II 

110TH CONGRESS 

1ST SESSION S. 1025 

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

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

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

States. 

IN THE SENATE OF THE UNITED STATES 

MARCH 29, 2007 

Mr. CHAMBLISS (for himself, Mr. ISAKSON, Mr. CORNYN, and Mr. COBURN) 

introduced the following bill; which was read twice and referred to the 

Committee on Finance 

A BILL 

To promote freedom, fairness, and economic opportunity by 

repealing the income tax and other taxes, abolishing the 

Internal Revenue Service, and enacting a national sales 

tax to be administered primarily by the States. 

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

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 

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

5 ‘‘Fair Tax Act of 2007’’. 

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

7 this Act is as follows: 


bajohnson on PROD1PC60 with BILLS
2 

•S 1025 IS

Sec. 1. Short title; table of contents. 

Sec. 2. Congressional findings. 

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

ESTATE AND GIFT TAXES 

Sec. 101. Income taxes repealed. 

Sec. 102. Payroll taxes repealed. 

Sec. 103. Estate and gift taxes repealed. 

Sec. 104. Conforming amendments; effective date. 

TITLE II—SALES TAX ENACTED 

Sec. 201. Sales tax. 

Sec. 202. Conforming and technical amendments. 

TITLE III—OTHER MATTERS 

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 Phase-out of administration of repealed Federal taxes. 

Sec. 302. Administration of other Federal taxes. 

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

1 SEC. 2. CONGRESSIONAL FINDINGS. 

2 (a) FINDINGS RELATING TO FEDERAL INCOME

3 TAX.—Congress finds the Federal income tax— 

4 (1) retards economic growth and has reduced 

5 the standard of living of the American public; 

6 (2) impedes the international competitiveness of 

7 United States industry; 

8 (3) reduces savings and investment in the 

9 United States by taxing income multiple times; 

10 (4) slows the capital formation necessary for 

11 real wages to steadily increase; 

12 (5) lowers productivity; 

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

15 business taxpayers; 

16 (7) is unfair and inequitable; 


bajohnson on PROD1PC60 with BILLS
3 

•S 1025 IS

1 (8) unnecessarily intrudes upon the privacy and 

2 civil rights of United States citizens; 

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

5 (10) is not being complied with at satisfactory 

6 levels and therefore raises the tax burden on law 

7 abiding citizens; and 

8 (11) impedes upward social mobility. 

9 (b) FINDINGS RELATING TO FEDERAL PAYROLL

10 TAXES.—Congress finds further that the Social Security 

11 and Medicare payroll taxes and self-employment taxes— 

12 (1) raise the cost of employment; 

13 (2) destroy jobs and cause unemployment; and 

14 (3) have a disproportionately adverse impact on 

15 lower income Americans. 

16 (c) FINDINGS RELATING TO FEDERAL ESTATE AND

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

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

20 by the family to pay such taxes; 

21 (2) discourage capital formation and entrepre22 neurship; 

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

25 farms; and 


bajohnson on PROD1PC60 with BILLS
4 

•S 1025 IS

1 (4) impose unacceptably high tax planning costs 

2 on small businesses and farms. 

3 (d) FINDINGS RELATING TO NATIONAL SALES

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

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

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

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

9 (2) will promote savings and investment; 

10 (3) will promote fairness; 

11 (4) will promote economic growth; 

12 (5) will raise the standard of living; 

13 (6) will increase investment; 

14 (7) will enhance productivity and international 

15 competitiveness; 

16 (8) will reduce administrative burdens on the 

17 American taxpayer; 

18 (9) will improve upward social mobility; and 

19 (10) will respect the privacy interests and civil 

20 rights of taxpayers. 

21 (e) FINDINGS RELATING TO ADMINISTRATION OF

22 NATIONAL SALES TAX.—Congress further finds that— 

23 (1) most of the practical experience admin24 istering sales taxes is found at the State govern25 mental level; 


bajohnson on PROD1PC60 with BILLS
5 

•S 1025 IS

1 (2) it is desirable to harmonize Federal and 

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

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

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

8 (4) businesses that must collect and remit taxes 

9 should receive reasonable compensation for the cost 

10 of doing so. 

11 (f) FINDINGS RELATING TO REPEAL OF PRESENT

12 FEDERAL TAX SYSTEM.—Congress further finds that the 

13 16th amendment to the United States Constitution should 

14 be repealed. 

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

17 AND ESTATE AND GIFT TAXES 

18 SEC. 101. INCOME TAXES REPEALED. 

19 Subtitle A of the Internal Revenue Code of 1986 (re20 lating to income taxes and self-employment taxes) is re21 pealed. 

22 SEC. 102. PAYROLL TAXES REPEALED. 

23 (a) IN GENERAL.—Subtitle C of the Internal Rev24 enue Code of 1986 (relating to payroll taxes and with25 holding of income taxes) is repealed. 


bajohnson on PROD1PC60 with BILLS
6 

•S 1025 IS

1 (b) FUNDING OF SOCIAL SECURITY.—For funding of 

2 the Social Security Trust Funds from general revenue, see 

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

4 SEC. 103. ESTATE AND GIFT TAXES REPEALED. 

5 Subtitle B of the Internal Revenue Code of 1986 (re6 lating to estate and gift taxes) is repealed. 

7 SEC. 104. CONFORMING AMENDMENTS; EFFECTIVE DATE. 

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

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

11 of Presidential election campaigns), and 

12 (2) by redesignating— 

13 (A) subtitle D (relating to miscellaneous 

14 excise taxes) as subtitle B, 

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

16 and certain other excise taxes) as subtitle C, 

17 (C) subtitle F (relating to procedure and 

18 administration) as subtitle D, 

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

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

22 Code) as subtitle F, 

23 (F) subtitle J (relating to coal industry 

24 health benefits) as subtitle G, and 


bajohnson on PROD1PC60 with BILLS
7 

•S 1025 IS

1 (G) subtitle K (relating to group health 

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

4 (b) REDESIGNATION OF 1986 CODE.— 

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

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

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

8 Internal Revenue Code of 2007. 

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

10 inappropriate, any reference in any law, Executive 

11 order, or other document— 

12 (A) to the Internal Revenue Code of 1986 

13 shall include a reference to the Internal Rev14 enue Code of 2007, and 

15 (B) to the Internal Revenue Code of 2007 

16 shall include a reference to the provisions of law 

17 formerly known as the Internal Revenue Code 

18 of 1986. 

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

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

23 take effect on January 1, 2009. 


bajohnson on PROD1PC60 with BILLS
8 

•S 1025 IS

1 TITLE II—SALES TAX ENACTED 

2 SEC. 201. SALES TAX. 

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

4 2007 is amended by inserting before subtitle B (as redes5 ignated by section 104(a)(2)(A)) the following new sub6 title: 

7 ‘‘Subtitle A—Sales Tax 

‘‘Sec. 1. Principles of interpretation. 

‘‘Sec. 2. Definitions. 

‘‘CHAPTER 1. INTERPRETATION; DEFINITIONS; IMPOSITION OF TAX; ETC. 

‘‘CHAPTER 2. CREDITS; REFUNDS

‘‘CHAPTER 3. FAMILY CONSUMPTION ALLOWANCE

‘‘CHAPTER 4. STATE AND FEDERAL COOPERATIVE TAX ADMINISTRATION

‘‘CHAPTER 5. OTHER ADMINISTRATIVE PROVISIONS

‘‘CHAPTER 6. COLLECTION; APPEALS; TAXPAYER RIGHTS

‘‘CHAPTER 7. SPECIAL RULES

‘‘CHAPTER 8. FINANCIAL INTERMEDIATION SERVICES

‘‘CHAPTER 9. ADDITIONAL MATTERS

8 ‘‘SEC. 1. PRINCIPLES OF INTERPRETATION. 

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

10 any sales tax administering authority shall consider the 

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

12 as the primary aid in statutory construction. 

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

14 as follows: 


bajohnson on PROD1PC60 with BILLS
9 

•S 1025 IS

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

2 Government in a manner consistent with the other 

3 purposes of this subtitle. 

4 ‘‘(2) To tax all consumption of goods and serv5 ices in the United States once, without exception, 

6 but only once. 

7 ‘‘(3) To prevent double, multiple, or cascading 

8 taxation. 

9 ‘‘(4) To simplify the tax law and reduce the ad10 ministration costs of, and the costs of compliance 

11 with, the tax law. 

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

13 tax law in a manner that respects privacy, due proc14 ess, individual rights when interacting with the gov15 ernment, the presumption of innocence in criminal 

16 proceedings, and the presumption of lawful behavior 

17 in civil proceedings. 

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

19 in Federal tax administration because of State gov20 ernment expertise in sales tax administration. 

21 ‘‘(7) To enhance generally cooperation and co22 ordination among State tax administrators; and to 

23 enhance cooperation and coordination among Fed24 eral and State tax administrators, consistent with 

25 the principle of intergovernmental tax immunity. 


bajohnson on PROD1PC60 with BILLS
10 

•S 1025 IS

1 ‘‘(c) SECONDARY AIDS TO STATUTORY CONSTRUC2 TION.—As a secondary aid in statutory construction, any 

3 court, the Secretary, and any sales tax administering au4 thority shall consider— 

5 ‘‘(1) the common law canons of statutory con6 struction; 

7 ‘‘(2) the meaning and construction of concepts 

8 and terms used in the Internal Revenue Code of 

9 1986 as in effect before the effective date of this 

10 subtitle; and 

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

12 favor of reserving powers to the States respectively, 

13 or to the people. 

14 ‘‘SEC. 2. DEFINITIONS. 

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

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

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

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

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

20 firm that is not a corporation. 

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

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

23 imposed by a State that adopts the same definition 

24 of taxable property and services as adopted by this 

25 subtitle. 


bajohnson on PROD1PC60 with BILLS
11 

•S 1025 IS

1 ‘‘(3) DESIGNATED COMMERCIAL PRIVATE COU2 RIER SERVICE.—The term ‘designated commercial 

3 private courier service’ means a firm designated as 

4 such by the Secretary or any sales tax administering 

5 authority, upon application of the firm, if the firm— 

6 ‘‘(A) provides its services to the general 

7 public, 

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

9 kept in the regular course of its business the 

10 date on which an item was given to such firm 

11 for delivery, and 

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

13 year. 

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

15 ‘education and training’ means tuition for primary, 

16 secondary, or postsecondary level education, and job17 related training courses. Such term does not include 

18 room, board, sports activities, recreational activities, 

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

20 ‘‘(5) GROSS PAYMENTS.—The term ‘gross pay21 ments’ means payments for taxable property or serv22 ices, including Federal taxes imposed by this title. 

23 ‘‘(6) INTANGIBLE PROPERTY.— 

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

25 property’ includes copyrights, trademarks, patVerDate Aug 31 2005 07:01 Mar 31, 2007 Jkt 059200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S1025.IS S1025

bajohnson on PROD1PC60 with BILLS
12 

•S 1025 IS

1 ents, goodwill, financial instruments, securities, 

2 commercial paper, debts, notes and bonds, and 

3 other property deemed intangible at common 

4 law. The Secretary shall, by regulation resolve 

5 differences among the provisions of common 

6 law of the several States. 

7 ‘‘(B) CERTAIN TYPES OF PROPERTY.— 

8 Such term does not include tangible personal 

9 property (or rents or leaseholds of any term 

10 thereon), real property (or rents or leaseholds 

11 of any term thereon) and computer software. 

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

13 natural person, and unless the context clearly does 

14 not allow it, any corporation, partnership, limited li15 ability company, trust, estate, government, agency, 

16 administration, organization, association, or other 

17 legal entity (foreign or domestic.) 

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

19 TAXABLE PROPERTY OR SERVICES.— 

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

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

22 sell a taxable property or service if such prop23 erty or service is purchased by a person en24 gaged in a trade or business for the purpose of 

25 employing or using such taxable property or 


bajohnson on PROD1PC60 with BILLS
13 

•S 1025 IS

1 service in the production, provision, rendering, 

2 or sale of other taxable property or services in 

3 the ordinary course of that trade or business. 

4 ‘‘(B) RESEARCH, EXPERIMENTATION, 

5 TESTING, AND DEVELOPMENT.—Taxable prop6 erty or services used in a trade or business for 

7 the purpose of research, experimentation, test8 ing, and development shall be treated as used to 

9 produce, provide, render, or sell taxable prop10 erty or services. 

11 ‘‘(C) INSURANCE PAYMENTS.—Taxable 

12 property or services purchased by an insurer on 

13 behalf of an insured shall be treated as used to 

14 produce, provide, render, or sell taxable prop15 erty or services if the premium for the insur16 ance contract giving rise to the insurer’s obliga17 tion was subject to tax pursuant to section 801 

18 (relating to financial intermediation services). 

19 ‘‘(D) EDUCATION AND TRAINING.—Edu20 cation and training shall be treated as services 

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

22 property or services. 

23 ‘‘(9) REGISTERED SELLER.—The term ‘reg24 istered seller’ means a person registered pursuant to 

25 section 502. 


bajohnson on PROD1PC60 with BILLS
14 

•S 1025 IS

1 ‘‘(10) SALES TAX ADMINISTERING AUTHOR2 ITY.—The term ‘sales tax administering authority’ 

3 means— 

4 ‘‘(A) the State agency designated to collect 

5 and administer the sales tax imposed by this 

6 subtitle, in an administering State, or 

7 ‘‘(B) the Secretary, in a State that is nei8 ther— 

9 ‘‘(i) an administering State, nor 

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

11 its sales tax administered by an admin12 istering State. 

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

14 means the Secretary of the Treasury. 

15 ‘‘(12) TAXABLE EMPLOYER.— 

16 ‘‘(A) IN GENERAL.—The term ‘taxable em17 ployer’ includes— 

18 ‘‘(i) any household employing domes19 tic servants, and 

20 ‘‘(ii) any government except for gov21 ernment enterprises (as defined in section 

22 704). 

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

24 employer’ does not include any employer which 

25 is— 


bajohnson on PROD1PC60 with BILLS
15 

•S 1025 IS

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

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

3 defined in section 706), or 

4 ‘‘(iii) a government enterprise (as de5 fined in section 704). 

6 ‘‘(C) CROSS REFERENCE.—For rules relat7 ing to collection and remittance of tax on wages 

8 by taxable employers, see section 103(b)(2). 

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

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

11 fair market value of taxable property or services plus 

12 the tax imposed by this subtitle. 

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

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

15 property or service’ means— 

16 ‘‘(i) any property (including leaseholds 

17 of any term or rents with respect to such 

18 property) but excluding— 

19 ‘‘(I) intangible property, and 

20 ‘‘(II) used property, and 

21 ‘‘(ii) any service (including any finan22 cial intermediation services as determined 

23 by section 801). 

24 ‘‘(B) SERVICE.—For purposes of subpara25 graph (A), the term ‘service’— 


bajohnson on PROD1PC60 with BILLS
16 

•S 1025 IS

1 ‘‘(i) shall include any service per2 formed by an employee for which the em3 ployee is paid wages or a salary by a tax4 able employer, and 

5 ‘‘(ii) shall not include any service per6 formed by an employee for which the em7 ployee is paid wages or a salary— 

8 ‘‘(I) by an employer in the reg9 ular course of the employer’s trade or 

10 business, 

11 ‘‘(II) by an employer that is a 

12 not-for-profit organization (as defined 

13 in section 706), 

14 ‘‘(III) by an employer that is a 

15 government enterprise (as defined in 

16 section 704), and 

17 ‘‘(IV) by taxable employers to 

18 employees directly providing education 

19 and training. 

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

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

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

23 any commonwealth, territory, or possession of the 

24 United States. 


bajohnson on PROD1PC60 with BILLS
17 

•S 1025 IS

1 ‘‘(16) USED PROPERTY.—The term ‘used prop2 erty’ means— 

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

4 section 101 has been collected and for which no 

5 credit has been allowed under section 202, 203, 

6 or 205, or 

7 ‘‘(B) property that was held other than for 

8 a business purpose (as defined in section 

9 102(b)) on December 31, 2008. 

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

11 and ‘salary’ mean all compensation paid for employ12 ment service including cash compensation, employee 

13 benefits, disability insurance, or wage replacement 

14 insurance payments, unemployment compensation 

15 insurance, workers’ compensation insurance, and the 

16 fair market value of any other consideration paid by 

17 an employer to an employee in consideration for em18 ployment services rendered. 

19 ‘‘(b) CROSS REFERENCES.— 

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

21 see section 102(b). 

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

23 see section 206(e). 

24 ‘‘(3) For the definition of qualified family, see 

25 section 302. 


bajohnson on PROD1PC60 with BILLS
18 

•S 1025 IS

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

2 see section 303. 

3 ‘‘(5) For the definition of large seller, see sec4 tion 501(e)(3). 

5 ‘‘(6) For the definition of hobby activities, see 

6 section 701. 

7 ‘‘(7) For the definition of gaming sponsor, see 

8 section 701(a). 

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

10 701(b). 

11 ‘‘(9) For the definition of government enter12 prise, see section 704(b). 

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

14 see section 705. 

15 ‘‘(11) For the definition of qualified not-for16 profit organization, see section 706. 

17 ‘‘(12) For the definition of financial intermedi18 ation services, see section 801. 

19 ‘‘CHAPTER 1—INTERPRETATION; 

20 DEFINITIONS; IMPOSITION OF TAX; ETC. 

‘‘Sec. 101. Imposition of sales tax. 

‘‘Sec. 102. Intermediate and export sales. 

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

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

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

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

24 property or services. 


bajohnson on PROD1PC60 with BILLS
19 

•S 1025 IS

1 ‘‘(b) RATE.— 

2 ‘‘(1) FOR 2009.—In the calendar year 2009, the 

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

4 the taxable property or service. 

5 ‘‘(2) FOR YEARS AFTER 2009.—For years after 

6 the calendar year 2009, the rate of tax is the com7 bined Federal tax rate percentage (as defined in 

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

9 property or service. 

10 ‘‘(3) COMBINED FEDERAL TAX RATE PERCENT11 AGE.—The combined Federal tax rate percentage is 

12 the sum of— 

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

14 in paragraph (4), and 

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

16 insurance rate, and 

17 ‘‘(C) the hospital insurance rate. 

18 ‘‘(4) GENERAL REVENUE RATE.—The general 

19 revenue rate shall be 14.91 percent. 

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

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

22 duties imposed by chapter 4 of title 19, United States 

23 Code. The Secretary shall provide by regulation that, to 

24 the maximum extent practicable, the tax imposed by this 

25 section on imported taxable property and services is colVerDate Aug 31 2005 07:01 Mar 31, 2007 Jkt 059200 PO 00000 Frm 00019 Fmt 6652 Sfmt 6201 E:\BILLS\S1025.IS S1025

bajohnson on PROD1PC60 with BILLS
20 

•S 1025 IS

1 lected and administered in conjunction with any applicable 

2 import duties imposed by the United States. 

3 ‘‘(d) LIABILITY FOR TAX.— 

4 ‘‘(1) IN GENERAL.—The person using or con5 suming taxable property or services in the United 

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

7 except as provided in paragraph (2) of this sub8 section. 

9 ‘‘(2) EXCEPTION WHERE TAX PAID TO SELL10 ER.—A person using or consuming a taxable prop11 erty or service in the United States is not liable for 

12 the tax imposed by this section if the person pays 

13 the tax to a person selling the taxable property or 

14 service and receives from such person a purchaser’s 

15 receipt within the meaning of section 510. 

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

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

18 ‘‘(1) BUSINESS AND EXPORT PURPOSES.—No 

19 tax shall be imposed under section 101 on any tax20 able property or service purchased for— 

21 ‘‘(A) a business purpose in a trade or busi22 ness, or 

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

24 or consumption outside the United States, if, 

25 the purchaser provided the seller with a regVerDate Aug 31 2005 07:01 Mar 31, 2007 Jkt 059200 PO 00000 Frm 00020 Fmt 6652 Sfmt 6201 E:\BILLS\S1025.IS S1025

bajohnson on PROD1PC60 with BILLS
21 

•S 1025 IS

1 istration certificate, and the seller was a whole2 sale seller. 

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

4 imposed under section 101 on any taxable property 

5 or service purchased for an investment purpose and 

6 held exclusively for an investment purpose. 

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

8 shall be imposed under section 101 on State govern9 ment functions that do not constitute the final con10 sumption of property or services. 

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

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

13 trade or business’ means purchased by a person engaged 

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

15 ‘‘(1) for resale, 

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

17 property or services, or 

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

19 purposes. 

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

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

22 means property purchased exclusively for purposes of ap23 preciation or the production of income but not entailing 

24 more than minor personal efforts. 


bajohnson on PROD1PC60 with BILLS
22 

•S 1025 IS

1 ‘‘SEC. 103. RULES RELATING TO COLLECTION AND REMIT2 TANCE OF TAX. 

3 ‘‘(a) LIABILITY FOR COLLECTION AND REMITTANCE

4 OF THE TAX.—Except as provided otherwise by this sec5 tion, any tax imposed by this subtitle shall be collected 

6 and remitted by the seller of taxable property or services 

7 (including financial intermediation services). 

8 ‘‘(b) TAX TO BE REMITTED BY PURCHASER IN CER9 TAIN CIRCUMSTANCES.— 

10 ‘‘(1) IN GENERAL.—In the case of taxable prop11 erty or services purchased outside of the United 

12 States and imported into the United States for use 

13 or consumption in the United States, the purchaser 

14 shall remit the tax imposed by section 101. 

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

16 of wages or salary paid by a taxable employer which 

17 are taxable services, the employer shall remit the tax 

18 imposed by section 101. 

19 ‘‘(c) CONVERSION OF BUSINESS OR EXPORT PROP20 ERTY OR SERVICES.—Property or services purchased for 

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

22 (sold untaxed pursuant to section 102(a)) that is subse23 quently converted to personal use shall be deemed pur24 chased at the time of conversion and shall be subject to 

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

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


bajohnson on PROD1PC60 with BILLS
23 

•S 1025 IS

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

2 fair market value during the month of conversion. The 

3 person using or consuming the converted property is liable 

4 for and shall remit the tax. 

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

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

7 which is sold untaxed pursuant to section 102(a), the sell8 er shall be relieved of the duty to collect and remit the 

9 tax imposed under section 101 on such purchase if the 

10 seller— 

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

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

13 registration certificate from the purchaser, and 

14 ‘‘(2) did not, at the time of sale, have reason15 able cause to believe that the buyer was not reg16 istered pursuant to section 502. 

17 ‘‘(e) PURCHASER LIABLE TO COLLECT AND REMIT

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

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

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

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

22 then the duty to pay any tax due shall rest with the pur23 chaser. 

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

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


bajohnson on PROD1PC60 with BILLS
24 

•S 1025 IS

1 then the person responsible for collecting and remitting 

2 the tax shall remit the tax to the sales tax administering 

3 authority in money as if gross payment had been made 

4 in money at the tax inclusive fair market value of the tax5 able property or services purchased. 

6 ‘‘(g) INTERCOMPANY SALES.—Firms that make pur7 chases from affiliated firms that are untaxed pursuant to 

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

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

10 with the requirements of subsection (d) (relating to certifi11 cates) for said purchases or sales to remain untaxed. 

12 ‘‘CHAPTER 2—CREDITS; REFUNDS 

‘‘Sec. 201. Credits and refunds. 

‘‘Sec. 202. Business use conversion credit. 

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

‘‘Sec. 204. Administration credit. 

‘‘Sec. 205. Bad debt credit. 

‘‘Sec. 206. Insurance proceeds credit. 

‘‘Sec. 207. Refunds. 

13 ‘‘SEC. 201. CREDITS AND REFUNDS. 

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

15 credit with respect to the taxes imposed by section 101 

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

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

18 credit pursuant to section 202 for such month, 

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

20 sales credit pursuant to section 203 for such month, 

21 ‘‘(3) the administration credit pursuant to sec22 tion 204 for such month, 


bajohnson on PROD1PC60 with BILLS
25 

•S 1025 IS

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

2 205 for such month, 

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

4 section 206 for such month, 

5 ‘‘(6) the transitional inventory credit pursuant 

6 to section 902, and 

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

8 due. 

9 ‘‘(b) CREDITS NOT ADDITIVE.—Only one credit al10 lowed by chapter 2 may be taken with respect to any par11 ticular gross payment. 

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

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

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

15 the aggregate of the amounts determined under subsection 

16 (b) with respect to taxable property and services— 

17 ‘‘(1) on which tax was imposed by section 101 

18 (and actually paid), and 

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

20 more used during such month for business purposes 

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

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

23 under this paragraph with respect to any taxable property 

24 or service is the lesser of— 

25 ‘‘(1) the product of— 


bajohnson on PROD1PC60 with BILLS
26 

•S 1025 IS

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

2 ‘‘(B) the quotient that is— 

3 ‘‘(i) the fair market value of the prop4 erty or service when its use is converted, 

5 divided by 

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

7 tax rate imposed by section 101, or 

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

9 such taxable property or service, including the 

10 amount, if any, determined in accordance with sec11 tion 705 (relating to mixed use property). 

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

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

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

15 on the purchase of any taxable property or service pur16 chased for— 

17 ‘‘(1) a business purpose in a trade or business 

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

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

20 consumption outside the United States. 

21 ‘‘SEC. 204. ADMINISTRATION CREDIT. 

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

23 monthly report (with regard to extensions) in compliance 

24 with section 501 shall be entitled to a taxpayer adminis25 trative credit equal to the greater of— 


bajohnson on PROD1PC60 with BILLS
27 

•S 1025 IS

1 ‘‘(1) $200, or 

2 ‘‘(2) one-quarter of 1 percent of the tax remit3 ted. 

4 ‘‘(b) LIMITATION.—The credit allowed under this sec5 tion shall not exceed 20 percent of the tax due to be remit6 ted prior to the application of any credit or credits per7 mitted by section 201. 

8 ‘‘SEC. 205. BAD DEBT CREDIT. 

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

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

11 invoices within the meaning of subsection (b)) shall be en12 titled to a credit equal to the product of— 

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

14 ‘‘(2) the quotient that is— 

15 ‘‘(A) the amount of the bad debt (as de16 fined in section 802), divided by 

17 ‘‘(B) the quantity that is 1 minus the rate 

18 imposed by section 101. 

19 ‘‘(b) UNPAID INVOICES.—Any person electing the ac20 crual method pursuant to section 503 that has with re21 spect to a transaction— 

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

23 ‘‘(2) remitted the invoiced tax, 

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

25 performed the taxable services invoiced, and 


bajohnson on PROD1PC60 with BILLS
28 

•S 1025 IS

1 ‘‘(4) not been paid 180 days after date the in2 voice was due to be paid, 

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

4 remitted and unpaid by the purchaser. 

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

6 with respect to a transaction subsequent to a section 205 

7 credit being taken with respect to that transaction shall 

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

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

10 in the amount of the payment had been made. 

11 ‘‘(d) PARTIAL PAYMENTS.—Partial payments shall 

12 be treated as pro rata payments of the underlying obliga13 tion and shall be allocated proportionately— 

14 ‘‘(1) for fully taxable payments, between pay15 ment for the taxable property and service and tax, 

16 and 

17 ‘‘(2) for partially taxable payments, among pay18 ment for the taxable property and service, tax and 

19 other payment. 

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

21 section shall not be available with respect to sales made 

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

23 party means affiliated firms and family members (as de24 fined in section 302(b)). 


bajohnson on PROD1PC60 with BILLS
29 

•S 1025 IS

1 ‘‘SEC. 206. INSURANCE PROCEEDS CREDIT. 

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

3 from an insurer by virtue of an insurance contract shall 

4 be entitled to a credit in an amount determined by sub5 section (b), less any amount paid to the insured by the 

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

7 (except that portion allocable to the investment account 

8 of the underlying policy) for the insurance contract giving 

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

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

11 said tax was paid. 

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

13 shall be the product of— 

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

15 ‘‘(2) the quotient that is— 

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

17 the insurer to the insured, divided by 

18 ‘‘(B) the quantity that is 1 minus the rate 

19 imposed by section 101. 

20 ‘‘(c) ADMINISTRATIVE OPTION.—The credit deter21 mined in accordance with subsection (b) shall be paid by 

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

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

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

25 pay the credit and require the insured to make application 

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


bajohnson on PROD1PC60 with BILLS
30 

•S 1025 IS

1 shall provide to the Secretary and the insured the name 

2 and tax identification number of the insurer and of the 

3 insured and indicate the proper amount of the credit. 

4 ‘‘(d) COORDINATION WITH RESPECT TO EXEMP5 TION.—If taxable property or services purchased by an in6 surer on behalf of an insured are purchased free of tax 

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

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

9 purchase. 

10 ‘‘(e) INSURANCE CONTRACT.—For purposes of sub11 section (a), the term insurance contract’ shall include a 

12 life insurance contract, a health insurance contract, a 

13 property and casualty loss insurance contract, a general 

14 liability insurance contract, a marine insurance contract, 

15 a fire insurance contract, an accident insurance contract, 

16 a disability insurance contract, a long-term care insurance 

17 contract, and an insurance contract that provides a com18 bination of these types of insurance. 

19 ‘‘SEC. 207. REFUNDS. 

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

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

22 upon application by the registered seller in a form pre23 scribed by the sales tax administering authority, the over24 payment shown on the report shall be refunded to the reg25 istered seller within 60 days of receipt of said application. 


bajohnson on PROD1PC60 with BILLS
31 

•S 1025 IS

1 In the absence of such application, the overpayment may 

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

3 to the credit. 

4 ‘‘(b) OTHER PERSONS.—If a person other than a reg5 istered seller has an overpayment for any month, then, 

6 upon application by the person in a form prescribed by 

7 the sales tax administering authority, the credit balance 

8 due shall be refunded to the person within 60 days of re9 ceipt of said application. 

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

11 balance due from the sales tax administering authority 

12 under this subsection for any month if such balance due 

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

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

15 application for refund is received shall bear interest from 

16 the date of application. Interest shall be paid at the Fed17 eral short-term rate (as defined in section 512). 

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

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

20 day periods under subsections (a) and (b) shall be sus21 pended with respect to a purported overpayment (or por22 tion thereof) only during any period that there is in effect 

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

24 or State court that there is reasonable cause to believe 

25 that such overpayment may not actually be due. 


bajohnson on PROD1PC60 with BILLS
32 

•S 1025 IS

1 ‘‘CHAPTER 3—FAMILY CONSUMPTION 

2 ALLOWANCE 

‘‘Sec. 301. Family consumption allowance. 

‘‘Sec. 302. Qualified family. 

‘‘Sec. 303. Monthly poverty level. 

‘‘Sec. 304. Rebate mechanism. 

‘‘Sec. 305. Change in family circumstances. 

3 ‘‘SEC. 301. FAMILY CONSUMPTION ALLOWANCE. 

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

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

6 be in an amount equal to the product of— 

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

8 and 

9 ‘‘(2) the monthly poverty level. 

10 ‘‘SEC. 302. QUALIFIED FAMILY. 

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

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

13 members sharing a common residence. All family members 

14 sharing a common residence shall be considered as part 

15 of 1 qualified family. 

16 ‘‘(b) FAMILY SIZE DETERMINATION.— 

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

18 qualified family for purposes of this chapter, family 

19 members shall mean— 

20 ‘‘(A) an individual, 

21 ‘‘(B) the individual’s spouse, 


bajohnson on PROD1PC60 with BILLS
33 

•S 1025 IS

1 ‘‘(C) all lineal ancestors and descendants 

2 of said individual (and such individual’s 

3 spouse), 

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

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

6 ‘‘(E) all children under legal guardianship 

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

8 ‘‘(2) IDENTIFICATION REQUIREMENTS.—In 

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

10 family for purposes of determining the size of the 

11 qualified family, such person must— 

12 ‘‘(A) have a bona fide Social Security num13 ber; and 

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

15 States. 

16 ‘‘(c) CHILDREN LIVING AWAY FROM HOME.— 

17 ‘‘(1) STUDENTS LIVING AWAY FROM HOME.— 

18 Any person who was a registered student during not 

19 fewer than 5 months in a calendar year while living 

20 away from the common residence of a qualified fam21 ily but who receives over 50 percent of such person’s 

22 support during a calendar year from members of the 

23 qualified family shall be included as part of the fam24 ily unit whose members provided said support for 

25 purposes of this chapter. 


bajohnson on PROD1PC60 with BILLS
34 

•S 1025 IS

1 ‘‘(2) CHILDREN OF DIVORCED OR SEPARATED

2 PARENTS.—If a child’s parents are divorced or le3 gally separated, a child for purposes of this chapter 

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

5 custodial parent. In cases of joint custody, the custo6 dial parent for purposes of this chapter shall be the 

7 parent that has custody of the child for more than 

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

9 parent entitled to be treated as the custodial parent 

10 pursuant to this paragraph may release this claim to 

11 the other parent if said release is in writing. 

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

13 the family consumption allowance provided by section 301, 

14 a qualified family must register with the sales tax admin15 istering authority in a form prescribed by the Secretary. 

16 The annual registration form shall provide— 

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

18 shared the qualified family’s residence on the family 

19 determination date, 

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

21 member on the family determination date who 

22 shared the qualified family’s residence on the family 

23 determination date, 


bajohnson on PROD1PC60 with BILLS
35 

•S 1025 IS

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

2 whom the family consumption allowance should be 

3 paid, 

4 ‘‘(4) a certification that all listed family mem5 bers are lawful residents of the United States, 

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

7 sharing the common residence are listed, 

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

9 were incarcerated on the family determination date 

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

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

12 Said registration shall be signed by all members of the 

13 qualified family that have attained the age of 21 years 

14 as of the date of filing. 

15 ‘‘(e) REGISTRATION NOT MANDATORY.—Registra16 tion is not mandatory for any qualified family. 

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

18 REGISTRATION.—Any qualified family that fails to reg19 ister in accordance with this section within 30 days of the 

20 family determination date, shall cease receiving the 

21 monthly family consumption allowance in the month be22 ginning 90 days after the family determination date. 

23 ‘‘(g) EFFECT OF CURING FAILURE TO PROVIDE AN24 NUAL REGISTRATION.—Any qualified family that failed to 

25 timely make its annual registration in accordance with this 


bajohnson on PROD1PC60 with BILLS
36 

•S 1025 IS

1 section but subsequently cures its failure to register, shall 

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

3 payments. No interest on lapsed payment amount shall be 

4 paid. 

5 ‘‘(h) EFFECTIVE DATE OF ANNUAL REGISTRA6 TIONS.—Annual registrations shall take effect for the 

7 month beginning 90 days after the family registration 

8 date. 

9 ‘‘(i) EFFECTIVE DATE OF REVISED REGISTRA10 TIONS.—A revised registration made pursuant to section 

11 305 shall take effect for the first month beginning 60 days 

12 after the revised registration was filed. The existing reg13 istration shall remain in effect until the effective date of 

14 the revised registration. 

15 ‘‘(j) DETERMINATION OF REGISTRATION FILING

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

17 filed when— 

18 ‘‘(1) deposited in the United States mail, post19 age prepaid, to the address of the sales tax admin20 istering authority; 

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

22 sales tax administering authority; or 

23 ‘‘(3) provided to a designated commercial pri24 vate courier service for delivery within 2 days to the 


bajohnson on PROD1PC60 with BILLS
37 

•S 1025 IS

1 sales tax administering authority at the address of 

2 the sales tax administering authority. 

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

4 30 or more days before the family registration date, the 

5 sales tax administering authority shall mail to the address 

6 shown on the most recent rebate registration or change 

7 of address notice filed pursuant to section 305(d) a pro8 posed registration that may be simply signed by the appro9 priate family members if family circumstances have not 

10 changed. 

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

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

13 a member of any qualified family if that individual— 

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

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

16 the family determination date, and 

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

18 months or more in the 12-month period following 

19 the effective date of the annual registration or the 

20 revised registration of said qualified family. 

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

22 determination date is a date assigned to each family by 

23 the Secretary for purposes of determining qualified family 

24 size and other information necessary for the administra25 tion of this chapter. The Secretary shall promulgate reguVerDate Aug 31 2005 07:01 Mar 31, 2007 Jkt 059200 PO 00000 Frm 00037 Fmt 6652 Sfmt 6201 E:\BILLS\S1025.IS S1025

bajohnson on PROD1PC60 with BILLS
38 

•S 1025 IS

1 lations regarding the issuance of family determination 

2 dates. In the absence of any regulations, the family deter3 mination date for all families shall be October 1. The Sec4 retary may assign family determination dates for adminis5 trative convenience. Permissible means of assigning family 

6 determination dates include a method based on the 

7 birthdates of family members. 

8 ‘‘(n) CROSS REFERENCE.—For penalty for filing 

9 false rebate claim, see section 505(i). 

10 ‘‘SEC. 303. MONTHLY POVERTY LEVEL. 

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

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

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

14 poverty level’ shall be the sum of— 

15 ‘‘(1) the annual level determined by the Depart16 ment of Health and Human Services poverty guide17 lines required by sections 652 and 673(2) of the 

18 Omnibus Reconciliation Act of 1981 for a particular 

19 family size, and 

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

21 couple, the ‘annual marriage penalty elimination 

22 amount’. 

23 ‘‘(b) ANNUAL MARRIAGE PENALTY ELIMINATION

24 AMOUNT.—The annual marriage penalty elimination 

25 amount shall be the amount that is— 


bajohnson on PROD1PC60 with BILLS
39 

•S 1025 IS

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

2 level determined by the Department of Health and 

3 Human Services poverty guidelines required by sec4 tions 652 and 673(2) of the Omnibus Reconciliation 

5 Act of 1981 for a family of one, less 

6 ‘‘(2) the annual level determined by the Depart7 ment of Health and Human Services poverty guide8 lines required by sections 652 and 673(2) of the 

9 Omnibus Reconciliation Act of 1981 for a family of 

10 two. 

11 ‘‘SEC. 304. REBATE MECHANISM. 

12 ‘‘(a) GENERAL RULE.—The Social Security Adminis13 tration shall provide a monthly sales tax rebate to duly 

14 registered qualified families in an amount determined in 

15 accordance with section 301. 

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

17 shall be made to the persons designated by the qualifying 

18 family in the annual or revised registration for each quali19 fied family in effect with respect to the month for which 

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

21 persons 18 years or older. If more than 1 person is des22 ignated in a registration to receive the rebate, then the 

23 rebate payment shall be divided evenly between or among 

24 those persons designated. 


bajohnson on PROD1PC60 with BILLS
40 

•S 1025 IS

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

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

3 for which the rebate is being provided. 

4 ‘‘(d) SMARTCARDS AND DIRECT ELECTRONIC DE5 POSIT PERMISSIBLE.—The Social Security Administration 

6 may provide rebates in the form of smartcards that carry 

7 cash balances in their memory for use in making pur8 chases at retail establishments or by direct electronic de9 posit. 

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

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

12 of a revised registration in accordance with this chapter, 

13 the common residence of the qualified family, marital sta14 tus and number of persons in a qualified family on the 

15 family registration date shall govern determinations re16 quired to be made under this chapter for purposes of the 

17 following calendar year. 

18 ‘‘(b) NO DOUBLE COUNTING.—In no event shall any 

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

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

21 qualified family may file a revised registration for pur22 poses of section 302(d) to reflect a change in family cir23 cumstances. A revised registration form shall provide— 


bajohnson on PROD1PC60 with BILLS
41 

•S 1025 IS

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

2 shared the qualified family’s residence on the filing 

3 date of the revised registration, 

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

5 member 2 years of age or older who shared the 

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

7 revised registration, 

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

9 whom the family consumption allowance should be 

10 paid, 

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

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

14 sharing the commoner residence are listed, 

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

16 were incarcerated on the family determination date 

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

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

19 Said revised registration shall be signed by all members 

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

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

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

23 a qualified family may be filed with the sales tax admin24 istering authority at any time and shall not constitute a 

25 revised registration. 


bajohnson on PROD1PC60 with BILLS
42 

•S 1025 IS

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

2 Revised registrations reflecting changes in family status 

3 are not mandatory. 

4 ‘‘CHAPTER 4—FEDERAL AND STATE 

5 COOPERATIVE TAX ADMINISTRATION 

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

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

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

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

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

‘‘Sec. 406. General administrative matters. 

‘‘Sec. 407. Jurisdiction. 

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

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

8 on gross payments for the use or consumption of taxable 

9 property or services within a State shall be administered, 

10 collected, and remitted to the United States Treasury by 

11 such State if the State is an administering State. 

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

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

14 ‘‘(1) which maintains a sales tax, and 

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

16 with the Secretary containing reasonable provisions 

17 governing the administration by such State of the 

18 taxes imposed by the subtitle and the remittance to 

19 the United States in a timely manner of taxes col20 lected under this chapter. 

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

22 under subsection (b)(2) shall include provisions for the exVerDate Aug 31 2005 07:01 Mar 31, 2007 Jkt 059200 PO 00000 Frm 00042 Fmt 6652 Sfmt 6201 E:\BILLS\S1025.IS S1025

bajohnson on PROD1PC60 with BILLS
43 

•S 1025 IS

1 peditious transfer of funds, contact officers, dispute reso2 lution, information exchange, confidentiality, taxpayer 

3 rights, and other matters of importance. The agreement 

4 shall not contain extraneous matters. 

5 ‘‘(d) TIMELY REMITTANCE OF TAX.— 

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

7 remit and pay over taxes collected under this subtitle 

8 on behalf of the United States (less the administra9 tion fee allowable under paragraph (2)) not later 

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

11 the Federal short-term rate shall be paid with re12 spect to amounts remitted after the due date. 

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

14 State may retain an administration fee equal to one15 quarter of 1 percent of the amounts otherwise re16 quired to be remitted to the United States under 

17 this chapter by the administering State. 

18 ‘‘(e) LIMITATION ON ADMINISTRATION OF TAX BY

19 UNITED STATES.—The Secretary may administer the tax 

20 imposed by this subtitle in an administering State only 

21 if— 

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

23 to timely remit to the United States taxes collected 

24 under this chapter on behalf of the United States, 

25 or 


bajohnson on PROD1PC60 with BILLS
44 

•S 1025 IS

1 ‘‘(B) such State has on a regular basis other2 wise materially breached the agreement referred to 

3 in subsection (b)(2); 

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

5 failures and breaches within a reasonable time; 

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

7 written notice of such alleged failures and breaches; 

8 and 

9 ‘‘(4) a District Court of the United States with10 in such State, upon application of the Secretary, has 

11 rendered a decision— 

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

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

14 basis to timely remit to the United States 

15 taxes collected under this chapter on behalf 

16 of the United States, or such State has on 

17 a regular basis otherwise materially 

18 breached the agreement referred to in sub19 section (b)(2); 

20 ‘‘(ii) the Secretary has provided such 

21 State with written notice of such alleged 

22 failures and breaches; and 

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

24 alleged failures and breaches within a rea25 sonable time; and 


bajohnson on PROD1PC60 with BILLS
45 

•S 1025 IS

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

2 the best interest of the citizens of the United 

3 States that the administering State’s authority 

4 to administer the tax imposed by this subtitle 

5 be revoked and said tax be administered di6 rectly by the Secretary. 

7 The order of the District Court revoking the author8 ity of an Administering State shall contain provi9 sions governing the orderly transfer of authority to 

10 the Secretary. 

11 ‘‘(f) REINSTITUTION.—A State that has had its au12 thority revoked pursuant to subsection (e) shall not be an 

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

14 after the date of the order of revocation. For the first cal15 endar year commencing 8 years after the date of the order 

16 of revocation, the State shall be regarded without preju17 dice as eligible to become an administering State. 

18 ‘‘(g) THIRD STATE ADMINISTRATION PERMIS19 SIBLE.—It shall be permissible for a State to contract with 

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

21 for an agreed fee. In this case, the agreement con22 templated by subsection (c) shall have both the State and 

23 the Federal Government as parties. 

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

25 States shall not conduct investigations or audits at faciliVerDate Aug 31 2005 07:01 Mar 31, 2007 Jkt 059200 PO 00000 Frm 00045 Fmt 6652 Sfmt 6201 E:\BILLS\S1025.IS S1025

bajohnson on PROD1PC60 with BILLS
46 

•S 1025 IS

1 ties in other administering States in connection with the 

2 tax imposed by section 101 or conforming State sales tax 

3 but shall instead cooperate with other administering 

4 States using the mechanisms established by section 402, 

5 by compact or by other agreement. 

6 ‘‘SEC. 402. FEDERAL ADMINISTRATIVE SUPPORT FOR 

7 STATES. 

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

9 a program to facilitate information sharing among States. 

10 ‘‘(b) STATE COMPACTS.—The Secretary shall facili11 tate, and may be a party to a compact among States for 

12 purposes of facilitating the taxation of interstate pur13 chases and for other purposes that may facilitate imple14 mentation of this subtitle. 

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

16 Secretary is authorized to enter into and shall enter into 

17 an agreement among conforming States enabling con18 forming States to collect conforming State sales tax on 

19 sales made by sellers without a particular conforming 

20 State to a destination within that particular conforming 

21 State. 

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

23 have the authority to promulgate regulations, to provide 

24 guidelines, to assist States in administering the national 


bajohnson on PROD1PC60 with BILLS
47 

•S 1025 IS

1 sales tax, to provide for uniformity in the administration 

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

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

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

5 a conference with the sales tax administrators from the 

6 various administering States to evaluate the state of the 

7 national sales tax system, to address issues of mutual con8 cern and to develop and consider legislative, regulatory, 

9 and administrative proposals to improve the tax system. 

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

11 ‘‘The Secretary shall administer the tax imposed by 

12 this subtitle in any State or other United States jurisdic13 tion that— 

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

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

16 its tax in accordance with section 401(g). 

17 ‘‘SEC. 405. INTERSTATE ALLOCATION AND DESTINATION 

18 DETERMINATION. 

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

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

21 shall govern for purposes of determining— 

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

23 and services is within or without the United States, 

24 and 


bajohnson on PROD1PC60 with BILLS
48 

•S 1025 IS

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

2 States is the destination of taxable property and 

3 services. 

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

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

6 destination of tangible personal property shall be the State 

7 or territory in which the property was first delivered to 

8 the purchaser (including agents and authorized represent9 atives). 

10 ‘‘(c) REAL PROPERTY.—The destination of real prop11 erty, or rents or leaseholds on real property, shall be the 

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

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

14 other taxable property shall be the residence of the pur15 chaser. 

16 ‘‘(e) SERVICES.— 

17 ‘‘(1) GENERAL RULE.—The destination of serv18 ices shall be the State or territory in which the use 

19 or consumption of the services occurred. Allocation 

20 of service invoices relating to more than 1 jurisdic21 tion shall be on the basis of time or another method 

22 determined by regulation. 

23 ‘‘(2) TELECOMMUNICATIONS SERVICES.—The 

24 destination of telecommunications services shall be 

25 the residence of the purchaser. Telecommunications 


bajohnson on PROD1PC60 with BILLS
49 

•S 1025 IS

1 services include telephone, telegraph, beeper, radio, 

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

3 network services. 

4 ‘‘(3) DOMESTIC TRANSPORTATION SERVICES.— 

5 For transportation services where all of the final 

6 destinations are within the United States, the des7 tination of transportation services shall be the final 

8 destination of the trip (in the case of round or mul9 tiple trip fares, the services amount shall be equally 

10 allocated among each final destination). 

11 ‘‘(4) INTERNATIONAL TRANSPORTATION SERV12 ICES.—For transportation services where the final 

13 destination or origin of the trip is without the 

14 United States, the service amount shall be deemed 

15 50 percent attributable to the United States destina16 tion or origin. 

17 ‘‘(5) ELECTRICAL SERVICE.—The destination of 

18 electrical services shall be the residence of the pur19 chaser. 

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

21 destination of financial intermediation services shall be the 

22 residence of the purchaser. 

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

24 PROPERTY.— 


bajohnson on PROD1PC60 with BILLS
50 

•S 1025 IS

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

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

3 lease of tangible property and leaseholds on such 

4 property shall be where the property is located while 

5 in use. 

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

7 CRAFT.—The destination of rental and lease pay8 ments on land vehicles, aircraft and water craft shall 

9 be— 

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

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

12 land vehicle, aircraft, or water craft was origi13 nally delivered to the renter or lessee; and 

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

15 term greater than 1 month, the residence of the 

16 renter or lessee. 

17 ‘‘(h) ALLOCATION RULES.—For purposes of allo18 cating revenue— 

19 ‘‘(1) between or among administering States 

20 from taxes imposed by this subtitle or from State 

21 sales taxes administered by third-party admin22 istering States, or 

23 ‘‘(2) between or among States imposing con24 forming State sales taxes, 


bajohnson on PROD1PC60 with BILLS
51 

•S 1025 IS

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

2 destination of the taxable property or service. 

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

4 The Secretary shall establish an Office of Revenue Alloca5 tion to arbitrate any claims or disputes among admin6 istering States as to the destination of taxable property 

7 and services for purposes of allocating revenue between or 

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

9 determination of the Administrator of the Office of Rev10 enue Allocation shall be subject to judicial review in any 

11 Federal court with competent jurisdiction. The standard 

12 of review shall be abuse of discretion. 

13 ‘‘SEC. 406. GENERAL ADMINISTRATIVE MATTERS. 

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

15 administering authority may employ such persons as may 

16 be necessary for the administration of this subtitle and 

17 may delegate to employees the authority to conduct inter18 views, hearings, prescribe rules, promulgate regulations, 

19 and perform such other duties as are required by this sub20 title. 

21 ‘‘(b) RESOLUTION OF ANY INCONSISTENT RULES

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

23 any sales tax administering authority have issued incon24 sistent rules or regulations, any lawful rule or regulation 

25 issued by the Secretary shall govern. 


bajohnson on PROD1PC60 with BILLS
52 

•S 1025 IS

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

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

3 not his designee), no rule or regulation issued by the Sec4 retary with respect to any internal revenue law shall take 

5 effect before 90 days have elapsed after its publication in 

6 the Federal Register. Upon issuance, the Secretary shall 

7 provide copies of all rules or regulations issued under this 

8 title to each sales tax administering authority. 

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

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

11 issued or promulgated by the Secretary relating to any in12 ternal revenue law or by a sales tax administering author13 ity shall apply to a period prior to its publication in the 

14 Federal Register (or State equivalent) except that a regu15 lation may take retroactive effect to prevent abuse. 

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

17 AND RULINGS ON SMALL BUSINESS.— 

18 ‘‘(1) SUBMISSION TO SMALL BUSINESS ADMIN19 ISTRATION.—After publication of any proposed or 

20 temporary regulation by the Secretary relating to in21 ternal revenue laws, the Secretary shall submit such 

22 regulation to the Chief Counsel for Advocacy of the 

23 Small Business Administration for comment on the 

24 impact of such regulation on small businesses. Not 

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


bajohnson on PROD1PC60 with BILLS
53 

•S 1025 IS

1 submission, the Chief Counsel for Advocacy of the 

2 Small Business Administration shall submit com3 ments on such regulation to the Secretary. 

4 ‘‘(2) CONSIDERATION OF COMMENTS.—In pre5 scribing any final regulation which supersedes a pro6 posed or temporary regulation which had been sub7 mitted under this subsection to the Chief Counsel 

8 for Advocacy of the Small Business Administration, 

9 the Secretary shall— 

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

11 Counsel for Advocacy of the Small Business 

12 Administration on such proposed or temporary 

13 regulation, and 

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

15 include a narrative that describes the response 

16 to such comments. 

17 ‘‘(3) SUBMISSION OF CERTAIN FINAL REGULA18 TION.—In the case of promulgation by the Secretary 

19 of any final regulations (other than a temporary reg20 ulation) which do not supersede a proposed regula21 tion, the requirements of paragraphs (1) and (2) 

22 shall apply, except that the submission under para23 graph (1) shall be made at least 30 days before the 

24 date of such promulgation, and the consideration 

25 and discussion required under paragraph (2) shall 


bajohnson on PROD1PC60 with BILLS
54 

•S 1025 IS

1 be made in connection with the promulgation of such 

2 final regulation. 

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

4 The Small Business Regulatory Enforcement Fairness Act 

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

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

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

8 subtitle. 

9 ‘‘SEC. 407. JURISDICTION. 

10 ‘‘(a) STATE JURISDICTION.—A sales tax admin11 istering authority shall have jurisdiction over any gross 

12 payments made which have a destination (as determined 

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

14 sales tax administering authority. This grant of jurisdic15 tion is not exclusive of any other jurisdiction that such 

16 sales tax administering authority may have. 

17 ‘‘(b) FEDERAL JURISDICTION.—The grant of juris18 diction in subsection (a) shall not be in derogation of Fed19 eral jurisdiction over the same matter. The Federal Gov20 ernment shall have the right to exercise preemptive juris21 diction over matters relating to the taxes imposed by this 

22 subtitle. 

23 ‘‘CHAPTER 5—OTHER ADMINISTRATIVE 

24 PROVISIONS 

‘‘Sec. 501. Monthly reports and payments. 

‘‘Sec. 502. Registration. 

‘‘Sec. 503. Accounting. 


bajohnson on PROD1PC60 with BILLS
55 

•S 1025 IS

‘‘Sec. 504. Registration certificates. 

‘‘Sec. 505. Penalties. 

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

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

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

‘‘Sec. 509. Records. 

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

‘‘Sec. 511. Coordination with title 11. 

‘‘Sec. 512. Applicable interest rate. 

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

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

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

4 of each month, each person who is— 

5 ‘‘(A) liable to collect and remit the tax im6 posed by this subtitle by reason of section 

7 103(a), or 

8 ‘‘(B) liable to pay tax imposed by this sub9 title which is not collected pursuant to section 

10 103(a), 

11 shall submit to the appropriate sales tax admin12 istering authority (in a form prescribed by the Sec13 retary) a report relating to the previous calendar 

14 month. 

15 ‘‘(2) CONTENTS OF REPORT.—The report re16 quired under paragraph (1) shall set forth— 

17 ‘‘(A) the gross payments referred to in sec18 tion 101, 

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

20 connection with such payments, 


bajohnson on PROD1PC60 with BILLS
56 

•S 1025 IS

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

2 claimed, and 

3 ‘‘(D) other information reasonably required 

4 by the Secretary or the sales tax administering 

5 authority for the administration, collection, and 

6 remittance of the tax imposed by this subtitle. 

7 ‘‘(b) TAX PAYMENTS DATE.— 

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

9 subtitle during any calendar month is due and shall 

10 be paid to the appropriate sales tax administering 

11 authority on or before the 15th day of the suc12 ceeding month. Both Federal tax imposed by this 

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

14 be paid in 1 aggregate payment. 

15 ‘‘(2) CROSS REFERENCE.—See subsection (e) 

16 relating to remitting of separate segregated funds 

17 for sellers that are not small sellers. 

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

19 ‘‘(1) AUTOMATIC EXTENSIONS FOR NOT MORE

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

21 more than 30 days to file reports under subsection 

22 (a) shall be automatically granted. 

23 ‘‘(2) OTHER EXTENSIONS.—On application, ex24 tensions of 30 to 60 days to file such reports shall 

25 be liberally granted by the sales tax administering 


bajohnson on PROD1PC60 with BILLS
57 

•S 1025 IS

1 authority for reasonable cause. Extensions greater 

2 than 60 days may be granted by the sales tax ad3 ministering authority to avoid hardship. 

4 ‘‘(3) NO EXTENSION FOR PAYMENT OF

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

6 no extension shall be granted with respect to the 

7 time for paying or remitting the taxes under this 

8 subtitle. 

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

10 Secretary shall establish a system under which a violation 

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

12 tax administering authority for investigation through the 

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

14 ‘‘(e) SEPARATE SEGREGATED ACCOUNTS.— 

15 ‘‘(1) IN GENERAL.—Any registered seller that 

16 is not a small seller shall deposit all sales taxes col17 lected pursuant to section 103 in a particular week 

18 in a separate segregated account maintained at a 

19 bank or other financial institution within 3 business 

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

21 shall also maintain in that account sufficient funds 

22 to meet the bank or financial institution minimum 

23 balance requirements, if any, and to pay account 

24 fees and costs. 


bajohnson on PROD1PC60 with BILLS
58 

•S 1025 IS

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

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

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

4 this subtitle in any of the previous 12 months. 

5 ‘‘(3) LARGE SELLERS.—Any seller that has col6 lected $100,000 or more of the taxes imposed by 

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

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

9 administering authority the entire balance of depos10 ited taxes in its separate segregated account on the 

11 first business day following the end of the calendar 

12 week. The Secretary may by regulation require the 

13 electronic transfer of funds due from large sellers. 

14 ‘‘(4) WEEK.—For purposes of this subsection, 

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

16 on a Friday. 

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

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

19 filed when— 

20 ‘‘(1) deposited in the United States mail, post21 age prepaid, addressed to the sales tax administering 

22 authority, 

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

24 sales tax administering authority, 


bajohnson on PROD1PC60 with BILLS
59 

•S 1025 IS

1 ‘‘(3) provided to a designated commercial pri2 vate courier service for delivery within 2 days to the 

3 sales tax administering authority at the address of 

4 the sales tax administering authority, or 

5 ‘‘(4) by other means permitted by the Sec6 retary. 

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

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

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

10 $100,000 or one and one-half times the seller’s average 

11 monthly tax liability during the previous 6 calendar 

12 months. Security may be a cash bond, a bond from a sur13 ety company approved by the Secretary, a certificate of 

14 deposit, or a State or United States Treasury bond. A 

15 bond qualifying under this subsection must be a con16 tinuing instrument for each calendar year (or portion 

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

18 in effect until the surety or sureties are released and dis19 charged. Failure to provide security in accordance with 

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

21 502 registration. If a person who has provided security 

22 pursuant to this subsection— 

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

24 notice of amount due under this subtitle (within the 

25 meaning of section 605(d)), 


bajohnson on PROD1PC60 with BILLS
60 

•S 1025 IS

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

2 relating to the amount due, 

3 ‘‘(3) either the time for filing an appeal pursu4 ant to section 604 has passed or the appeal was de5 nied, and 

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

7 any judicial forum, 

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

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

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

11 ‘‘(h) REWARDS PROGRAM.—The Secretary is author12 ized to maintain a program of awards wherein individuals 

13 that assist the Secretary or sales tax administering au14 thorities in discovering or prosecuting tax fraud may be 

15 remunerated. 

16 ‘‘(i) CROSS REFERENCE.—For interest due on taxes 

17 remitted late, see section 6601. 

18 ‘‘SEC. 502. REGISTRATION. 

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

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

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

22 tax administering authority administering the taxes im23 posed by this subtitle. 

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

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


bajohnson on PROD1PC60 with BILLS
61 

•S 1025 IS

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

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

3 as separate persons for purposes of this subtitle. 

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

5 Every person registered pursuant to subsection (a) shall 

6 designate a tax matters person who shall be an individual 

7 whom the sales tax administering authority may contact 

8 regarding tax matters. Each person registered must pro9 vide notice of a change in the identity of the tax matters 

10 person within 30 days of said change. 

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

12 tax administering authority shall provide certificates of 

13 registration to registered sellers. 

14 ‘‘(e) EFFECT OF FAILURE TO REGISTER.—Any per15 son that is required to register and who fails to do so is 

16 prohibited from selling taxable property or services. The 

17 Secretary or a sales tax administering authority may bring 

18 an action seeking a temporary restraining order, an in19 junction, or such other order as may be appropriate to 

20 enforce this section. 

21 ‘‘SEC. 503. ACCOUNTING. 

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

23 Registered sellers and other persons shall report trans24 actions using the cash method of accounting unless an 


bajohnson on PROD1PC60 with BILLS
62 

•S 1025 IS

1 election to use the accrual method of accounting is made 

2 pursuant to subsection (b). 

3 ‘‘(b) ELECTION TO USE ACCRUAL METHOD.—A per4 son may elect with respect to a calender year to remit 

5 taxes and report transactions with respect to the month 

6 where a sale was invoiced and accrued. 

7 ‘‘(c) CROSS REFERENCE.—See section 205 for rules 

8 relating to bad debts for sellers electing the accrual meth9 od 

10 ‘‘SEC. 504. REGISTRATION CERTIFICATES. 

11 ‘‘The sales tax administering authority shall issue 

12 certificates of registration to registered sellers and such 

13 other certificates as are necessary or may prove useful in 

14 the administration of the taxes imposed by this subtitle. 

15 ‘‘SEC. 505. PENALTIES. 

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

17 required to register pursuant to section 502 but fails to 

18 do so prior to notification by the sales tax administering 

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

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

21 TAX.— 

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

23 who is required to and recklessly or willfully fails to 

24 collect taxes imposed by this subtitle shall be liable 


bajohnson on PROD1PC60 with BILLS
63 

•S 1025 IS

1 for a penalty equal to the greater of $500 or 20 per2 cent of tax not collected. 

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

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

5 business to collect taxes imposed by this subtitle 

6 may be fined an amount up to the amount deter7 mined in accordance with paragraph (1) or impris8 oned for a period of not more than 1 year or both. 

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

10 EXEMPTION.— 

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

12 who recklessly or willfully asserts an invalid inter13 mediate or export sales exemption from the taxes 

14 imposed by this subtitle shall be liable for a penalty 

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

16 not collected or remitted. 

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

18 willfully asserts an invalid intermediate or export 

19 sales exemption from the taxes imposed by this sub20 title may be fined an amount up to the amount de21 termined in accordance with paragraph (1) or im22 prisoned for a period of not more than 1 year or 

23 both. 

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

25 TAX COLLECTED.— 


bajohnson on PROD1PC60 with BILLS
64 

•S 1025 IS

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

2 who is required to and recklessly or willfully fails to 

3 remit taxes imposed by this subtitle and collected 

4 from purchasers shall be liable for a penalty equal 

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

6 remitted. 

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

8 willfully fails to remit taxes imposed by this subtitle 

9 and collected from purchasers may be fined an 

10 amount up to the amount determined in accordance 

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

12 more than 2 years or both. 

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

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

15 willfully fails to pay taxes imposed by this subtitle shall 

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

17 20 percent of the tax not paid. 

18 ‘‘(f) PENALTY FOR LATE FILING.— 

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

20 any person who is required to and fails to file a re21 port required by section 501 on or before the due 

22 date (determined with regard to any extension) for 

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

24 month or fraction thereof that said report is late 

25 equal to the greater of— 


bajohnson on PROD1PC60 with BILLS
65 

•S 1025 IS

1 ‘‘(A) $50, or 

2 ‘‘(B) 0.5 percent of the gross payments re3 quired to be shown on the report. 

4 ‘‘(2) INCREASED PENALTY ON RETURNS FILED

5 AFTER WRITTEN INQUIRY.—The amount of the pen6 alty under paragraph (1) shall be doubled with re7 spect to any report filed after a written inquiry with 

8 respect to such report is received by the taxpayer 

9 from the sales tax administering authority. 

10 ‘‘(3) LIMITATION.—The penalty imposed under 

11 this subsection shall not exceed 12 percent. 

12 ‘‘(4) EXCEPTIONS.— 

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

14 shall be imposed under this subsection with re15 spect to any failure if it is shown that such fail16 ure is due to reasonable cause. 

17 ‘‘(B) OTHER WAIVER AUTHORITY.—In ad18 dition to penalties not imposed by reason of 

19 subparagraph (A), the sales tax administering 

20 authority, on application, shall waive the pen21 alty imposed by paragraph (1) once per reg22 istered person per 24-month period. The pre23 ceding sentence shall not apply to a penalty de24 termined under paragraph (2). 


bajohnson on PROD1PC60 with BILLS
66 

•S 1025 IS

1 ‘‘(g) PENALTY FOR WILLFULLY OR RECKLESSLY AC2 CEPTING A FALSE INTERMEDIATE OR EXPORT SALES

3 CERTIFICATE.—A person who willingly or recklessly ac4 cepts a false intermediate or export sales certificate shall 

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

6 by reason of said acceptance. 

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

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

9 to timely remit taxes imposed by this subtitle and 

10 remits taxes more than 1 month after such taxes are 

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

12 (or fraction thereof) from the due date. 

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

14 this subsection shall not exceed 24 percent. 

15 ‘‘(3) EXCEPTIONS FOR REASONABLE CAUSE.— 

16 No penalty shall be imposed under paragraph (1) 

17 with respect to any late remittance if it is shown 

18 that such late remittance is due to reasonable cause. 

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

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

21 willingly or recklessly files a false claim for a family 

22 consumption allowance rebate (within the meaning 

23 of chapter 3) shall— 


bajohnson on PROD1PC60 with BILLS
67 

•S 1025 IS

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

2 $500 or 50 percent of the claimed annual re3 bate amount not actually due, and 

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

5 of the false rebate claim (together with inter6 est). 

7 ‘‘(2) CRIMINAL PENALTY.—A person who will8 ingly files a false claim for a family consumption al9 lowance rebate (within the meaning of chapter 3) 

10 may be fined an amount up to the amount deter11 mined in accordance with paragraph (1) or impris12 oned for a period not more than 1 year or both. 

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

14 money order in payment of any amount receivable under 

15 this subtitle is not duly paid, in addition to other penalties 

16 provided by law, the person who tendered such check shall 

17 pay a penalty equal to the greater of— 

18 ‘‘(1) $25, or 

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

20 ‘‘(k) PENALTY FOR FAILURE TO MAINTAIN A SEPA21 RATE SEGREGATED ACCOUNT.—Any person required to 

22 maintain a separate segregated account pursuant to sec23 tion 501(e) that fails to maintain such a separate seg24 regated account shall pay a penalty of $1,000. 


bajohnson on PROD1PC60 with BILLS
68 

•S 1025 IS

1 ‘‘(l) PENALTY FOR FAILURE TO DEPOSIT COL2 LECTED TAXES IN A SEPARATE SEGREGATED AC3 COUNT.—Any person required to deposit collected taxes 

4 into a separate segregated account maintained pursuant 

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

6 into the separate segregated account shall pay a penalty 

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

8 The penalty imposed by the previous sentence shall be tri9 pled unless said taxes have been deposited in the separate 

10 segregated account or remitted to the sales tax admin11 istering authority within 16 days of the date said deposit 

12 was due. 

13 ‘‘(m) JOINT AND SEVERAL LIABILITY FOR TAX MAT14 TERS PERSON AND RESPONSIBLE OFFICERS.—The tax 

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

16 and responsible officers or partners of a firm shall be 

17 jointly and severally liable for the tax imposed by this sub18 title and penalties imposed by this subtitle. 

19 ‘‘(n) RIGHT OF CONTRIBUTION.—If more than 1 per20 son is liable with respect to any tax or penalty imposed 

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

22 shall be entitled to recover from other persons who are 

23 liable for such tax or penalty an amount equal to the ex24 cess of the amount paid by such person over such person’s 

25 proportionate share of the tax or penalty. 


bajohnson on PROD1PC60 with BILLS
69 

•S 1025 IS

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

2 EXCLUSIVE.— 

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

4 penalty has been imposed shall not prevent the im5 position of a criminal fine. 

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

7 fine has been imposed shall not prevent the imposi8 tion of a civil penalty. 

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

10 the requirements relating to confidentiality of tax informa11 tion (as provided in section 605(e)) may be fined up to 

12 $10,000 or imprisoned for a period of not more than 1 

13 year, or both. 

14 ‘‘(q) CROSS REFERENCE.—For interest due on late 

15 payments, see section 6601. 

16 ‘‘SEC. 506. BURDEN OF PERSUASION AND BURDEN OF PRO17 DUCTION. 

18 ‘‘In all disputes concerning taxes imposed by this sub19 title, the person engaged in a dispute with the sales tax 

20 administering authority or the Secretary, as the case may 

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

22 records but the sales tax administering authority or the 

23 Secretary shall have the burden of persuasion. In all dis24 putes concerning an exemption claimed by a purchaser, 

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


bajohnson on PROD1PC60 with BILLS
70 

•S 1025 IS

1 certificate from the purchaser and did not have reasonable 

2 cause to believe that the certificate was improperly pro3 vided by the purchaser with respect to such purchase 

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

5 production of documents and records relating to that ex6 emption shall rest with the purchaser and not with the 

7 seller. 

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

9 ‘‘In all disputes concerning taxes imposed by this sub10 title, the person engaged in a dispute with the sales tax 

11 administering authority or the Secretary, as the case may 

12 be, shall be entitled to reasonable attorneys’ fees, account13 ancy fees, and other reasonable professional fees incurred 

14 in direct relation to the dispute unless the sales tax admin15 istering authority or the Secretary establishes that its po16 sition was substantially justified. 

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

18 ‘‘(a) SUMMONS.—Persons are subject to administra19 tive summons by the sales tax administering authority for 

20 records, documents, and testimony required by the sales 

21 tax administering authority to accurately determine liabil22 ity for tax under this subtitle. A summons shall be served 

23 by the sales tax administering authority by an attested 

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


bajohnson on PROD1PC60 with BILLS
71 

•S 1025 IS

1 or left at his last known address. The summons shall de2 scribe with reasonable certainty what is sought. 

3 ‘‘(b) EXAMINATIONS AND AUDITS.—The sales tax ad4 ministering authority has the authority to conduct at a 

5 reasonable time and place examinations and audits of per6 sons who are or may be liable to collect and remit tax 

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

8 records, or other data of such persons which may be rel9 evant or material to the determination of tax due. 

10 ‘‘(c) LIMITATION ON AUTHORITY IN CASE OF REFER11 RAL.—No administrative summons may be issued by the 

12 sales tax administering authority and no action be com13 menced to enforce an administrative summons with re14 spect to any person if a Justice Department referral or 

15 referral to a State Attorney General’s Office is in effect 

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

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

18 person if the sales tax administering authority or the Sec19 retary has recommended to the Justice Department or a 

20 State Attorney General’s Office a grand jury investigation 

21 of such person or a criminal prosecution of such person 

22 that contemplates criminal sanctions under this title. A 

23 referral shall be terminated when— 


bajohnson on PROD1PC60 with BILLS
72 

•S 1025 IS

1 ‘‘(1) the Justice Department or a State Attor2 ney General’s Office notifies the sales tax admin3 istering authority or the Secretary that he will not— 

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

5 connected with the internal revenue laws, 

6 ‘‘(B) authorize a grand jury investigation 

7 of such person with respect to such offense, or 

8 ‘‘(C) continue such a grand jury investiga9 tion, or 

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

11 criminal proceeding connected with the internal rev12 enue laws, or conforming State sales tax, against 

13 such person. 

14 ‘‘SEC. 509. RECORDS. 

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

16 subtitle shall keep records (including a record of all section 

17 510 receipts provided, complete records of intermediate 

18 and export sales, including purchaser’s intermediate and 

19 export sales certificates and tax number and the net of 

20 tax amount of purchase) sufficient to determine the 

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

22 6 years after the latter of the filing of the report for which 

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

24 to be filed. Any purchaser who purchased taxable property 

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


bajohnson on PROD1PC60 with BILLS
73 

•S 1025 IS

1 intermediate and export sales exemption shall keep records 

2 sufficient to determine whether said exemption was valid 

3 for a period of 7 years after the purchase of taxable prop4 erty or services. 

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

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

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

8 101, the seller shall charge the tax imposed by section 101 

9 separately from the purchase. For purchase of taxable 

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

11 101, the seller shall provide to the purchaser a receipt for 

12 each transaction that includes— 

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

14 tax; 

15 ‘‘(2) the amount of tax paid; 

16 ‘‘(3) the property or service price inclusive of 

17 tax; 

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

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

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

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

22 ‘‘(6) the name of the vendor; and 

23 ‘‘(7) the vendor registration number. 

24 ‘‘(b) VENDING MACHINE EXCEPTION.—The require25 ments of subsection (a) shall be inapplicable in the case 


bajohnson on PROD1PC60 with BILLS
74 

•S 1025 IS

1 of sales by vending machines. Vending machines for pur2 poses of this subsection are machines— 

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

4 for coins or currency; and 

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

6 unit in price. 

7 ‘‘(c) FINANCIAL INTERMEDIATION SERVICES EXCEP8 TION.—The requirements of subsection (a) shall be inap9 plicable in the case of sales financial intermediation serv10 ice. Receipts shall be issued when the tax is imposed (in 

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

12 financial intermediation services)). 

13 ‘‘SEC. 511. COORDINATION WITH TITLE 11. 

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

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

16 under title 11, United States Code— 

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

18 the failure occurred pursuant to an order of the 

19 court finding probable insufficiency of funds of the 

20 estate to pay administrative expenses; or 

21 ‘‘(2) if— 

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

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

24 the involuntary case) the appointment of a 

25 trustee; and 


bajohnson on PROD1PC60 with BILLS
75 

•S 1025 IS

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

2 date prescribed by law (including extensions) 

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

4 making the addition to tax occurs on or after 

5 the date the petition was filed. 

6 ‘‘SEC. 512. APPLICABLE INTEREST RATE. 

7 ‘‘(a) IN GENERAL.— 

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

9 case of a debt instrument, investment, financing 

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

11 the applicable interest rate is the Federal short-term 

12 rate. 

13 ‘‘(2) FEDERAL MID-TERM RATE.—In the case 

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

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

16 years, the applicable interest rate is the Federal 

17 mid-term rate. 

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

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

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

21 interest rate is the Federal long-term rate. 

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

23 short-term rate shall be the rate determined by the Sec24 retary based on the average market yield (selected by the 

25 Secretary and ending in the calendar month in which the 


bajohnson on PROD1PC60 with BILLS
76 

•S 1025 IS

1 determination is made during any one month) on out2 standing marketable obligations of the United States with 

3 remaining periods to maturity of 3 years or fewer. 

4 ‘‘(c) FEDERAL MID-TERM RATE.—The Federal mid5 term rate shall be the rate determined by the Secretary 

6 based on the average market yield (selected by the Sec7 retary and ending in the calendar month in which the de8 termination is made during any 1 month) on outstanding 

9 marketable obligations of the United States with remain10 ing periods to maturity of more than 3 years and not over 

11 9 years. 

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

13 long-term rate shall be the rate determined by the Sec14 retary based on the average market yield (selected by the 

15 Secretary and ending in the calendar month in which the 

16 determination is made during any 1 month) on out17 standing marketable obligations of the United States with 

18 remaining periods to maturity of over 9 years. 

19 ‘‘(e) DETERMINATION OF RATES.—During each cal20 endar month, the Secretary shall determine the Federal 

21 short-term rate, the Federal mid-term rate and the Fed22 eral long-term rate which shall apply during the following 

23 calendar month. 


bajohnson on PROD1PC60 with BILLS
77 

•S 1025 IS

1 ‘‘CHAPTER 6—COLLECTIONS; APPEALS; 

2 TAXPAYER RIGHTS 

‘‘Sec. 601. Collections. 

‘‘Sec. 602. Power to levy, etc. 

‘‘Sec. 603. Problem resolution offices. 

‘‘Sec. 604. Appeals. 

‘‘Sec. 605. Taxpayer rights. 

‘‘Sec. 606. Installment agreements compromises. 

3 ‘‘SEC. 601. COLLECTIONS. 

4 ‘‘The sales tax administering authority shall collect 

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

6 section 404 (relating to Federal administration in certain 

7 States). 

8 ‘‘SEC. 602. POWER TO LEVY, ETC. 

9 ‘‘(a) IN GENERAL.—The sales tax administering au10 thority may levy and seize property, garnish wages or sal11 ary and file liens to collect amounts due under this sub12 title, pursuant to enforcement of— 

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

14 law; 

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

16 to exercise his appeals rights under section 604; or 

17 ‘‘(3) an amount due if the appeals process de18 termined that an amount remained due and the tax19 payer has failed to timely petition the Tax Court for 

20 relief. 

21 ‘‘(b) EXEMPTION FROM LEVY, SEIZURE, AND GAR22 NISHMENTS.—There shall be exempt from levy, seizure, 


bajohnson on PROD1PC60 with BILLS
78 

•S 1025 IS

1 and garnishment or penalty in connection with any tax 

2 imposed by this subtitle— 

3 ‘‘(1) wearing apparel, school books, fuel, provi4 sions, furniture, personal effects, tools of a trade or 

5 profession, livestock in a household up to an aggre6 gate value of $15,000; and 

7 ‘‘(2) monthly money income equal to 150 per8 cent of the monthly poverty level (as defined in sec9 tion 303). 

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

11 such reasonable regulations as the Secretary may provide, 

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

13 title shall be released not later than 30 days after— 

14 ‘‘(1) the liability was satisfied or became unen15 forceable; or 

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

17 ‘‘SEC. 603. PROBLEM RESOLUTION OFFICES. 

18 ‘‘(a) PROBLEM RESOLUTION OFFICE TO BE ESTAB19 LISHED.—Each sales tax administering authority shall es20 tablish an independent Problem Resolution Office and ap21 point an adequate number of problem resolution officers. 

22 The head of the problem resolution office must be ap23 pointed by, and serve at the pleasure of either the State 

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

25 President of the United States. 


bajohnson on PROD1PC60 with BILLS
79 

•S 1025 IS

1 ‘‘(b) AUTHORITY OF PROBLEM RESOLUTION OFFI2 CERS.—Problem resolution officers shall have the author3 ity to investigate complaints and issue a Taxpayer Assist4 ance Order to administratively enjoin any collection activ5 ity if, in the opinion of the problem resolution officer, said 

6 collection activity is reasonably likely to not be in compli7 ance with law or to prevent hardship (other than by reason 

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

9 officers shall also have the authority to issue Taxpayer As10 sistance Orders releasing or returning property that has 

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

12 and that garnished wages be returned. A Taxpayer Assist13 ance Order may only be rescinded or modified by the prob14 lem resolution officer that issued it, by the highest official 

15 in the relevant sales tax administering authority or by its 

16 general counsel upon a finding that the collection activity 

17 is justified by clear and convincing evidence. The authority 

18 to reverse this Taxpayer Assistance Order may not be del19 egated. 

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

21 ORDER.—The Secretary shall establish a form and proce22 dure to aid persons requesting the assistance of the Prob23 lem Resolution Office and to aid the Problem Resolution 

24 Office in understanding the needs of the person seeking 

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


bajohnson on PROD1PC60 with BILLS
80 

•S 1025 IS

1 prerequisite to a problem resolution officer taking action, 

2 including issuing a Taxpayer Assistance Order. 

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

4 A Taxpayer Assistance Order shall contain the name of 

5 the problem resolution officer, any provision relating to 

6 the running of any applicable period of limitation, the 

7 name of the person that the Taxpayer Assistance Order 

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

9 said government office) to whom it is directed and the ac10 tion or cessation of action that the Taxpayer Assistance 

11 Order requires of said government officer (or employee or 

12 officer of said government office). The Taxpayer Assist13 ance Order need not contain findings of fact or its legal 

14 basis; however, the problem resolution officer must provide 

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

16 Taxpayer Assistance Order to the sales tax administering 

17 authority upon the request of an officer of said authority 

18 within 2 weeks of the receipt of such request. 

19 ‘‘(e) INDEPENDENCE PROTECTED.—Problem resolu20 tion officers shall not be disciplined or adversely affected 

21 for the issuance of administrative injunctions unless a pat22 tern of issuing injunctions that are manifestly unreason23 able is proven in an administrative hearing by a prepon24 derance of the evidence. 


bajohnson on PROD1PC60 with BILLS
81 

•S 1025 IS

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

2 section shall limit the authority of the sales tax admin3 istering authority, the registered person or other person 

4 from pursuing any legal remedy in any court with jurisdic5 tion over the dispute at issue. 

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

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

8 weeks following the issuance of a Taxpayer Assistance 

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

10 Taxpayer Assistance Order provided the suspension does 

11 not exceed 6 months. 

12 ‘‘SEC. 604. APPEALS. 

13 ‘‘(a) ADMINISTRATIVE APPEALS.—The sales tax ad14 ministering authority shall establish an administrative ap15 peals process wherein the registered person or other per16 son in disagreement with a decision of the sales tax admin17 istering authority asserting liability for tax is provided a 

18 full and fair hearing in connection with any disputes said 

19 person has with the sales tax administering authority. 

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

21 administrative appeal must be made within 60 days of re22 ceiving a final notice of amount due pursuant to section 

23 605(d) unless leave for an extension is granted by the ap24 peals officer in a form prescribed by the Secretary. Leave 

25 shall be granted to avoid hardship. 


bajohnson on PROD1PC60 with BILLS
82 

•S 1025 IS

1 ‘‘SEC. 605. TAXPAYER RIGHTS. 

2 ‘‘(a) RIGHTS TO BE DISCLOSED.—The sales tax ad3 ministering authority shall provide to any person against 

4 whom it has— 

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

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

7 ‘‘(3) filed an administrative lien, levy, or gar8 nishment; 

9 ‘‘(4) commenced other collection action; 

10 ‘‘(5) commenced an action for civil penalties; or 

11 ‘‘(6) any other legal action, 

12 a document setting forth in plain English the rights of 

13 the person. The document shall explain the administrative 

14 appeals process, the authority of the Problem Resolution 

15 Office (established pursuant to section 603) and how to 

16 contact that Office, the burden of production and persua17 sion that the person and the sales tax administering au18 thority bear (pursuant to section 506), the right of the 

19 person to professional fees (pursuant to section 507), the 

20 right to record interviews and such other rights as the per21 son may possess under this subtitle. Said document will 

22 also set forth the procedures for entering into an install23 ment agreement. 

24 ‘‘(b) RIGHT TO PROFESSIONAL ASSISTANCE.—In all 

25 dealings with the sales tax administering authority, a perVerDate Aug 31 2005 07:01 Mar 31, 2007 Jkt 059200 PO 00000 Frm 00082 Fmt 6652 Sfmt 6201 E:\BILLS\S1025.IS S1025

bajohnson on PROD1PC60 with BILLS
83 

•S 1025 IS

1 son shall have the right to assistance, at their own ex2 pense, of 1 or more professional advisors. 

3 ‘‘(c) RIGHT TO RECORD INTERVIEWS.—Any person 

4 who is interviewed by an agent of the sales tax admin5 istering authority shall have the right to video or audio 

6 tape the interview at the person’s own expense. 

7 ‘‘(d) RIGHT TO FINAL NOTICE OF AMOUNT DUE.— 

8 No collection or enforcement action will be commenced 

9 against a person until 30 days after they have been pro10 vided with a final notice of amount due under this subtitle 

11 by the sales tax administering authority. The final notice 

12 of amount due shall set forth the amount of tax due (along 

13 with any interest and penalties due) and the factual and 

14 legal basis for such amounts being due with sufficient 

15 specificity that such basis can be understood by a reason16 able person who is not a tax professional reading the no17 tice. The final notice shall be sent by certified mail, return 

18 receipt requested, to— 

19 ‘‘(1) the address last provided by a registered 

20 seller; or 

21 ‘‘(2) the best available address to a person who 

22 is not a registered seller. 

23 ‘‘(e) CONFIDENTIALITY OF TAX INFORMATION.— 


bajohnson on PROD1PC60 with BILLS
84 

•S 1025 IS

1 ‘‘(1) IN GENERAL.—All reports and report in2 formation (related to any internal revenue law) shall 

3 be confidential and except as authorized by this title 

4 ‘‘(A) no officer or employee (including 

5 former officers and employees) of the United 

6 States; 

7 ‘‘(B) no officer or employee (including 

8 former officers and employees) of any State or 

9 local agency who has had access to returns or 

10 return information; and 

11 ‘‘(C) no other person who has had access 

12 to returns or return information; 

13 shall disclose any report or report information ob14 tained by him in any manner in connection with his 

15 service as such officer or employee or otherwise. 

16 ‘‘(2) DESIGNEES.—The sales tax administering 

17 authority may, subject to such requirements as the 

18 Secretary may impose, disclose the report and report 

19 information of a person to that person or persons as 

20 that person may designate to receive said informa21 tion or return. 

22 ‘‘(3) OTHER SALES TAX ADMINISTERING AU23 THORITIES.—A sales tax administering authority 

24 may impose, disclose the report and report informa25 tion to another sales tax administering authority. 


bajohnson on PROD1PC60 with BILLS
85 

•S 1025 IS

1 ‘‘(4) INCOMPETENCY.—A sales tax admin2 istering authority may, subject to such requirements 

3 as the Secretary may impose, disclose the report and 

4 report information to the committee, trustee, or 

5 guardian of a person who is incompetent. 

6 ‘‘(5) DECEASED PERSONS.—A sales tax admin7 istering authority may, subject to such requirements 

8 as the Secretary may impose, disclose the report and 

9 report information to the decedent’s— 

10 ‘‘(A) administrator, executor, estate trust11 ee, or 

12 ‘‘(B) heir at law, next of kin, or beneficiary 

13 under a will who has a material interest that 

14 will be affected by the information. 

15 ‘‘(6) BANKRUPTCY.—A sales tax administering 

16 authority may, subject to such requirements as the 

17 Secretary may impose, disclose the report and report 

18 information to a person’s trustee in bankruptcy. 

19 ‘‘(7) CONGRESS.—Upon written request from 

20 the Chairman of the Committee on Ways and 

21 Means, the Chairman of the Committee on Finance 

22 of the Senate, or the Chairman or Chief of Staff of 

23 the Joint Committee on Taxation, a sales tax admin24 istering authority shall disclose the report and report 

25 information, except that any report or report inforVerDate Aug 31 2005 07:01 Mar 31, 2007 Jkt 059200 PO 00000 Frm 00085 Fmt 6652 Sfmt 6201 E:\BILLS\S1025.IS S1025

bajohnson on PROD1PC60 with BILLS
86 

•S 1025 IS

1 mation that can be associated with or otherwise 

2 identify a particular person shall be furnished to 

3 such committee only when sitting in closed executive 

4 session unless such person otherwise consents in 

5 writing to such disclosure. 

6 ‘‘(8) WAIVER OF PRIVACY RIGHTS.—A person 

7 may waive confidentiality rights provided by this sec8 tion. Such waiver must be in writing. 

9 ‘‘(9) INTERNAL USE.—Disclosure of the report 

10 or report information by officers or employees of a 

11 sales tax administering authority to other officers or 

12 employees of a sales tax administering authority in 

13 the ordinary course of tax administration activities 

14 shall not constitute unlawful disclosure of the report 

15 or report information. 

16 ‘‘(10) STATISTICAL USE.—Upon request in 

17 writing by the Secretary of Commerce, the Secretary 

18 shall furnish such reports and report information to 

19 officers and employees of the Department of Com20 merce as the Secretary may prescribe by regulation 

21 for the purposes of, and only to the extent necessary 

22 in, the structuring of censuses and national eco23 nomic accounts and conducting related statistical ac24 tivities authorized by law. 


bajohnson on PROD1PC60 with BILLS
87 

•S 1025 IS

1 ‘‘(11) DEPARTMENT OF THE TREASURY.—Re2 turns and return information shall be open for in3 spection by officers and employees of the Depart4 ment of the Treasury whose official duties require 

5 such inspection or disclosure for the purpose of, and 

6 only to the extent necessary for, preparing economic 

7 or financial forecasts, projections, analyses, or esti8 mates. Such inspection or disclosure shall be per9 mitted only upon written request that sets forth the 

10 reasons why such inspection or disclosure is nec11 essary and is signed by the head of the bureau or 

12 office of the Department of the Treasury requesting 

13 the inspection or disclosure. 

14 ‘‘SEC. 606. INSTALLMENT AGREEMENTS; COMPROMISES. 

15 ‘‘The sales tax administering authority is authorized 

16 to enter into written agreements with any person under 

17 which the person is allowed to satisfy liability for payment 

18 of any tax under this subtitle (and penalties and interest 

19 relating thereto) in installment payments if the sales tax 

20 administering authority determines that such agreement 

21 will facilitate the collection of such liability. The agree22 ment shall remain in effect for the term of the agreement 

23 unless the information that the person provided to the 

24 sales tax administering authority was materially inacVerDate Aug 31 2005 07:01 Mar 31, 2007 Jkt 059200 PO 00000 Frm 00087 Fmt 6652 Sfmt 6201 E:\BILLS\S1025.IS S1025

bajohnson on PROD1PC60 with BILLS
88 

•S 1025 IS

1 curate or incomplete. The sales tax administering author2 ity may compromise any amounts alleged to be due. 

3 ‘‘CHAPTER 7—SPECIAL RULES 

‘‘Sec. 701. Hobby activities. 

‘‘Sec. 702. Gaming activities. 

‘‘Sec. 703. Government purchases. 

‘‘Sec. 704. Government enterprises. 

‘‘Sec. 705. Mixed use property. 

‘‘Sec. 706. Not-for-profit organizations. 

4 ‘‘SEC. 701. HOBBY ACTIVITIES. 

5 ‘‘(a) HOBBY ACTIVITIES.—Neither the exemption af6 forded by section 102 for intermediate sales nor the cred7 its available pursuant to section 202 or 203 shall be avail8 able for any taxable property or service purchased for use 

9 in an activity if that activity is not engaged in for-profit. 

10 ‘‘(b) STATUS DEEMED.—If the activity has received 

11 gross payments for the sale of taxable property or services 

12 that exceed the sum of— 

13 ‘‘(1) taxable property and services purchased; 

14 ‘‘(2) wages and salary paid; and 

15 ‘‘(3) taxes (of any type) paid, 

16 in 2 or more of the most recent 3 calendar years during 

17 which it operated when the business activity shall be con18 clusively deemed to be engaged in for profit. 

19 ‘‘SEC. 702. GAMING ACTIVITIES. 

20 ‘‘(a) REGISTRATION.—Any person selling 1 or more 

21 chances is a gaming sponsor and shall register, in a form 


bajohnson on PROD1PC60 with BILLS
89 

•S 1025 IS

1 prescribed by the Secretary, with the sales tax admin2 istering authority as a gaming sponsor. 

3 ‘‘(b) CHANCE DEFINED.—For purposes of this sec4 tion, the term ‘chance’ means a lottery ticket, a raffle tick5 et, chips, other tokens, a bet or bets placed, a wager or 

6 wagers placed, or any similar device where the purchase 

7 of the right gives rise to an obligation by the gaming spon8 sor to pay upon the occurrence of— 

9 ‘‘(1) a random or unpredictable event; or 

10 ‘‘(2) an event over which neither the gaming 

11 sponsor nor the person purchasing the chance has 

12 control over the outcome. 

13 ‘‘(c) CHANCES NOT TAXABLE PROPERTY OR SERV14 ICE.—Notwithstanding any other provision in this sub15 title, a chance is not taxable property or services for pur16 poses of section 101. 

17 ‘‘(d) TAX ON GAMING SERVICES IMPOSED.—A 23- 

18 percent tax is hereby imposed on the taxable gaming serv19 ices of a gaming sponsor. This tax shall be paid and remit20 ted by the gaming sponsor. The tax shall be remitted by 

21 the 15th day of each month with respect to taxable gaming 

22 services during the previous calendar month. 

23 ‘‘(e) TAXABLE GAMING SERVICES DEFINED.—For 

24 purposes of this section, the term ‘taxable gaming services’ 

25 means— 


bajohnson on PROD1PC60 with BILLS
90 

•S 1025 IS

1 ‘‘(1) gross receipts of the gaming sponsor from 

2 the sale of chances, minus 

3 ‘‘(2) the sum of— 

4 ‘‘(A) total gaming payoffs to chance pur5 chasers (or their designees); and 

6 ‘‘(B) gaming specific taxes (other than the 

7 tax imposed by this section) imposed by the 

8 Federal, State, or local government. 

9 ‘‘SEC. 703. GOVERNMENT PURCHASES. 

10 ‘‘(a) GOVERNMENT PURCHASES.— 

11 ‘‘(1) PURCHASES BY THE FEDERAL GOVERN12 MENT.—Purchases by the Federal Government of 

13 taxable property and services shall be subject to the 

14 tax imposed by section 101. 

15 ‘‘(2) PURCHASE BY STATE GOVERNMENTS AND

16 THEIR POLITICAL SUBDIVISIONS.—Purchases by 

17 State governments and their political subdivisions of 

18 taxable property and services shall be subject to the 

19 tax imposed by section 101. 

20 ‘‘(b) CROSS REFERENCES.—For purchases by gov21 ernment enterprises see section 704. 

22 ‘‘SEC. 704. GOVERNMENT ENTERPRISES. 

23 ‘‘(a) GOVERNMENT ENTERPRISES TO COLLECT AND

24 REMIT TAXES ON SALES.—Nothing in this subtitle shall 

25 be construed to exempt any Federal, State, or local govVerDate Aug 31 2005 07:01 Mar 31, 2007 Jkt 059200 PO 00000 Frm 00090 Fmt 6652 Sfmt 6201 E:\BILLS\S1025.IS S1025

bajohnson on PROD1PC60 with BILLS
91 

•S 1025 IS

1 ernmental unit or political subdivision (whether or not the 

2 State is an administering State) operating a government 

3 enterprise from collecting and remitting tax imposed by 

4 this subtitle on any sale of taxable property or services., 

5 Government enterprises shall comply with all duties im6 posed by this subtitle and shall be liable for penalties and 

7 subject to enforcement action in the same manner as pri8 vate persons that are not government enterprises. 

9 ‘‘(b) GOVERNMENT ENTERPRISE.—Any entity owned 

10 or operated by a Federal, State, or local governmental unit 

11 or political subdivision that receives gross payments from 

12 private persons is a government enterprise, except that a 

13 government-owned entity shall not become a government 

14 enterprise for purposes of this section unless in any quar15 ter it has revenues from selling taxable property or serv16 ices that exceed $2,500. 

17 ‘‘(c) GOVERNMENT ENTERPRISES INTERMEDIATE

18 SALES.— 

19 ‘‘(1) IN GENERAL.—Government enterprises 

20 shall not be subject to tax on purchases that would 

21 not be subject to tax pursuant to section 102(b) if 

22 the government enterprise were a private enterprise. 

23 ‘‘(2) EXCEPTION.—Government enterprises 

24 may not use the exemption afforded by section 

25 102(b) to serve as a conduit for tax-free purchases 


bajohnson on PROD1PC60 with BILLS
92 

•S 1025 IS

1 by government units that would otherwise be subject 

2 to taxation on purchases pursuant to section 703. 

3 Transfers of taxable property or services purchased 

4 exempt from tax from a government enterprise to 

5 such government unit shall be taxable. 

6 ‘‘(d) SEPARATE BOOKS OF ACCOUNT.—Any govern7 ment enterprise must maintain books of account, separate 

8 from the nonenterprise government accounts, maintained 

9 in accordance with generally accepted accounting prin10 ciples. 

11 ‘‘(e) TRADE OR BUSINESS.—A government enterprise 

12 shall be treated as a trade or business for purposes of this 

13 subtitle. 

14 ‘‘(f) ENTERPRISE SUBSIDIES CONSTITUTE TAXABLE

15 PURCHASE.—A transfer of funds to a government enter16 prise by a government entity without full consideration 

17 shall constitute a taxable government purchase with the 

18 meaning of section 703 to the extent that the transfer of 

19 funds exceeds the fair market value of the consideration. 

20 ‘‘SEC. 705. MIXED USE PROPERTY. 

21 ‘‘(a) MIXED USE PROPERTY OR SERVICE.— 

22 ‘‘(1) MIXED USE PROPERTY OR SERVICE DE23 FINED.—For purposes of this section, the term 

24 ‘mixed use property or service’ is a taxable property 

25 or taxable service used for both taxable use or conVerDate Aug 31 2005 07:01 Mar 31, 2007 Jkt 059200 PO 00000 Frm 00092 Fmt 6652 Sfmt 6201 E:\BILLS\S1025.IS S1025

bajohnson on PROD1PC60 with BILLS
93 

•S 1025 IS

1 sumption and for a purpose that would not be sub2 ject to tax pursuant to section 102(a)(1). 

3 ‘‘(2) TAXABLE THRESHOLD.—Mixed use prop4 erty or service shall be subject to tax notwith5 standing section 102(a)(1) unless such property or 

6 service is used more than 95 percent for purposes 

7 that would give rise to an exemption pursuant to 

8 section 102(a)(1) during each calendar year (or por9 tions thereof) it is owned. 

10 ‘‘(3) MIXED USE PROPERTY OR SERVICES

11 CREDIT.—A person registered pursuant to section 

12 502 is entitled to a business use conversion credit 

13 (pursuant to section 202) equal to the product of— 

14 ‘‘(A) the mixed use property amount; and 

15 ‘‘(B) the business use ratio; and 

16 ‘‘(C) the rate of tax imposed by section 

17 101. 

18 ‘‘(4) MIXED USE PROPERTY AMOUNT.—The 

19 mixed use property amount for each month (or frac20 tion thereof) in which the property was owned shall 

21 be— 

22 ‘‘(A) one-three-hundred-sixtieth of the 

23 gross payments for real property for 360 

24 months or until the property is sold; 


bajohnson on PROD1PC60 with BILLS
94 

•S 1025 IS

1 ‘‘(B) one-eighty-fourth of the gross pay2 ments for tangible personal property for 84 

3 months or until the property is sold; 

4 ‘‘(C) one-sixtieth of the gross payments for 

5 vehicles for 60 months or until the property is 

6 sold; or 

7 ‘‘(D) for other types of taxable property or 

8 services, a reasonable amount or in accordance 

9 with regulations prescribed by the Secretary. 

10 ‘‘(5) BUSINESS USE RATIO.—For purposes of 

11 this section, the term ‘business use ratio’ means the 

12 ratio of business use to total use for a particular cal13 endar month (or portion thereof if the property was 

14 owned for only part of said calendar month). For ve15 hicles, the business use ratio will be the ratio of 

16 business purpose miles to total miles in a particular 

17 calendar month. For real property, the business use 

18 ratio is the ratio of floor space used primarily for 

19 business purposes to total floor space in a particular 

20 calendar month. For tangible personal property (ex21 cept for vehicles), the business use ratio is the ratio 

22 of total time used for business purposes to total time 

23 used in a particular calendar year. For other prop24 erty or services, the business ratio shall be cal25 culated using a reasonable method. Reasonable 


bajohnson on PROD1PC60 with BILLS
95 

•S 1025 IS

1 records must be maintained to support a person’s 

2 business use of the mixed use property or service. 

3 ‘‘(b) TIMING OF BUSINESS USE CONVERSION CRED4 IT ARISING OUT OF OWNERSHIP OF MIXED USE PROP5 ERTY.—A person entitled to a credit pursuant to sub6 section (a)(3) arising out of the ownership of mixed use 

7 property must account for the mixed use on a calendar 

8 year basis, and may file for the credit with respect to 

9 mixed use property in any month following the calendar 

10 year giving rise to the credit. 

11 ‘‘(c) CROSS REFERENCE.—For business use conver12 sion credit, see section 202. 

13 ‘‘SEC. 706. NOT-FOR-PROFIT ORGANIZATIONS. 

14 ‘‘(a) NOT-FOR-PROFIT ORGANIZATIONS.—Dues, con15 tributions, and similar payments to qualified not-for-profit 

16 organizations shall not be considered gross payments for 

17 taxable property or services for purposes of this subtitle. 

18 ‘‘(b) DEFINITION.—For purposes of this section, the 

19 term ‘qualified not-for-profit organization’ means a not20 for-profit organization organized and operated exclu21 sively— 

22 ‘‘(1) for religious, charitable, scientific, testing 

23 for public safety, literary, or educational purposes; 

24 ‘‘(2) as civic leagues or social welfare organiza25 tions; 


bajohnson on PROD1PC60 with BILLS
96 

•S 1025 IS

1 ‘‘(3) as labor, agricultural, or horticultural or2 ganizations; 

3 ‘‘(4) as chambers of commerce, business 

4 leagues, or trade associations; or 

5 ‘‘(5) as fraternal beneficiary societies, orders, or 

6 associations; 

7 no part of the net earnings of which inures to the benefit 

8 of any private shareholder or individual. 

9 ‘‘(c) QUALIFICATION CERTIFICATES.—Upon applica10 tion in a form prescribed by the Secretary, the sales tax 

11 administering authority shall provide qualification certifi12 cates to qualified not-for-profit organizations. 

13 ‘‘(d) TAXABLE TRANSACTIONS.—If a qualified not14 for-profit organization provides taxable property or serv15 ices in connection with contributions, dues, or similar pay16 ments to the organization, then it shall be required to 

17 treat the provision of said taxable property or services as 

18 a purchase taxable pursuant to this subtitle at the fair 

19 market value of said taxable property or services. 

20 ‘‘(e) EXEMPTIONS.—Taxable property and services 

21 purchased by a qualified not-for-profit organization shall 

22 be eligible for the exemptions provided in section 102. 

23 ‘‘CHAPTER 8—FINANCIAL 

24 INTERMEDIATION SERVICES 

‘‘Sec. 801. Determination of financial intermediation services amount. 

‘‘Sec. 802. Bad debts. 

‘‘Sec. 803. Timing of tax on financial intermediation services. 


bajohnson on PROD1PC60 with BILLS
97 

•S 1025 IS

‘‘Sec. 804. Financing leases. 

‘‘Sec. 805. Basic interest rate. 

‘‘Sec. 806. Foreign financial intermediation services. 

1 ‘‘SEC. 801. DETERMINATION OF FINANCIAL INTERMEDI2 ATION SERVICES AMOUNT. 

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

4 purposes of this subtitle— 

5 ‘‘(1) IN GENERAL.—The term ‘financial inter6 mediation services’ means the sum of— 

7 ‘‘(A) explicitly charged fees for financial 

8 intermediation services, and 

9 ‘‘(B) implicitly charged fees for financial 

10 intermediation services. 

11 ‘‘(2) EXPLICITLY CHARGED FEES FOR FINAN12 CIAL INTERMEDIATION SERVICES.—The term ‘explic13 itly charged fees for financial intermediation serv14 ices’ includes— 

15 ‘‘(A) brokerage fees; 

16 ‘‘(B) explicitly stated banking, loan origi17 nation, processing, documentation, credit check 

18 fees, or other similar fees; 

19 ‘‘(C) safe-deposit box fees; 

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

21 such premiums are not allocable to the invest22 ment account of the underlying insurance pol23 icy; 

24 ‘‘(E) trustees’ fees; and 


bajohnson on PROD1PC60 with BILLS
98 

•S 1025 IS

1 ‘‘(F) other financial services fees (includ2 ing mutual fund management, sales, and exit 

3 fees). 

4 ‘‘(3) IMPLICITLY CHARGED FEES FOR FINAN5 CIAL INTERMEDIATION SERVICES.— 

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

7 charged fees for financial intermediation serv8 ices’ includes the gross imputed amount in rela9 tion to any underlying interest-bearing invest10 ment, account, or debt. 

11 ‘‘(B) GROSS IMPUTED AMOUNT.—For pur12 poses of subparagraph (A), the term ‘gross im13 puted amount’ means— 

14 ‘‘(i) with respect to any underlying in15 terest-bearing investment or account, the 

16 product of— 

17 ‘‘(I) the excess (if any) of the 

18 basic interest rate (as defined in sec19 tion 805) over the rate paid on such 

20 investment; and 

21 ‘‘(II) the amount of the invest22 ment or account; and 

23 ‘‘(ii) with respect to any underlying 

24 interest-bearing debt, the product of— 


bajohnson on PROD1PC60 with BILLS
99 

•S 1025 IS

1 ‘‘(I) the excess (if any) of the 

2 rate paid on such debt over the basic 

3 interest rate (as defined in section 

4 805); and 

5 ‘‘(II) the amount of the debt. 

6 ‘‘(b) SELLER OF FINANCIAL INTERMEDIATION SERV7 ICES.—For purposes of section 103(a), the seller of finan8 cial intermediation services shall be— 

9 ‘‘(1) in the case of explicitly charged fees for fi10 nancial intermediation services, the seller shall be 

11 the person who receives the gross payments for the 

12 charged financial intermediation services; 

13 ‘‘(2) in the case of implicitly charged fees for fi14 nancial intermediation services with respect to any 

15 underlying interest-bearing investment or account, 

16 the person making the interest payments on the in17 terest-bearing investment or account; and 

18 ‘‘(3) in the case of implicitly charged fees for fi19 nancial intermediation services with respect to any 

20 interest-bearing debt, the person receiving the inter21 est payments on the interest-bearing debt. 

22 ‘‘SEC. 802. BAD DEBTS. 

23 ‘‘(a) IN GENERAL.—For purposes of section 205(a), 

24 a bad debt shall be a business debt that becomes wholly 

25 or partially worthless to the payee. 


bajohnson on PROD1PC60 with BILLS
100 

•S 1025 IS

1 ‘‘(b) BUSINESS LOAN.—For purposes of subsection 

2 (a), a business loan or debt is a bona fide loan or debt 

3 made for a business purpose that both parties intended 

4 be repaid. 

5 ‘‘(c) DETERMINATION OF WORTHLESSNESS.— 

6 ‘‘(1) IN GENERAL.—No loan or debt shall be 

7 considered wholly or partially worthless unless it has 

8 been in arrears for 180 days or more, except that if 

9 a debt is discharged wholly or partially in bank10 ruptcy before 180 days has elapsed, then it shall be 

11 deemed wholly or partially worthless on the date of 

12 discharge. 

13 ‘‘(2) DETERMINATION BY HOLDER.—A loan or 

14 debt that has been in arrears for 180 days or more 

15 may be deemed wholly or partially worthless by the 

16 holder unless a payment schedule has been entered 

17 into between the debtor and the lender. 

18 ‘‘(d) CROSS REFERENCE.—See section 205(c) for tax 

19 on subsequent payments. 

20 ‘‘SEC. 803. TIMING OF TAX ON FINANCIAL INTERMEDIATION 

21 SERVICES. 

22 ‘‘The tax on financial intermediation services pro23 vided by section 801 with respect to an underlying invest24 ment account or debt shall be imposed and collected with 

25 the same frequency that statements are rendered by the 


bajohnson on PROD1PC60 with BILLS
101 

•S 1025 IS

1 financial institution in connection with the investment ac2 count or debt but not less frequently than quarterly. 

3 ‘‘SEC. 804. FINANCING LEASES. 

4 ‘‘(a) DEFINITION.—For purposes of this section, the 

5 term ‘financing lease’ means any lease under which the 

6 lessee has the right to acquire the property for 50 percent 

7 or less of its fair market value at the end of the lease 

8 term. 

9 ‘‘(b) GENERAL RULE.—Financing leases shall be 

10 taxed in the method set forth in this section. 

11 ‘‘(c) DETERMINATION OF PRINCIPAL AND INTEREST

12 COMPONENTS OF FINANCING LEASE.—The Secretary 

13 shall promulgate rules for disaggregating the principal 

14 and interest components of a financing lease. The prin15 cipal amount shall be determined to the extent possible 

16 by examination of the contemporaneous sales price or 

17 prices of property the same or similar as the leased prop18 erty. 

19 ‘‘(d) ALTERNATIVE METHOD.—In the event that con20 temporaneous sales prices or property the same or similar 

21 as the leased property are not available, the principal and 

22 interest components of a financing lease shall be 

23 disaggregated using the applicable interest rate (as de24 fined in section 512) plus 4 percent. 


bajohnson on PROD1PC60 with BILLS
102 

•S 1025 IS

1 ‘‘(e) PRINCIPAL COMPONENT.—The principal compo2 nent of the financing lease shall be subject to tax as if 

3 a purchase in the amount of the principal component had 

4 been made on the day on which said lease was executed. 

5 ‘‘(f) INTEREST COMPONENT.—The financial inter6 mediation services amount with respect to the interest 

7 component of the financing lease shall be subject to tax 

8 under this subtitle. 

9 ‘‘(g) COORDINATION.—If the principal component 

10 and financial intermediation services amount with respect 

11 to the interest component of a lease have been taxed pur12 suant to this section, then the gross lease or rental pay13 ments shall not be subject to additional tax. 

14 ‘‘SEC. 805. BASIC INTEREST RATE. 

15 ‘‘For purposes of this chapter, the basic interest rate 

16 with respect to a debt instrument, investment, financing 

17 lease, or account shall be the applicable interest rate (as 

18 determined in section 512). For debt instruments, invest19 ments, or accounts of contractually fixed interest, the ap20 plicable interest rate of the month of issuance shall apply. 

21 For debt instruments, investments, or accounts of variable 

22 interest rates and which have no reference interest rate, 

23 the applicable interest shall be the Federal short-term in24 terest rate for each month. For debt instruments, invest25 ments, or accounts of variable interest rates and which 


bajohnson on PROD1PC60 with BILLS
103 

•S 1025 IS

1 have a reference interest rate, the applicable interest shall 

2 be the applicable interest rate for the reference interest 

3 rate for each month. 

4 ‘‘SEC. 806. FOREIGN FINANCIAL INTERMEDIATION SERV5 ICES. 

6 ‘‘(a) SPECIAL RULES RELATING TO INTERNATIONAL

7 FINANCIAL INTERMEDIATION SERVICES.—Financial 

8 intermediation services shall be deemed as used or con9 sumed within the United States if the person (or any re10 lated party as defined in section 205(e)) purchasing the 

11 services is a resident of the United States. 

12 ‘‘(b) DESIGNATION OF TAX REPRESENTATIVE.—Any 

13 person that provides financial intermediation services to 

14 United States residents must, as a condition of lawfully 

15 providing such services, designate, in a form prescribed 

16 by the Secretary, a tax representative for purposes of this 

17 subtitle. The tax representative shall be responsible for en18 suring that the taxes imposed by this subtitle are collected 

19 and remitted and shall be jointly and severally liable for 

20 collecting and remitting these taxes. The Secretary may 

21 require reasonable bond of the tax representative. The 

22 Secretary or a sales tax administering authority may bring 

23 an action seeking a temporary restraining order, an in24 junction, or such other order as may be appropriate to 

25 enforce this section. 


bajohnson on PROD1PC60 with BILLS
104 

•S 1025 IS

1 ‘‘(c) CROSS REFERENCES.—For definition of person, 

2 see section 901. 

3 ‘‘CHAPTER 9—ADDITIONAL MATTERS 

‘‘Sec. 901. Additional matters. 

‘‘Sec. 902. Transition matters. 

‘‘Sec. 903. Wages to be reported to Social Security Administration. 

‘‘Sec. 904. Trust Fund revenue. 

‘‘Sec. 905. Withholding of tax on nonresident aliens and foreign corporations. 

4 ‘‘SEC. 901. ADDITIONAL MATTERS. 

5 ‘‘(a) INTANGIBLE PROPERTY ANTIAVOIDANCE

6 RULE.—Notwithstanding section 2(a)(14)(a)(i), the sale 

7 of a copyright or trademark shall be treated as the sale 

8 of taxable services (within the meaning of section 101(a)) 

9 if the substance of the sales of copyright or trademark 

10 constituted the sale of the services that produced the copy11 righted material or the trademark. 

12 ‘‘(b) DE MINIMIS PAYMENTS.—Up to $400 of gross 

13 payments per calendar year shall be exempt from the tax 

14 imposed by section 101 if— 

15 ‘‘(1) made by a person not in connection with 

16 a trade or business at any time during such calendar 

17 year prior to making said gross payments, and 

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

19 service which is imported into the United States by 

20 such person for use or consumption by such person 

21 in the United States. 


bajohnson on PROD1PC60 with BILLS
105 

•S 1025 IS

1 ‘‘(c) DE MINIMIS SALES.—Up to $1,200 per calendar 

2 year of gross payments shall be exempt from the tax im3 posed by section 101 if received— 

4 ‘‘(1) by a person not in connection with a trade 

5 or business during such calendar year prior to the 

6 receipt of said gross payments; and 

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

8 sale. 

9 ‘‘(d) DE MINIMIS SALE OF FINANCIAL INTERMEDI10 ATION SERVICES.—Up to $10,000 per calendar year of 

11 gross payments received by a person from the sale of fi12 nancial intermediation services (as determined in accord13 ance with section 801) shall be exempt from the tax im14 posed by section 101. The exemption provided by this sub15 section is in addition to other exemptions afforded by this 

16 chapter. The exemption provided by this subsection shall 

17 not be available to large sellers (as defined in section 

18 501(e)(3)). 

19 ‘‘(e) PROXY BUYING TAXABLE.—If a registered per20 son provides taxable property or services to a person either 

21 as a gift, prize, reward, or as remuneration for employ22 ment, and such taxable property or services were not pre23 viously subject to tax pursuant to section 101, then the 

24 provision of such taxable property or services by the reg25 istered person shall be deemed the conversion of such taxVerDate Aug 31 2005 07:01 Mar 31, 2007 Jkt 059200 PO 00000 Frm 00105 Fmt 6652 Sfmt 6201 E:\BILLS\S1025.IS S1025

bajohnson on PROD1PC60 with BILLS
106 

•S 1025 IS

1 able property or services to personal use subject to tax 

2 pursuant to section 103(c) at the tax inclusive fair market 

3 value of such taxable property or services. 

4 ‘‘(f) SUBSTANCE OVER FORM.—The substance of a 

5 transaction will prevail over its form if the transaction has 

6 no bona fide economic purpose and is designed to evade 

7 tax imposed by this subtitle. 

8 ‘‘(g) CERTAIN EMPLOYEE DISCOUNTS TAXABLE.— 

9 ‘‘(1) EMPLOYEE DISCOUNT.—For purposes of 

10 this subsection, the term ‘employee discount’ means 

11 an employer’s offer of taxable property or services 

12 for sale to its employees or their families (within the 

13 meaning of section 302(b)) for less than the offer of 

14 such taxable property or services to the general pub15 lic. 

16 ‘‘(2) EMPLOYEE DISCOUNT AMOUNT.—For pur17 poses of this subsection, the employee discount 

18 amount is the amount by which taxable property or 

19 services are sold pursuant to an employee discount 

20 below the amount for which such taxable property or 

21 services would have been sold to the general public. 

22 ‘‘(3) TAXABLE AMOUNT.—If the employee dis23 count amount exceeds 20 percent of the price that 

24 the taxable property or services would have been sold 

25 to the general public, then the sale of such taxable 


bajohnson on PROD1PC60 with BILLS
107 

•S 1025 IS

1 property or services by the employer shall be deemed 

2 the conversion of such taxable property or services 

3 to personal use and tax shall be imposed on the tax4 able employee discount amount. The taxable em5 ployee discount amount shall be— 

6 ‘‘(A) the employee discount amount, minus 

7 ‘‘(B) 20 percent of the amount for which 

8 said taxable property or services would have 

9 been sold to the general public. 

10 ‘‘(h) SATURDAY, SUNDAY, OR LEGAL HOLIDAY.— 

11 When the last day prescribed for performing any act re12 quired by this subtitle falls on a Saturday, Sunday, or 

13 legal holiday (in the jurisdiction where the return is to 

14 be filed), the performance of such act shall be considered 

15 timely if it is performed on the next day which is not a 

16 Saturday, Sunday, or legal holiday (in the jurisdiction 

17 where the return is to be filed). 

18 ‘‘SEC. 902. TRANSITION MATTERS. 

19 ‘‘(a) INVENTORY.— 

20 ‘‘(1) QUALIFIED INVENTORY.—Inventory held 

21 by a trade or business on the close of business on 

22 December 31, 2008, shall be qualified inventory if it 

23 is sold— 

24 ‘‘(A) before December 31, 2009; 

25 ‘‘(B) by a registered person; and 


bajohnson on PROD1PC60 with BILLS
108 

•S 1025 IS

1 ‘‘(C) subject to the tax imposed by section 

2 101. 

3 ‘‘(2) COSTS.—For purposes of this section, 

4 qualified inventory shall have the cost that it had for 

5 Federal income tax purposes for the trade or busi6 ness as of December 31, 2008 (including any 

7 amounts capitalized by reason of section 263A of the 

8 Internal Revenue Code of 1986 as in effect on De9 cember 31, 2008). 

10 ‘‘(3) TRANSITIONAL INVENTORY CREDIT.—The 

11 trade or business which held the qualified inventory 

12 on the close of business on December 31, 2008, shall 

13 be entitled to a transitional inventory credit equal to 

14 the cost of the qualified inventory (determined in ac15 cordance with paragraph (2)) times the rate of tax 

16 imposed by section 101. 

17 ‘‘(4) TIMING OF CREDIT.—The credit provided 

18 under paragraph (3) shall be allowed with respect to 

19 the month when the inventory is sold subject to the 

20 tax imposed by this subtitle. Said credit shall be re21 ported as an intermediate and export sales credit 

22 and the person claiming said credit shall attach sup23 porting schedules in the form that the Secretary 

24 may prescribe. 


bajohnson on PROD1PC60 with BILLS
109 

•S 1025 IS

1 ‘‘(b) WORK-IN-PROCESS.—For purposes of this sec2 tion, inventory shall include work-in-process. 

3 ‘‘(c) QUALIFIED INVENTORY HELD BY BUSINESSES

4 NOT SELLING SAID QUALIFIED INVENTORY AT RE5 TAIL.— 

6 ‘‘(1) IN GENERAL.—Qualified inventory held by 

7 businesses that sells said qualified inventory not sub8 ject to tax pursuant to section 102(a) shall be eligi9 ble for the transitional inventory credit only if that 

10 business (or a business that has successor rights 

11 pursuant to paragraph (2)) receives certification in 

12 a form satisfactory to the Secretary that the quali13 fied inventory was subsequently sold subject to the 

14 tax imposed by this subtitle. 

15 ‘‘(2) TRANSITIONAL INVENTORY CREDIT RIGHT

16 MAY BE SOLD.—The business entitled to the transi17 tional inventory credit may sell the right to receive 

18 said transitional inventory credit to the purchaser of 

19 the qualified inventory that gave rise to the credit 

20 entitlement. Any purchaser of such qualified inven21 tory (or property or services into which the qualified 

22 inventory has been incorporated) may sell the right 

23 to said transitional inventory credit to a subsequent 

24 purchaser of said qualified inventory (or property or 


bajohnson on PROD1PC60 with BILLS
110 

•S 1025 IS

1 services into which the qualified inventory has been 

2 incorporated). 

3 ‘‘SEC. 903. WAGES TO BE REPORTED TO SOCIAL SECURITY 

4 ADMINISTRATION. 

5 ‘‘(a) IN GENERAL.—Employers shall submit such in6 formation to the Social Security Administration as is re7 quired by the Social Security Administration to calculate 

8 Social Security benefits under title II of the Social Secu9 rity Act, including wages paid, in a form prescribed by 

10 the Secretary. A copy of the employer submission to the 

11 Social Security Administration relating to each employee 

12 shall be provided to each employee by the employer. 

13 ‘‘(b) WAGES.—For purposes of this section, the term 

14 ‘wages’ means all cash remuneration for employment (in15 cluding tips to an employee by third parties provided that 

16 the employer or employee maintains records documenting 

17 such tips) including self-employment income; except that 

18 such term shall not include— 

19 ‘‘(1) any insurance benefits received (including 

20 death benefits); 

21 ‘‘(2) pension or annuity benefits received; 

22 ‘‘(3) tips received by an employee over $5,000 

23 per year; and 


bajohnson on PROD1PC60 with BILLS
111 

•S 1025 IS

1 ‘‘(4) benefits received under a government enti2 tlement program (including Social Security benefits 

3 and unemployment compensation benefits). 

4 ‘‘(c) SELF-EMPLOYMENT INCOME.—For purposes of 

5 subsection (b), the term ‘self-employment income’ means 

6 gross payments received for taxable property or services 

7 minus the sum of— 

8 ‘‘(1) gross payments made for taxable property 

9 or services (without regard to whether tax was paid 

10 pursuant to section 101 on such taxable property or 

11 services), and 

12 ‘‘(2) wages paid by the self-employed person to 

13 employees of the self-employed person. 

14 ‘‘SEC. 904. TRUST FUND REVENUE. 

15 ‘‘(a) SECRETARY TO MAKE ALLOCATION OF SALES

16 TAX REVENUE.—The Secretary shall allocate the revenue 

17 received by virtue of the tax imposed by section 101 in 

18 accordance with this section. The revenue shall be allo19 cated among— 

20 ‘‘(1) the general revenue, 

21 ‘‘(2) the old-age and survivors insurance trust 

22 fund, 

23 ‘‘(3) the disability insurance trust fund, 

24 ‘‘(4) the hospital insurance trust fund, and 


bajohnson on PROD1PC60 with BILLS
112 

•S 1025 IS

1 ‘‘(5) the Federal supplementary medical insur2 ance trust fund. 

3 ‘‘(b) GENERAL RULE.— 

4 ‘‘(1) GENERAL REVENUE.—The proportion of 

5 total revenue allocated to the general revenue shall 

6 be the same proportion as the rate in section 

7 101(b)(4) bears to the combined Federal tax rate 

8 percentage (as defined in section 101(b)(3)). 

9 ‘‘(2) The amount of revenue allocated to the 

10 old-age and survivors insurance and disability insur11 ance trust funds shall be the same proportion as the 

12 old-age, survivors and disability insurance rate (as 

13 defined in subsection (d)) bears to the combined 

14 Federal tax rate percentage (as defined in section 

15 101(b)(3)). 

16 ‘‘(3) The amount of revenue allocated to the 

17 hospital insurance and Federal supplementary med18 ical insurance trust funds shall be the same propor19 tion as the hospital insurance rate (as defined in 

20 subsection (e)) bears to the combined Federal tax 

21 rate percentage (as defined in section 101(b)(3)). 

22 ‘‘(c) CALENDAR YEAR 2009.—Notwithstanding sub23 section (b), the revenue allocation pursuant to subsection 

24 (a) for calendar year 2009 shall be as follows: 


bajohnson on PROD1PC60 with BILLS
113 

•S 1025 IS

1 ‘‘(1) 64.83 percent of total revenue to general 

2 revenue; 

3 ‘‘(2) 27.43 percent of total revenue to the old4 age and survivors insurance and disability insurance 

5 trust funds, and 

6 ‘‘(3) 7.74 percent of total revenue to the hos7 pital insurance and Federal supplementary medical 

8 insurance trust funds. 

9 ‘‘(d) OLD-AGE, SURVIVORS AND DISABILITY INSUR10 ANCE RATE.—The old-age, survivors and disability insur11 ance rate shall be determined by the Social Security Ad12 ministration. The old-age, survivors and disability insur13 ance rate shall be that sales tax rate which is necessary 

14 to raise the same amount of revenue that would have been 

15 raised by imposing a 12.4 percent tax on the Social Secu16 rity wage base (including self-employment income) as de17 termined in accordance with chapter 21 of the Internal 

18 Revenue Code most recently in effect prior to the enact19 ment of this Act. The rate shall be determined using actu20 arially sound methodology and announced at least 6 

21 months prior to the beginning of the Calendar year for 

22 which it applies. 

23 ‘‘(e) HOSPITAL INSURANCE RATE.—The hospital in24 surance rate shall be determined by the Social Security 

25 Administration. The hospital insurance rate shall be that 


bajohnson on PROD1PC60 with BILLS
114 

•S 1025 IS

1 sales tax rate which is necessary to raise the same amount 

2 of revenue that would have been raised by imposing a 2.9 

3 percent tax on the Medicare wage base (including self-em4 ployment income) as determined in accordance with chap5 ter 21 of the Internal Revenue Code most recently in effect 

6 prior to the enactment of this Act. The rate shall be deter7 mined using actuarially sound methodology and an8 nounced at least 6 months prior to the beginning of the 

9 calendar year for which it applies. 

10 ‘‘(f) ASSISTANCE.—The Secretary shall provide such 

11 technical assistance as the Social Security Administration 

12 shall require to determine the old-age, survivors and dis13 ability insurance rate and the hospital insurance rate. 

14 ‘‘(g) FURTHER ALLOCATIONS.— 

15 ‘‘(1) OLD-AGE, SURVIVORS AND DISABILITY IN16 SURANCE.—The Secretary shall allocate revenue re17 ceived because of the old-age, survivors and dis18 ability insurance rate to the old-age and survivors 

19 insurance trust fund and the disability insurance 

20 trust fund in accordance with law or, in the absence 

21 of other statutory provision, in the same proportion 

22 that the old-age and survivors insurance trust fund 

23 receipts bore to the sum of the old-age and survivors 

24 insurance trust fund receipts and the disability in25 surance trust fund receipts in calendar year 2008 


bajohnson on PROD1PC60 with BILLS
115 

•S 1025 IS

1 (taking into account only receipts pursuant to chap2 ter 21 of the Internal Revenue Code). 

3 ‘‘(2) HOSPITAL INSURANCE.—The Secretary 

4 shall allocate revenue received because of the hos5 pital insurance rate to the hospital insurance trust 

6 fund and the Federal supplementary medical insur7 ance trust fund in accordance with law or, in the ab8 sence of other statutory provision, in the same pro9 portion that hospital insurance trust fund receipts 

10 bore to the sum of the hospital insurance trust fund 

11 receipts and Federal supplementary medical insur12 ance trust fund receipts in calendar year 2008 (tak13 ing into account only receipts pursuant to chapter 

14 21 of the Internal Revenue Code). 

15 ‘‘SEC. 905. WITHHOLDING OF TAX ON NONRESIDENT ALIENS 

16 AND FOREIGN CORPORATIONS. 

17 ‘‘(a) IN GENERAL.—All persons, in whatever capacity 

18 acting (including lessees or mortgagors or real or personal 

19 property, fiduciaries, employers, and all officers and em20 ployees of the United States) having control, receipt, cus21 tody, disposal, or payment of any income to the extent 

22 such income constitutes gross income from sources within 

23 the United States of any nonresident alien individual, for24 eign partnership, or foreign corporation shall deduct and 


bajohnson on PROD1PC60 with BILLS
116 

•S 1025 IS

1 withhold from that income a tax equal to 23 percent there2 of. 

3 ‘‘(b) EXCEPTION.—No tax shall be required to be de4 ducted from interest on portfolio debt investments. 

5 ‘‘(c) TREATY COUNTRIES.—In the case of payments 

6 to nonresident alien individuals, foreign partnerships, or 

7 foreign corporations that have a residence in (or the na8 tionality of a country) that has entered into a tax treaty 

9 with the United States, then the rate of withholding tax 

10 prescribed by the treaty shall govern.’’. 

11 SEC. 202. CONFORMING AND TECHNICAL AMENDMENTS. 

12 (a) REPEALS.—The following provisions of the Inter13 nal Revenue Code of 1986 are repealed: 

14 (1) Subchapter A of chapter 61 of subtitle D 

15 (as redesignated by section 104) (relating to infor16 mation and returns). 

17 (2) Sections 6103 through 6116 of subchapter 

18 B of chapter 61 of subtitle D (as so redesignated). 

19 (3) Section 6157 (relating to unemployment 

20 taxes). 

21 (4) Section 6163 (relating to estate taxes). 

22 (5) Section 6164 (relating to corporate taxes). 

23 (6) Section 6166 (relating to estate taxes). 

24 (7) Section 6167 (relating to foreign expropria25 tion losses). 


bajohnson on PROD1PC60 with BILLS
117 

•S 1025 IS

1 (8) Sections 6201, 6205 and 6207 (relating to 

2 assessments). 

3 (9) Subchapter C of chapter 63 of subtitle D 

4 (as so redesignated) (relating to tax treatment of 

5 partnership items). 

6 (10) Section 6305 (relating to collections of cer7 tain liabilities). 

8 (11) Sections 6314, 6315, 6316, and 6317 (re9 lating to payments of repealed taxes). 

10 (12) Sections 6324, 6324A and 6324B (relat11 ing to liens for estate and gift taxes). 

12 (13) Section 6344 (relating to cross references). 

13 (14) Section 6411 (relating to carrybacks). 

14 (15) Section 6413 (relating to employment 

15 taxes). 

16 (16) Section 6414 (relating to withheld income 

17 taxes). 

18 (17) Section 6422 (relating to cross references). 

19 (18) Section 6425 (relating to overpayment of 

20 corporate estimated taxes). 

21 (19) Section 6504 (relating to cross references). 

22 (20) Section 6652 (relating to failure to file 

23 certain information returns). 

24 (21) Sections 6654 and 6655 (relating to fail25 ure to payment estimated income tax). 


bajohnson on PROD1PC60 with BILLS
118 

•S 1025 IS

1 (22) Section 6662 (relating to penalties). 

2 (23) Sections 6677 through 6711 (relating to 

3 income tax related penalties). 

4 (24) Part II of subchapter B of chapter 68 (re5 lating to certain information returns). 

6 (25) Part I of subchapter A of chapter 70 (re7 lating to termination of taxable year). 

8 (26) Section 6864 (relating to certain 

9 carrybacks). 

10 (27) Section 7103 (relating to cross references). 

11 (28) Section 7204 (relating to withholding 

12 statements). 

13 (29) Section 7211 (relating certain statements). 

14 (30) Section 7231 (relating to failure to obtain 

15 certain licenses). 

16 (31) Section 7270 (relating to insurance poli17 cies). 

18 (32) Section 7404 (relating to estate taxes). 

19 (33) Section 7404 (relating to income tax pre20 parers). 

21 (34) Section 7408 (relating to income tax shel22 ters). 

23 (35) Section 7409 (relating to 501(c)(3) organi24 zations). 


bajohnson on PROD1PC60 with BILLS
119 

•S 1025 IS

1 (36) Section 7427 (relating to income tax pre2 parers). 

3 (37) Section 7428 (relating to 501(c)(3) organi4 zations). 

5 (38) Section 7476 (relating to declaratory judg6 ments relating to retirement plans). 

7 (39) Section 7478 (relating to declaratory judg8 ments relating to certain tax-exempt obligations). 

9 (40) Section 7508 (relating to postponing time 

10 for certain actions required by the income, estate, 

11 and gift tax). 

12 (41) Section 7509 (relating to Postal Service 

13 payroll taxes). 

14 (42) Section 7512 (relating to payroll taxes). 

15 (43) Section 7517 (relating to estate and gift 

16 tax evaluation). 

17 (44) Section 7518 (relating to Merchant Marine 

18 tax incentives). 

19 (45) Section 7519 (relating to taxable years). 

20 (46) Section 7520 (relating to insurance and 

21 annuity valuation tables). 

22 (47) Section 7523 (relating to reporting Fed23 eral income and outlays on Form 1040s). 


bajohnson on PROD1PC60 with BILLS
120 

•S 1025 IS

1 (48) Section 7611 (relating to church income 

2 tax exemptions and church unrelated business in3 come tax inquiries). 

4 (49) Section 7654 (relating to possessions’ in5 come taxes). 

6 (50) Section 7655 (relating to cross references). 

7 (51) Section 7701(a)(16). 

8 (52) Section 7701(a)(19). 

9 (53) Section 7701(a)(20). 

10 (54) Paragraphs (32) through (38) of section 

11 7701(a). 

12 (55) Paragraphs (41) through (46) of section 

13 7701(a). 

14 (56) Section 7701(b). 

15 (57) Subsections (e) through (m) of section 

16 7701. 

17 (58) Section 7702 (relating to life insurance 

18 contracts). 

19 (59) Section 7702A (relating to modified en20 dowment contracts). 

21 (60) Section 7702B (relating to long-term care 

22 insurance). 

23 (61) Section 7703 (relating to the determina24 tion of marital status). 


bajohnson on PROD1PC60 with BILLS
121 

•S 1025 IS

1 (62) Section 7704 (relating to publicly traded 

2 partnerships). 

3 (63) Section 7805. 

4 (64) Section 7851. 

5 (65) Section 7872. 

6 (66) Section 7873. 

7 (b) OTHER CONFORMING AND TECHNICAL AMEND8 MENTS.— 

9 (1) Section 6151 is amended by striking sub10 section (b) and by redesignating subsection (c) as 

11 subsection (b). 

12 (2) Section 6161 is amended to read as follows: 

13 ‘‘SEC. 6161. EXTENSION OF TIME FOR PAYING TAX. 

14 ‘‘The Secretary, except as otherwise provided in this 

15 title, may extend the time for payment of the amount of 

16 the tax shown or required to be shown on any return, re17 port, or declaration required under authority of this title 

18 for a reasonable period not to exceed 6 months (12 months 

19 in the case of a taxpayer who is abroad).’’. 

20 (3) Section 6211(a) is amended— 

21 (A) by striking ‘‘income, estate and gift 

22 taxes imposed by subtitles A and B and’’, 

23 (B) by striking ‘‘subtitle A or B, or’’, and 

24 (C) by striking ‘‘, as defined in subsection 

25 (b)(2),’’ in paragraph (2). 


bajohnson on PROD1PC60 with BILLS
122 

•S 1025 IS

1 (4) Section 6211(b) is amended to read as fol2 lows: 

3 ‘‘(b) REBATE DEFINED.—For purposes of subsection 

4 (a)(2), the term ‘rebate’ means so much of an abatement, 

5 credit, refund, or other payment, as was made on the 

6 ground that the tax imposed by chapter 41, 42, 43, or 

7 44 was less than the excess of the amount specified in 

8 subsection (a)(1) over the rebates previously made.’’. 

9 (5) Section 6212(b) is amended to read as fol10 lows: 

11 ‘‘(b) ADDRESS FOR NOTICE OF DEFICIENCY.—In the 

12 absence of notice to the Secretary under section 6903 of 

13 the existence of a fiduciary relationship, notice of a defi14 ciency in respect of a tax imposed by chapter 42, 43, or 

15 44 if mailed to the taxpayer at his last known address, 

16 shall be sufficient for purposes of such chapter and this 

17 chapter even if such taxpayer is deceased, or is under a 

18 legal disability, or, in the case of a corporation has termi19 nated its existence.’’. 

20 (6) Section 6302(b) is amended by striking 

21 ‘‘21,’’. 

22 (7) Section 6302 is amended by striking sub23 sections (g) and (i) and by redesignating subsection 

24 (h) as subsection (g). 


bajohnson on PROD1PC60 with BILLS
123 

•S 1025 IS

1 (8) Section 6325 is amended by striking sub2 section (c) and by redesignating subsections (d) 

3 through (h) as subsections (c) through (g), respec4 tively. 

5 (9) Section 6402(d) is amended by striking 

6 paragraph (3). 

7 (10) Section 6402 is amended by striking sub8 section (j) and by redesignating subsection (k) as 

9 subsection (j). 

10 (11) Section 6501(b) is amended— 

11 (A) by striking ‘‘except tax imposed by 

12 chapter 3, 21, or 24,’’ in paragraph (1), and 

13 (B) by striking paragraph (2) and by re14 designation paragraphs (3) and (4) as para15 graphs (2) and (3), respectively. 

16 (12) Section 6501(c) is amended by striking 

17 paragraphs (5) through (9). 

18 (13) Section 6501(e) is amended by striking 

19 ‘‘subsection (c)—’’ and all that follows through 

20 ‘‘subtitle D’’ in paragraph (3) and inserting ‘‘sub21 section (c), in the case of a return of a tax imposed 

22 under a provision of subtitle B’’. 

23 (14) Section 6501 is amended by striking sub24 section (f) through (k) and subsections (m) and (n) 


bajohnson on PROD1PC60 with BILLS
124 

•S 1025 IS

1 and by redesignating subsection (1) as subsection 

2 (f). 

3 (15) Section 6503(a) is amended— 

4 (A) by striking paragraph (2), 

5 (B) by striking ‘‘DEFICIENCY.—’’ and all 

6 that follows through ‘‘The running’’ and insert7 ing ‘‘DEFICIENCY.—The running’’, and 

8 (C) by striking ‘‘income, estate, gift and’’. 

9 (16) Section 6503 is amended by striking sub10 sections (e), (f), (i), and (k) and by redesignating 

11 subsections (g), (h), and (j) as subsections (e), (f), 

12 and (g), respectively. 

13 (17) Section 6511 is amended by striking sub14 sections (d) and (g) and by redesignating sub15 sections (f) and (h) as subsections (d) and (e), re16 spectively. 

17 (18) Section 6512(b)(1) is amended by striking 

18 ‘‘of income tax for the same taxable year, of gift tax 

19 for the same calendar year or calendar quarter, of 

20 estate tax in respect of the taxable estate of the 

21 same decedent or’’. 

22 (19) Section 6513 is amended— 

23 (A) by striking ‘‘(a) EARLY RETURN OR

24 ADVANCE PAYMENT OF TAX.—’’, 

25 (B) by striking subsections (b) and (e). 


bajohnson on PROD1PC60 with BILLS
125 

•S 1025 IS

1 (20) Chapter 67 is amended by striking sub2 chapters A through D and inserting the following: 

3 ‘‘SEC. 6601. INTEREST ON OVERPAYMENTS AND UNDER4 PAYMENT. 

5 ‘‘(a) UNDERPAYMENTS.—If any amount of tax im6 posed by this title is not paid on or before the last date 

7 prescribed for payment, interest on such amount at the 

8 Federal short-term rate (as defined in section 512(b)) 

9 shall be paid from such last date to the date paid. 

10 ‘‘(b) OVERPAYMENTS.—Interest shall be allowed and 

11 paid upon any overpayment in respect of any internal rev12 enue tax at the Federal short-term rate (as defined in sec13 tion 512(b)) from 60 days after the date of the overpay14 ment until the date the overpayment is refunded.’’. 

15 (21) Section 6651(a)(1) is amended by striking 

16 ‘‘subchapter A of chapter 61 (other than part III 

17 thereof,’’. 

18 (22) Section 6656 is amended by striking sub19 section (c) and by redesignating subsection (d) as 

20 subsection (c). 

21 (23) Section 6663 is amended by striking sub22 section (c). 

23 (24) Section 6664(c) is amended— 


bajohnson on PROD1PC60 with BILLS
126 

•S 1025 IS

1 (A) by striking ‘‘Exception.—’’ and all 

2 that follows through ‘‘No penalty’’ and insert3 ing ‘‘Exception.—No penalty,’’ and 

4 (B) by striking paragraphs (2) and (3). 

5 (25) Chapter 72 is amended by striking all 

6 matter preceding section 7011. 

7 (26) Section 7422 is amended by striking sub8 sections (h) and (i) and by redesignating subsections 

9 (j) and (k) as subsections (h) and (i), respectively. 

10 (27) Section 7451 is amended to read as fol11 lows: 

12 ‘‘SEC. 7451. FEE FOR FILING PETITION. 

13 ‘‘The Tax Court is authorized to impose a fee in an 

14 amount not in excess of $60 to be fixed by the Tax Court 

15 for the filing of any petition for the redetermination of 

16 a deficiency.’’. 

17 (28) Section 7454 is amended by striking sub18 section (b) and by redesignating subsection (c) as 

19 subsection (b). 

20 (29) Section 7463(a) is amended— 

21 (A) by striking paragraphs (2) and (3), 

22 (B) by redesignating paragraph (4) as 

23 paragraph (2), and 

24 (C) by striking ‘‘D’’ in paragraph (2) (as 

25 so redesignated) and inserting ‘‘B’’. 


bajohnson on PROD1PC60 with BILLS
127 

•S 1025 IS

1 (30) Section 7463(c) is amended by striking 

2 ‘‘sections 6214(a) and’’ and inserting ‘‘section’’. 

3 (31) Section 7463(c) is amended by striking ‘‘, 

4 to the extent that the procedures described in sub5 chapter B of chapter 63 apply’’. 

6 (32) Section 7481 is amended by striking sub7 section (d). 

8 (33) Section 7608 is amended by striking ‘‘sub9 title E’’ each place it appears and inserting ‘‘subtitle 

10 C’’. 

11 (34) Section 7651 is amended by striking para12 graph (5). 

13 (35) Section 7701(a)(29) is amended by strik14 ing ‘‘1986’’ and inserting ‘‘2007’’. 

15 (36) Section 7809(c) is amended by striking 

16 paragraphs (1) and (4) and by redesignating para17 graphs (2) and (3) as paragraphs (1) and (2), re18 spectively. 

19 (37) Section 7871(a) is amended by striking 

20 paragraphs (1) and (3) through (6) and by redesig21 nating paragraphs (2) and (7) as paragraphs (1) 

22 and (2), respectively. 

23 (38) Section 7871 is amended by striking sub24 section (c) and by redesignating subsections (d) and 

25 (e) as subsections (c) and (d), respectively. 


bajohnson on PROD1PC60 with BILLS
128 

•S 1025 IS

1 (39) Section 8021 is amended by striking sub2 section (a) and by redesignating subsections (b) 

3 through (f) as subsections (a) through (e), respec4 tively. 

5 (40) Section 8022(a)(2)(A) is amended by 

6 striking ‘‘, particularly the income tax’’. 

7 (41) Section 8023 is amended by striking ‘‘In8 ternal Revenue Service’’ each place it appears and 

9 inserting ‘‘Department of the Treasury’’. 

10 (42) Section 9501(b)(2) is amended by striking 

11 subparagraph (C). 

12 (43) Section 9702(a) is amended by striking 

13 paragraph (4). 

14 (44) Section 9705(a) is amended by striking 

15 paragraph (4) and by redesignating paragraph (5) 

16 as paragraph (4). 

17 (45) Section 9706(d)(2)(A) is amended by 

18 striking ‘‘6103’’ and inserting ‘‘605(e)’’. 

19 (46) Section 9707 is amended by striking sub20 section (f). 

21 (47) Section 9712(d) is amended by striking 

22 paragraph (5) and by redesignating paragraph (6) 

23 as paragraph (5). 

24 (48) Section 9803(a) is amended by striking 

25 ‘‘(as defined in section 414(f))’’. 


bajohnson on PROD1PC60 with BILLS
129 

•S 1025 IS

1 TITLE III—OTHER MATTERS 

2 SEC. 301. PHASE-OUT OF ADMINISTRATION OF REPEALED 

3 FEDERAL TAXES. 

4 (a) APPROPRIATIONS.—Appropriations for any ex5 penses of the Internal Revenue Service including proc6 essing tax returns for years prior to the repeal of the taxes 

7 repealed by title I of this Act, revenue accounting, man8 agement, transfer of payroll and wage data to the Social 

9 Security Administration for years after fiscal year 2011 

10 shall not be authorized. 

11 (b) RECORDS.—Federal records related to the admin12 istration of taxes repealed by title I of this Act shall be 

13 destroyed by the end of fiscal year 2011, except that any 

14 records necessary to calculate Social Security benefits 

15 shall be retained by the Social Security Administration 

16 and any records necessary to support ongoing litigation 

17 with respect to taxes owed or refunds due shall be retained 

18 until final disposition of such litigation. 

19 (c) CONFORMING AMENDMENTS.—Section 7802 is 

20 amended— 

21 (1) by striking subsections (a) and (b) and by 

22 redesignating subsections (c) and (d) as subsections 

23 (a) and (b), 


bajohnson on PROD1PC60 with BILLS
130 

•S 1025 IS

1 (2) by striking ‘‘Internal Revenue Service’’ each 

2 place it appears and inserting ‘‘Department of the 

3 Treasury’’, and 

4 (3) by striking ‘‘Commissioner’’ or ‘‘Commis5 sioner of Internal Revenue’’ each place they appear 

6 and inserting ‘‘Secretary’’. 

7 (d) EFFECTIVE DATE.—The amendments made by 

8 subsection (c) shall take effect on January 1, 2011. 

9 SEC. 302. ADMINISTRATION OF OTHER FEDERAL TAXES. 

10 (a) IN GENERAL.—Section 7801 (relating to the au11 thority of the Department of the Treasury) is amended 

12 by adding at the end the following: 

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

14 Department of the Treasury an Excise Tax Bureau to ad15 minister those excise taxes not administered by the Bu16 reau of Alcohol, Tobacco and Firearms. 

17 ‘‘(e) SALES TAX BUREAU.—There shall be in the De18 partment of the Treasury a Sales Tax Bureau to admin19 ister the national sales tax in those States where it is re20 quired pursuant to section 404, and to discharge other 

21 Federal duties and powers relating to the national sales 

22 tax (including those required by sections 402, 403, and 

23 405). The Office of Revenue Allocation shall be within the 

24 Sales Tax Bureau.’’. 


bajohnson on PROD1PC60 with BILLS
131 

•S 1025 IS

1 (b) ASSISTANT GENERAL COUNSELS.—Section 

2 7801(b)(2) is amended to read as follows: 

3 ‘‘(2) ASSISTANT GENERAL COUNSELS.—The 

4 Secretary of the Treasury may appoint, without re5 gard to the provisions of the civil service laws, and 

6 fix the duties of not more than 5 assistant general 

7 counsels.’’. 

8 SEC. 303. SALES TAX INCLUSIVE SOCIAL SECURITY BENE9 FITS INDEXATION. 

10 Subparagraph (D) of section 215(i)(1) of the Social 

11 Security Act (42 U.S.C. 415(i)(1)) (relating to cost-of-liv12 ing increases in Social Security benefits) is amended to 

13 read as follows: 

14 ‘‘(D) with respect to a base quarter or 

15 cost-of-living quarter in any calendar year— 

16 ‘‘(i) the term ‘CPI increase percent17 age’ means the percentage (rounded to the 

18 nearest one-tenth of 1 percent) by which 

19 the Consumer Price Index for that quarter 

20 (as prepared by the Department of Labor) 

21 exceeds such index for the most recent 

22 prior calendar quarter which was a base 

23 quarter under subparagraph (A)(ii) or, if 

24 later, the most recent cost-of-living com25 putation quarter under subparagraph (B); 


bajohnson on PROD1PC60 with BILLS
132 

•S 1025 IS

1 ‘‘(ii) if the Consumer Price Index (as 

2 so prepared) does not include the national 

3 sales tax paid, then the term ‘CPI increase 

4 percentage’ means the percentage (rounded 

5 to the nearest one-tenth of 1 percent) by 

6 which the product of the Consumer Price 

7 Index for that quarter (as so prepared) 

8 and the national sales tax factor exceeds 

9 such index for the most recent prior cal10 endar quarter which was a base quarter 

11 under subparagraph (A)(ii) or, if later, the 

12 most recent cost of living computation 

13 quarter under subparagraph (B); and 

14 ‘‘(iii) the national sales tax factor is 

15 equal to 1 plus the quotient that is— 

16 ‘‘(I) the sales tax rate imposed 

17 by section 101 of the Internal Rev18 enue Code of 2007, divided by 

19 ‘‘(II) the quantity that is 1 

20 minus such sales tax rate;’’. 

Æ 


bajohnson on PROD1PC60 with BILLS