the nearest one-tenth of 1

17 percent) by which the product of—

18 ‘‘(I) the Consumer Price Index for that

19 quarter (as prepared by the Department of

20 Labor); and

21 ‘‘(II) the national sales tax factor,

22 exceeds such index for the most recent prior cal23 endar quarter which was a base quarter under sub24 paragraph (A)(ii) or, if later, the most recent cost-
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1 of-living computation quarter under subparagraph

2 (B); and

3 ‘‘(iii) for purposes of clause (ii), the ‘national

4 sales tax factor’ is equal to one plus the quotient

5 that is—

6 ‘‘(I) the sales tax rate (as defined in sec7 tion 1 of title 26), divided by

8 ‘‘(II) the quantity that is one minus the

9 sales tax rate.’’.

10 SEC. 9. COMPENSATING PAYMENTS TO CERTAIN PERSONS

11 ON FIXED INCOME.

12 (a) COMPENSATING PAYMENT.—Eligible persons (as

13 defined in subsection (c)) shall receive a compensating

14 payment (as defined in subsection (b)) provided that they

15 comply with subsection (g) (relating to applications).

16 (b) COMPENSATING PAYMENT DEFINED.—The term

17 ‘‘compensating payment’’ means the product of the quali18 fied fixed income payment amount (as defined in sub19 section (e)) and the excess inflation rate (as defined in

20 subsection (f)).

21 (c) ELIGIBLE PERSON DEFINED.—An eligible person

22 is any person with respect to any calendar year who is

23 entitled to—

24 (1) Social Security benefits; and
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1 (2) qualified fixed income payments (as defined

2 in subsection (d)).

3 (d) QUALIFIED FIXED INCOME PAYMENT DE4 FINED.—A qualified fixed income payment is a payment

5 received by—

6 (1) a beneficiary under a defined benefit plan

7 (within the meaning of section 414(j) of the Internal

8 Revenue Code as in effect prior to the enactment of

9 this Act) whether sponsored by a private or Govern10 ment employer; or

11 (2) by an annuitant pursuant to an annuity

12 contract between the annuitant and a bona fide in13 surance company.

14 A payment pursuant to a plan or annuity contract is not

15 a qualified fixed income payment if the payment varies

16 with investment performance, interest rates, or inflation.

17 Payments pursuant to an annuity contract entered into

18 after June 30, 2001, shall not be qualified fixed income

19 payments. Payments pursuant to a defined benefit plan

20 to a beneficiary that had been a participant in said defined

21 benefit plan (within the meaning of section 410 of the In22 ternal Revenue Code as in effect prior to the enactment

23 of this Act) for less than 5 years shall not be qualified

24 fixed income payments.
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1 (e) QUALIFIED FIXED INCOME PAYMENT

2 AMOUNT.—The qualified fixed income payment amount is

1 3 ⁄12 of qualified fixed income payments that an eligible

4 person is entitled to receive during the calendar year sub5 sequent to the year for which the compensating payment

6 is calculated, provided, however, that the qualified fixed

7 income payment amount shall not exceed $5,000.

8 (f) EXCESS INFLATION RATE DEFINED.—The term

9 ‘‘excess inflation rate’’ shall mean the excess, if any, of

10 the consumer price index (all urban) during the 18-month

11 period ending December 31, 2002, over the increase pro12 jected for the consumer price index (all urban) in the Of13 fice of Management and Budget baseline reported in the

14 Budget of the United States for Fiscal Year 2001 for said

15 18-month period. The baseline assumption for the 6

months in 2001 shall be 1 16 ⁄2 of the assumed increase for

17 the entire calendar year 2001.

18 (g) APPLICATION REQUIRED.—In order to receive

19 compensating payments, each eligible person must apply

20 in a form prescribed by the Secretary of Health and

21 Human Services and provide such documentation as the

22 Secretary may reasonably require.

23 (h) MEANS OF PAYMENT.—Each person entitled to

24 a compensating payment shall receive the compensating

25 payment with their Social Security benefit payment. The
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1 compensating payment shall be separately indicated but

2 may be included in one check. The funds to make compen3 sating payments shall come from the general fund.

4 (i) The Secretary of Health and Human Services may

5 require insurers that are parties to annuity contracts and

6 defined benefit plan sponsors to issue a statement to an7 nuitants or plan participants including such information

8 as the Secretary may require to determine the qualified

9 fixed income payment amount.

10 SEC. 10. INTEREST.

11 Section 6621 of the Internal Revenue Code of 1986

12 is amended by striking the last sentence in section

13 6621(a)(1) and by striking ‘‘3’’ in section 6621(a)(2)(B)

14 and substituting in its stead ‘‘2’’.

15 SEC. 11. SUPERMAJORITY REQUIRED TO RAISE RATE.

16 (a) IN GENERAL.—It shall not be in order in the

17 House of Representatives or the Senate to consider any

18 bill, joint resolution, amendment thereto, or conference re19 port thereon that includes any provision that—

20 (1) increases any federal sales tax rate, and

21 (2) provides any exemption, deduction, credit or

22 other benefit which results in a reduction in federal

23 revenues.

24 (b) WAIVER OR SUSPENSION.—This section may be

25 waived or suspended in the House of Representatives or
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1 the Senate only by the affirmative vote of two-thirds of

2 the Members, duly chosen and sworn.

Æ