I 

108TH CONGRESS 

2D SESSION H. R. 4168 

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

enacting a national retail sales tax to be administered primarily by 

the States. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 2, 2004 

Mr. TAUZIN (for himself, Mr. BURTON of Indiana, Mr. DEMINT, and Mr. 

NORWOOD) introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committee on Rules, 

for a period to be subsequently determined by the Speaker, in each case 

for consideration of such provisions as fall within the jurisdiction of the 

committee concerned 

A BILL 

To promote freedom, fairness, and economic opportunity for 

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

sales tax to be administered primarily by the States. 

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

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 

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

5 ‘‘Individual Tax Freedom Act of 2004’’. 
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1 (b) TABLE OF CONTENTS.—The table of contents of 

2 this Act is as follows: 

Sec. 1. Short title; table of contents. 

Sec. 2. Congressional findings. 

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

Sec. 4. Sales tax. 

‘‘CHAPTER 1—SALES TAX

‘‘SUBCHAPTER A—IMPOSITION OF TAX

‘‘Sec. 1. Imposition of tax. 

‘‘Sec. 2. Exemptions. 

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

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

PURCHASES OF RESIDENCES

‘‘Sec. 11. Credits and refunds. 

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

‘‘Sec. 13. Family consumption refund. 

‘‘SUBCHAPTER C—DEFINITIONS AND SPECIAL RULES; FINANCIAL

INTERMEDIATION SERVICES

‘‘Sec. 21. Definitions. 

‘‘Sec. 22. Special rules. 

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

‘‘Sec. 24. Bad debts. 

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

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

‘‘Sec. 27. Basic interest rate. 

‘‘Sec. 28. Applicable interest rate. 

‘‘SUBCHAPTER D—AUTHORITY FOR STATES TO COLLECT TAX

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

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

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

‘‘Sec. 34. General administrative matters. 

‘‘SUBCHAPTER E—OTHER ADMINISTRATIVE PROVISIONS

‘‘Sec. 41. Monthly reports and payments. 

‘‘Sec. 42. Records. 

‘‘Sec. 43. Registration. 

‘‘Sec. 44. Certificate. 

‘‘Sec. 45. Penalties. 

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

‘‘Sec. 47. Attorneys and accountancy fees. 

‘‘Sec. 48. Appeals. 

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

‘‘Sec. 50. Tax Court jurisdiction. 

‘‘Sec. 51. Power to levy. 

‘‘Sec. 52. Problem resolution officers. 

‘‘Sec. 53. Jurisdiction and interstate allocation. 
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‘‘Sec. 54. Tax to be stated and charged separately. 

‘‘Sec. 55. Installment agreements; compromises. 

‘‘Sec. 56. Accounting. 

‘‘Sec. 57. Hobby activities. 

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

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

Sec. 7. Self-employment tax. 

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

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

Sec. 10. Interest. 

Sec. 11. Supermajority required to raise rate. 

1 SEC. 2. CONGRESSIONAL FINDINGS. 

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

3 (1) retards economic growth and has reduced 

4 the standard of living of the American public; 

5 (2) impedes the international competitiveness of 

6 United States industry; 

7 (3) reduces savings and investment in the 

8 United States; 

9 (4) lowers productivity; 

10 (5) imposes unacceptable administrative costs 

11 on taxpayers, individuals and businesses alike; 

12 (6) is unfair and inequitable; and 

13 (7) unnecessarily intrudes upon the privacy and 

14 civil rights of United States citizens. 

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

16 services and use tax on final consumption of goods and 

17 services— 

18 (1) is similar in many respects to those in place 

19 in 45 of the 50 States; 

20 (2) will promote savings; 
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1 (3) will promote fairness; 

2 (4) will promote economic growth; 

3 (5) will raise the standard of living; 

4 (6) will increase savings and investment; 

5 (7) will enhance productivity and international 

6 competitiveness; 

7 (8) will reduce administrative burdens on the 

8 taxpayer; and 

9 (9) will respect the privacy interests and civil 

10 rights of taxpayers. 

11 (c) The Congress further finds that— 

12 (1) most of the practical experience admin13 istering sales taxes is found at the State Govern14 mental level; 

15 (2) it is desirable to harmonize Federal and 

16 State collection and enforcement efforts to the max17 imum extent possible; 

18 (3) it is sound tax administration policy to ad19 minister and collect the Federal sales and service tax 

20 at the State level in return for a reasonable adminis21 tration fee to the States; 

22 (4) businesses that must collect and remit taxes 

23 should receive reasonable compensation for the cost 

24 of doing so; and 
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1 (5) the sixteenth amendment to the Constitu2 tion should be repealed. 

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

4 TAXES, AND CERTAIN EXCISE TAXES. 

5 (a) IN GENERAL.—The following provisions of the In6 ternal Revenue Code of 1986 are hereby repealed: 

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

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

9 avoid income tax). 

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

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

12 tax at source). 

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

14 taxes). 

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

16 (7) Chapter 32 (relating to manufacturers ex17 cise taxes). 

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

19 certain other excise taxes). 

20 (9) Subtitle F (relating to procedure and ad21 ministration of the income tax and certain other 

22 taxes) except for section 6103 (relating to confiden23 tiality), chapter 66 (relating to limitations), chapter 

24 67 (relating to interest), section 6656 (relating to 

25 failure to make deposit of taxes), section 6657 (re-
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1 lating to bad checks), section 6658 (relating to co2 ordination with title 11), chapter 75 (relating to 

3 crimes), chapter 76 (relating to Judicial Pro4 ceedings), section 7431 (relating to damages for un5 authorized disclosure), section 7432 (relating to 

6 damages for failure to release lien), section 7433 

7 (relating to damages for unauthorized collection 

8 data) and chapter 77 (relating to miscellaneous pro9 visions). References to provisions repealed by the 

10 preceding sentence shall be treated as references to 

11 such provisions as in effect on the day before the 

12 date of the enactment of this Act. 

13 (b) EFFECTIVE DATE.— 

14 (1) IN GENERAL.—Except as provided in para15 graph (2), the amendments made by subsection (a) 

16 shall take effect on July 1, 2006. 

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

18 subsection (a)(1) shall apply to taxable years begin19 ning after June 30, 2006. 

20 (3) SALES TAX.—The amendment made by sec21 tion 4 shall take effect on July 1, 2006. 

22 (4) SOCIAL SECURITY BENEFITS.—The amend23 ment made by section 9 shall take effect on January 

24 1, 2006. 
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1 (5) SUPERMAJORITY REQUIRED.—The amend2 ment made by section 11 shall take effect on Janu3 ary 1, 2006. 

4 SEC. 4. SALES TAX. 

5 Subtitle A of the Internal Revenue Code of 1986 is 

6 amended by inserting at the beginning the following new 

7 chapter: 

8 ‘‘CHAPTER 1—SALES TAX 

‘‘SUBCHAPTER A. Imposition of tax. 

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

on purchases of residences. 

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

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

‘‘SUBCHAPTER E. Other administrative provisions. 

9 ‘‘Subchapter A—Imposition of Tax 

‘‘Sec. 1. Imposition of tax. 

‘‘Sec. 2. Exemptions. 

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

10 ‘‘SECTION 1. IMPOSITION OF TAX. 

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

12 of 15 percent on the gross payments for the use, consump13 tion or enjoyment in the United States of any taxable 

14 property or service, whether produced or rendered within 

15 or without the United States. 

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

17 taxes imposed by this section are in addition to any import 

18 duties imposed by law. The Secretary shall provide by reg19 ulation that, to the maximum extent practicable, the taxes 

20 imposed by this section on imported property and services 
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1 are collected and administered in conjunction with any ap2 plicable import duties. 

3 ‘‘(c) LIABILITY FOR COLLECTION AND REMITTANCE

4 OF THE TAX.— 

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

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

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

8 ‘‘(2) TAX TO BE PAID BY PURCHASER IN CER9 TAIN CIRCUMSTANCES.— 

10 ‘‘(A) GENERAL RULE.—In the case of tax11 able property or services purchased outside of 

12 the United States for use, consumption or en13 joyment in the United States, the purchaser 

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

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

16 pay tax in installments pursuant to section 12, 

17 the purchaser shall remit the tax imposed by 

18 subsection (a). 

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

20 taxable services within the meaning of section 

21 21(n) shall be responsible for paying and remit22 ting the tax. 

23 ‘‘(D) The Secretary may provide by regula24 tion that the tax imposed by subsection (a) is 
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1 to be collected and remitted by the purchaser 

2 rather than the seller. 

3 ‘‘SEC. 2. EXEMPTIONS. 

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

5 3(b)(2), no tax shall be imposed under section 1 on any 

6 taxable property or service purchased for— 

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

8 business, or 

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

10 consumption outside the United States, provided 

11 that the purchaser provided the seller with— 

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

13 ‘‘(B) an export sales certificate. 

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

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

16 active trade or business’ means purchased by a person en17 gaged in an active trade or business and used in that ac18 tive trade or business— 

19 ‘‘(1) for resale, 

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

21 defined in section 21(e)), or 

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

23 purposes. 

24 ‘‘(c) DE MINIMIS PAYMENTS.—Up to $400 of gross 

25 payments per calendar year— 
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1 ‘‘(1) made by a person not engaged in an active 

2 trade or business at any time during such calendar 

3 year prior to making such gross payments, and 

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

5 service which is imported into the United States by 

6 such person for use or consumption by such person 

7 in the United States, 

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

9 ‘‘(d) DE MINIMIS SALES.—Up to $2,500 per cal10 endar year of gross payments received— 

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

12 or business during such calendar year prior to the 

13 receipt of such gross payments, and 

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

15 sale, 

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

17 ‘‘(e) AFFILIATED FIRMS.—Firms that make pur18 chases from or sell to affiliated firms which are exempt 

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

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

21 remain exempt. For purposes of this section, a firm is af22 filiated with another if 1 firm owns 50 percent of the vot23 ing shares or interest in the other. 

24 ‘‘(f) DE MINIMIS SALE OF FINANCIAL INTERMEDI25 ATION SERVICES.—The first $10,000 per calendar year 
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1 of gross payments received by a person from the sale of 

2 financial intermediation services shall be exempt from the 

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

4 subsection is in addition to other exemptions afforded by 

5 this chapter. 

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

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

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

9 seller— 

10 ‘‘(1) has on file a copy of an exemption certifi11 cate (whether an intermediate sale or export sale 

12 certificate) from the purchaser, and 

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

14 that an exemption from the tax imposed by section 

15 1 was unavailable to the purchaser with respect to 

16 such purchase, then the seller shall be relieved of li17 ability to collect and remit the tax imposed by sec18 tion 1 on such purchase. 

19 ‘‘SEC. 3. RULES RELATING TO COLLECTION AND REMIT20 TANCE OF TAX. 

21 ‘‘(a) OBLIGATION OF GOVERNMENTAL UNITS AND

22 NOT-FOR-PROFIT ORGANIZATIONS TO COLLECT, REMIT

23 AND PAY TAXES.— 

24 ‘‘(1) GOVERNMENTAL UNITS.—Nothing in this 

25 subtitle shall be construed to exempt any Federal, 
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1 State, or local governmental unit or political subdivi2 sion from paying any tax imposed by this subtitle on 

3 any sale, purchase, use, consumption or enjoyment 

4 by such a unit. 

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

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

7 and payments to qualified not-for-profit organi8 zations shall not be considered gross payments 

9 for taxable property or services for purposes of 

10 this subtitle. 

11 ‘‘(B) EXCEPTION.—Notwithstanding sub12 paragraph (2)(A), payments of any form to a 

13 qualified not-for-profit organization shall be 

14 considered gross payments for taxable property 

15 or services unless said organization establishes 

16 that the property or service provided in ex17 change is— 

18 ‘‘(i) substantially related to the pur19 poses of the qualified not-for-profit organi20 zation, or 

21 ‘‘(ii) is not commercially available. 

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

23 not-for-profit organization means a not-for-prof24 it organization organized and operated exclu25 sively— 
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1 ‘‘(i) for religious, charitable, scientific, 

2 testing for public safety, literary or edu3 cational purposes; 

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

5 organizations; 

6 ‘‘(iii) as labor, agricultural or horti7 cultural organizations; 

8 ‘‘(iv) as chambers of commerce, busi9 ness leagues or trade associations; or 

10 ‘‘(v) as fraternal beneficiary societies, 

11 orders or associations; 

12 no part of the net earnings of which inures to 

13 the benefit of any private shareholder or indi14 vidual. 

15 ‘‘(D) Upon application in a form pre16 scribed by the State Administrator, the State 

17 Administrator shall provide qualification certifi18 cates to qualified not-for-profit organizations. 

19 ‘‘(E) If a not-for-profit organization pro20 vides taxable property or services in connection 

21 with contributions or dues to the organizations, 

22 then it shall be required to treat the provision 

23 of said taxable property or services as a pur24 chase taxable pursuant to this subtitle at the 
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1 fair market value of said property or personal 

2 services. 

3 ‘‘(F) Taxable property and services pur4 chased by not-for-profit organizations for resale 

5 or for use in the production of taxable property 

6 or services shall be eligible for the exemptions 

7 provided in section 2. 

8 ‘‘(b) TAX COLLECTED ON CERTAIN EXEMPT PUR9 CHASES.— 

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

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

12 from the tax imposed by section 1 by reason of sec13 tion 2(a), such subsection shall not apply to such 

14 purchase if the seller— 

15 ‘‘(A) elects the application of this sub16 section, and 

17 ‘‘(B) immediately provides the purchaser 

18 with a receipt reflecting the information re19 quired by section 54. Seller may elect to exer20 cise the application of this section with respect 

21 to some or all purchases or purchasers. 

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

23 that certain industries or specific products are such 

24 that the vendor must collect the tax on otherwise ex25 empt purchases if, in the Secretary’s judgment, said 
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1 industry or products are such that consumers buy 25 

2 percent or more of the product sold by the industry 

3 or the product. A registered vendor may by applica4 tion for good cause shown elect to opt out of the ap5 plication of this paragraph. 

6 ‘‘(3) CROSS REFERENCE.— 

‘‘For credit to purchaser where seller collects tax 

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

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

section 54. 

7 ‘‘(c) GOVERNMENT ENTERPRISES.— 

8 ‘‘(1) GOVERNMENT ENTERPRISES TO COLLECT

9 AND REMIT TAXES ON SALES.—Nothing in this sub10 title shall be construed to exempt any Federal, 

11 State, or local governmental unit or political subdivi12 sion (whether or not the State is a conforming 

13 State) operating a government enterprise from col14 lecting and remitting tax imposed by this subtitle on 

15 any sale of taxable property or services. Government 

16 enterprises shall comply with all duties imposed on 

17 private enterprises by this subtitle and shall be liable 

18 for penalties and subject to enforcement action in 

19 the same manner as private enterprises. 

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

21 owned or operated by a Federal, State, or local gov22 ernmental unit or political subdivision that receives 

23 gross payments from selling taxable property or 
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1 services to private persons is a government enter2 prise, provided, however, that a government-owned 

3 entity shall not become a government enterprise for 

4 purposes of this section unless in any quarter it has 

5 revenues from the sale of taxable property or serv6 ices that exceed $2,500. 

7 ‘‘(3) GOVERNMENT ENTERPRISES’ INTER8 MEDIATE AND EXPORT SALES.— 

9 ‘‘(A) Government enterprises shall not be 

10 subject to tax on purchases that would not be 

11 subject to tax pursuant to section 2 if the gov12 ernment enterprise were a private enterprise. 

13 ‘‘(B) Government enterprises may not use 

14 the exemption afforded by section 2 to serve as 

15 a conduit for tax-free purchases by government 

16 units that would otherwise be subject to tax17 ation on purchases pursuant to section 1. 

18 Transfers of taxable property or services pur19 chased exempt from tax by a government enter20 prise to such government unit shall be taxable. 

21 ‘‘(4) SEPARATE BOOKS OF ACCOUNT.—Any gov22 ernment enterprise must maintain books of account, 

23 separate from the nonenterprise government ac24 counts, maintained in accordance with generally ac25 cepted accounting principles. 
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1 ‘‘(5) ACTIVE TRADE OR BUSINESS.—A govern2 ment enterprise shall be treated as an active trade 

3 or business. 

4 ‘‘(6) CROSS REFERENCE.— 

‘‘For obligation of government units, see section 

3(a)(1). 

5 ‘‘Subchapter B—Credits; Refunds; Install6 ment Payments of Tax on Purchases of 

7 Residences 

‘‘Sec. 11. Credits and refunds. 

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

residences. 

‘‘Sec. 13. Family Consumption Refund. 

8 ‘‘SEC. 11. CREDITS AND REFUNDS. 

9 ‘‘(a) GENERAL CREDITS.—Each person shall be al10 lowed a credit against the taxes imposed by section 1 for 

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

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

13 subsection (c) for such month, 

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

15 credit under subsection (d) for such month, 

16 ‘‘(3) the amount paid by such person with re17 spect to a purchase during such month by reason of 

18 a tax collected on an exempt purchase pursuant to 

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

20 certain nontaxable purchases), 

21 ‘‘(4) the administration credit under section (e), 
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1 ‘‘(5) the compliance equipment cost credit 

2 under section (f), 

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

4 ‘‘(7) the insurance proceeds credit under sub5 section (h), 

6 ‘‘(8) the transition inventory credit under sub7 section (i), and 

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

9 ‘‘(b) REFUNDS.— 

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

11 monthly tax reports with a credit balance, then, 

12 upon application in a form prescribed by the State 

13 Administrator, then the credit balance shown on the 

14 second monthly report shall be refunded to the tax15 payer within 60 days of said application. 

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

17 monthly filer has an excess credit for any month, 

18 then, upon application in a form prescribed by the 

19 State Administrator, then the credit balance due 

20 shall be refunded to the taxpayer within 60 days of 

21 said application. 

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

23 to be paid on any overpayment under this subsection 

24 for any month if such overpayment is paid within 60 

25 days after the close of such month. 
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1 ‘‘(4) SUSPENSION OF PERIOD TO PAY REFUND

2 ONLY IF FEDERAL COURT RULING.—The 60-day pe3 riods under paragraphs (1) and (2) shall be sus4 pended with respect to a purported credit balance 

5 (or portion thereof) only during any period that 

6 there is in effect a preliminary ruling from a Federal 

7 court that there is reasonable cause to believe that 

8 such credit balance is not actually the amount due. 

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

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

11 any person required to register under section 43 for 

12 such month. 

13 ‘‘(c) USED PROPERTY CREDIT.— 

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

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

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

17 provided in this subsection (c). 

18 ‘‘(2) DETERMINATION OF USED PROPERTY

19 CREDIT AMOUNT.—The used property credit amount 

20 determined under this paragraph with respect to any 

21 property is the lesser of— 

22 ‘‘(A) the amount of tax due and paid by 

23 virtue of the present transaction (without re24 gard to any credits), or 
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1 ‘‘(B) the most recent prior tax imposed by 

2 section 1 with respect to such property trans3 action (without regard to any credits). 

4 ‘‘(3) TRANSITIONAL DEEMED PAID RULE FOR

5 PROPERTY OWNED ON EFFECTIVE DATE OF ACT.— 

6 In the case of property which was acquired by the 

7 seller before July 1, 2006, the amount under para8 graph (2)(B) shall be the amount which is the prod9 uct of— 

10 ‘‘(A) that which would be determined 

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

12 been in effect at the time of such acquisition, 

13 and 

14 ‘‘(B) the equity ratio (as defined in para15 graph (4)). 

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

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

18 at the end of the taxable year 2006, less the 

19 mortgage or debt secured by said property at 

20 the end of said taxable year, divided by 

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

22 at the end of the taxable year 2006, 

23 provided, however, that the quantity defined in sub24 paragraph (1) cannot be less than zero and further 
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1 providing that the equity ratio so calculated cannot 

2 be less than zero or greater than one. 

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

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

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

6 month is the aggregate of the amounts determined 

7 under paragraph (2) with respect to property— 

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

9 section 1 on the purchase by such person, and 

10 ‘‘(B) which commences to be exclusively 

11 used during such month in the production by 

12 such person of other taxable property or serv13 ices. 

14 ‘‘(2) AMOUNT OF CREDIT.—The amount deter15 mined under this paragraph with respect to any 

16 property is lesser of— 

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

18 section 1 and the fair market value of the prop19 erty when its use is converted, and 

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

21 (1)(A). 

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

23 personal use shall be subject to tax pursuant to sec24 tion 1 on the book value of the converted property 

25 as of the date of conversion, provided that the books 
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1 are kept in accordance with generally accepted ac2 counting principles. 

3 ‘‘(e) ADMINISTRATION CREDIT.—Every taxpayer fil4 ing a timely monthly report in compliance with section 41 

5 shall be entitled to a taxpayer administrative credit equal 

6 to the greater of— 

7 ‘‘(1) $200, or 

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

9 provided, however, that in no event will the credit af10 forded by this section exceed 20 percent of the tax 

11 due to be remitted prior to the application of this 

12 credit. 

13 ‘‘(f) COMPLIANCE EQUIPMENT COST CREDIT.—Ven14 dors required to purchase new equipment to comply with 

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

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

17 ‘‘(g) BAD DEBT CREDIT.— 

18 ‘‘(1) FINANCIAL INTERMEDIATION SERVICES.— 

19 Any person registered pursuant to section 43 who 

20 has experienced a bad debt (other than unpaid in21 voices within the meaning of paragraph (2)) shall be 

22 entitled to a credit equal to the product of— 

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

24 ‘‘(B) the quotient that is— 
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1 ‘‘(i) the amount of the bad debt (as 

2 defined in section 24), divided by 

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

4 rate imposed by section 1. 

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

6 the accrual method pursuant to section 56 that has 

7 with respect to a transaction— 

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

9 ‘‘(B) remitted the invoiced tax, 

10 ‘‘(C) actually delivered the taxable prop11 erty or performed the taxable services invoiced, 

12 and 

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

14 the invoice was due to be paid, 

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

16 tax remitted and unpaid by the purchaser. 

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

18 made with respect to a transaction subsequent to a 

19 subsection (g) credit being taken with respect to 

20 that transaction shall be subject to tax in the month 

21 the payment was received as if a tax inclusive sale 

22 of taxable property and services in the amount of 

23 the payment had been made. 

24 ‘‘(4) PARTIAL PAYMENTS.—Partial payments 

25 shall be treated as pro rata payments of the under-
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1 lying obligation and shall be allocated proportion2 ately among payment for the taxable property and 

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

4 nontaxable payments). 

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

6 by this section shall not be available with respect to 

7 sales made to affiliated firms (within the meaning of 

8 section 2(e)). 

9 ‘‘(h) INSURANCE PROCEEDS CREDIT.— 

10 ‘‘(1) IN GENERAL.—A person receiving a pay11 ment from an insurer by virtue of an insurance con12 tract shall be entitled to a credit in an amount de13 termined by paragraph (2), less any amount paid to 

14 the insured by the insurer pursuant to paragraph 

15 (3), if the entire premium (except that portion allo16 cable to the investment account of the underlying 

17 policy) for the insurance contract giving rise to the 

18 insurer’s obligation to make a payment to the in19 sured was subject to the tax imposed by section 1 

20 and such tax was paid. 

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

22 credit shall be the product of— 

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

24 ‘‘(B) the quotient that is— 
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1 ‘‘(i) the amount of the payment made 

2 by the insurer to the insured, divided by 

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

4 rate imposed by section 1. 

5 ‘‘(3) ADMINISTRATIVE OPTION.—The credit de6 termined in accordance with paragraph (2) shall be 

7 paid by the insurer to the insured and the insurer 

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

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

10 prescribed by the Secretary, to not pay the credit 

11 and require the insured to make application for the 

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

13 provide to the Secretary and the insured the name 

14 and tax identification number of the insurer and of 

15 the insured and indicate the proper amount of the 

16 credit. 

17 ‘‘(4) COORDINATION WITH RESPECT TO EXEMP18 TION.—If taxable property or services purchased by 

19 an insurer on behalf of an insured are purchased 

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

21 credit provided by this section shall not be available 

22 with respect to that purchase. 

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

24 paragraph (1), the term ‘insurance contract’ in25 cludes a life insurance contract, a health insurance 
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1 contract, a property and casualty loss insurance con2 tract, a general liability insurance contract, a marine 

3 insurance contract, a fire insurance contract, an ac4 cident insurance contract, a disability insurance con5 tract, a long-term care insurance contract, and an 

6 insurance contract that provides a combination of 

7 these types of insurance. 

8 ‘‘(i) TRANSITIONAL INVENTORY CREDIT.— 

9 ‘‘(1) TRANSITION INVENTORY CREDIT.—A cred10 it shall be allowed equal to the product of the rate 

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

12 inventory. 

13 ‘‘(2) INVENTORY.— 

14 ‘‘(A) QUALIFIED INVENTORY.—Inventory 

15 held by an active trade or business on the close 

16 of business June 30, 2006, that is subsequently 

17 sold subject to the tax imposed by section 1 

18 shall be qualified inventory. 

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

20 qualified inventory shall have the cost that it 

21 had on the income tax return of the active 

22 trade or business filed for the period ending 

23 June 30, 2006 (including any amounts capital24 ized by virtue of section 263A as in effect on 

25 June 30, 2006). 
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1 ‘‘(3) TIMING OF CREDIT.—The credit provided 

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

3 tax return where the taxable sale of the qualified in4 ventory is reported. The person claiming such credit 

5 shall attach supporting schedules in the form that 

6 the Secretary may prescribe. 

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

8 OF PRINCIPAL RESIDENCES. 

9 ‘‘(a) IN GENERAL.—If— 

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

11 principal residence of any purchaser of such prop12 erty, and 

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

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

15 respect to such purchase shall be paid in equal an16 nual installments over the 30-year period beginning 

17 on the date of such sale together with simple inter18 est at the rate imposed by section 6621. 

19 ‘‘(b) TERMINATION OF INSTALLMENTS IF PROPERTY

20 IS SOLD OR OTHERWISE CEASES TO BE PRINCIPAL RESI21 DENCE.— 

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

23 30-year period referred to in subsection (a), any 

24 property to which an election under subsection (a) 

25 applies— 
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1 ‘‘(A) is sold, or 

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

3 principal residence of any purchaser making 

4 such election, 

5 then the unpaid installments shall be due no later 

6 than two years after the time of such sale or ces7 sation. To the extent that such sale or cessation is 

8 only of a portion of such residential property, the 

9 preceding sentence shall apply only to a like portion 

10 (based on value) of such unpaid installments. 

11 ‘‘(2) SPECIAL RULE.—In a case to which para12 graph (1)(B) applies with respect to any pur13 chaser— 

14 ‘‘(A) if such purchaser purchases within 

15 two years another property which property is 

16 purchased and used as the principal residence 

17 of such purchaser, the remaining unpaid install18 ments shall be due at the time of such pur19 chase, 

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

21 such purchaser, the remaining unpaid install22 ments shall be due at the close of the two-year 

23 period beginning on the date of the cessation 

24 referred to in paragraph (1); and 
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1 ‘‘(C) the two-year period referred to in 

2 subparagraph (B) shall be suspended during 

3 any period that such purchaser uses such prop4 erty as his principal residence. 

5 ‘‘(3) If any purchaser exercises the right to in6 stallment payments under this section, then the re7 sponsibility to remit the tax due is the purchaser’s 

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

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

10 Secretary. 

11 ‘‘SEC. 13. FAMILY CONSUMPTION REFUND. 

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

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

14 a sales tax rebate in an amount no greater than the prod15 uct of— 

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

17 ‘‘(2) the lesser of— 

18 ‘‘(A) the poverty level (as defined in sub19 section (c)), or 

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

21 in the manner prescribed and subject to the 

22 limitations set forth by this section. 

23 ‘‘(b) QUALIFIED FAMILY UNIT DEFINED.—For pur24 poses of this section, the term qualified family unit shall 

25 mean any family sharing a common residence. Any family 
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1 members (as defined in subsection (e)) sharing a common 

2 residence shall be considered part of one integrated family 

3 unit. 

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

5 shall be the quotient that is— 

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

7 Health and Human Services poverty guidelines re8 quired by sections 652 and 673(2) of the Omnibus 

9 Reconciliation Act of 1981 (all States and the Dis10 trict of Columbia) for family units of a particular 

11 size, divided by 

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

13 imposed by section 1. 

14 ‘‘(d) REBATE MECHANISM.— 

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

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

17 unit by including the pay period rebate amount in 

18 each paycheck. 

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

20 period rebate amount shall be the lesser of product 

21 of the rate of tax imposed by the section 1 and— 

22 ‘‘(A) the wages paid during the pay period, 

23 or 

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

25 for the family unit (determined in accordance 
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1 with subsection (c)) divided by the number of 

2 pay periods in a year. 

3 ‘‘(3) ADJUSTED WITHHOLDING TABLES TO BE

4 PROVIDED TO EMPLOYERS.—The Social Security 

5 Administration shall publish revised withholding ta6 bles for use by employers. 

7 ‘‘(4) COORDINATION.—The family member re8 ceiving the family consumption rebate shall set 

9 forth, in a form prescribed by the Social Security 

10 Administration, the names and Social Security num11 bers of all members of the family unit for which a 

12 rebate is claimed. Employers shall provide this infor13 mation in the form prescribed to the Social Security 

14 Administration. 

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

16 determining the size of the family unit, family members 

17 shall include each spouse or the head of household, chil18 dren, grandchildren, parents and grandparents. 

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

20 a family member to be counted for purposes of deter21 mining family unit size, said family member must— 

22 ‘‘(1) if over the age of two years, have a bona 

23 fide Social Security number; and 

24 ‘‘(2) be a lawful resident of the United States. 
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1 ‘‘(g) STUDENTS LIVING AWAY FROM HOME.—A stu2 dent during each of five months in a calendar year living 

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

4 receives over 50 percent of his support from the family 

5 unit shall be included as part of that family unit for pur6 poses of this section. 

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

8 residence of family members, marital status and number 

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

10 year shall govern determinations required to be made 

11 under this section for purposes of said calendar year. 

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

13 The family unit may elect to divide the rebate between 

14 two family members. Family members shall make this 

15 election in a form prescribed by the Social Security Ad16 ministration and shall when making said election disclose 

17 the name and Social Security number of the other family 

18 members. Creditable wages for families making this elec19 tion shall not exceed one half of the poverty level for that 

20 family unit. 

21 ‘‘(j) EMPLOYERS TO ADJUST REMITTANCES.—Em22 ployers shall reduce their payroll tax remittances to the 

23 Social Security Administration by the amount of Family 

24 Consumption Rebate provided in employee paychecks. 
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1 ‘‘(k) NO DOUBLE COUNTING.—In no event shall any 

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

3 ‘‘(l) SOCIAL SECURITY ADMINISTRATION.—The So4 cial Security Administration shall provide to multiple 

5 wage-earner family units who received a lower rebate 

6 amount than that to which they were entitled under sub7 section (a) due to the application of the limitations in sub8 section (d)(2) and subsection (i) any payment due within 

9 30 days of the close of the calendar year. 

10 ‘‘Subchapter C—Definitions and Special 

11 Rules; Financial Intermediation Services 

‘‘Sec. 21. Definitions. 

‘‘Sec. 22. Special rules. 

‘‘Sec. 23. Determination of financial intermediation services 

amount. 

‘‘Sec. 24. Bad debts. 

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

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

‘‘Sec. 27. Basic interest rate. 

‘‘Sec. 28. Applicable interest rate. 

12 ‘‘SEC. 21. DEFINITIONS. 

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

14 term ‘financial intermediation services’ means financial 

15 intermediation services determined in accordance with sec16 tion 23. 

17 ‘‘(b) GROSS PAYMENTS.—For purposes of this sub18 title, the term ‘gross payments’ shall mean gross payments 

19 inclusive of Federal tax imposed by, and State taxes im20 posed in conformity with, this chapter but exclusive of cus21 toms duties. Gross payment shall be the product of the 
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1 pre-tax factor and the payments for the taxable property 

2 or service exclusive of State and Federal taxes imposed 

3 by, and State taxes imposed in conformity with, this sub4 title. For purposes of this section, the pre-tax factor shall 

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

6 of— 

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

8 and 

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

10 with this subtitle. 

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

12 property used predominantly as the place of abode for a 

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

14 residence for purposes of this section. A married couple 

15 shall have only one primary residence. 

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

17 section 2(b)(1), a property or service is purchased for re18 sale if such property or service is purchased by a person 

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

20 the taxable property or service in the ordinary course of 

21 that active trade or business. 

22 ‘‘(e) PURCHASED TO PRODUCE TAXABLE PROPERTY

23 OR SERVICES.—For purposes of section 2(b)(2)— 

24 ‘‘(1) IN GENERAL.—A property or service is 

25 purchased to produce a taxable property or service 
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1 if such property or service is purchased by a person 

2 in an active trade or business for the purpose of em3 ploying or using such property or service in the pro4 duction or sale of other taxable property or services 

5 in the ordinary course of that active trade or busi6 ness. 

7 ‘‘(2) RESEARCH EXPERIMENTATION AND DE8 VELOPMENT.—Taxable property or services used in 

9 an active trade or business for the purpose of re10 search, experimentation and development shall be 

11 treated as purchased to produce taxable property or 

12 services. 

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

14 or services purchased by an insurance company on 

15 behalf of an insured shall be treated as a property 

16 or service purchased to produce a taxable property 

17 or service if the entire premium for the insurance 

18 contract giving rise to the insurer’s obligation was 

19 subject to tax in accordance with subsection (a) (re20 lating to financial intermediation services). 

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

22 and training shall be treated as purchased to 

23 produce taxable property or services. For purposes 

24 of this section, education and training shall mean 

25 tuition for general primary, secondary, or university 
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1 level education, and tuition for job-related training 

2 courses. Tuition shall not include amounts attrib3 utable to room or board for the student. 

4 ‘‘(f) Qualified fixtures shall include only those fix5 tures that are a permanent, integral, incorporated and 

6 irremovable part of the structure and shall exclude fur7 niture, furnishings, appliances or similar tangible personal 

8 property. 

9 ‘‘(g) REAL PROPERTY.—For purposes of this chap10 ter, the term real property shall have the meaning ascribed 

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

12 establish uniform national rules for purposes of admin13 istering this chapter to the extent that jurisdictions within 

14 the United States may provide different holdings as to the 

15 scope of the term real property. 

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

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

18 be determined in descending order of priority as the State 

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

20 habitual abode. If the State of residence is still undeter21 mined, if the person is a resident of the United States, 

22 the determination will be made by the Federal Office of 

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

4 ‘‘(1) is held in fee simple and 

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

6 dwelling. 

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

8 term ‘Secretary’ means the United States Secretary of 

9 Treasury. 

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

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

12 highest State official responsible for administering the 

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

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

16 as the Federal official responsible for administering the 

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

18 State Administrator shall also mean, when the context so 

19 requires, the Federal official responsible for administering 

20 the multi-State vendor program. 

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

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

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

2 Secretary shall by regulation establish uniform national 

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

6 personal property. 

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

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

9 chapter, the term ‘taxable property or service’ 

10 means— 

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

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

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

15 intermediation services). 

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

17 sentence, services shall not include wages paid by an 

18 employer engaged in an active trade or business that 

19 is registered pursuant to section 43. Services shall 

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

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

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

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

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

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

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

7 purposes of this subtitle, intangible property 

8 shall not include tangible personal property (or 

9 rents or leaseholds of any term thereon), real 

10 property (or rents or leaseholds of any term 

11 thereon), and computer software. 

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

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

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

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

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

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

23 any commonwealth, territory or possession of the United 

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

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

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

6 Financial intermediation services shall be deemed as 

7 used or consumed within the United States if the 

8 person (or any related party within the meaning of 

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

10 the United States. 

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

13 as a condition of lawfully providing such services, 

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

15 United States tax representative. This United States 

16 tax representative shall be responsible for ensuring 

17 that the taxes imposed by this chapter are collected 

18 and remitted and shall be jointly and severally liable 

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

21 States tax representative. 

22 ‘‘(b) FINANCING LEASES.— 

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

24 financing lease shall be any lease under which the 

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

2 end of the lease term. 

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

4 the method set forth in this section. 

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

7 Secretary shall promulgate rules for disaggregating 

8 the principle and interest components of a financing 

9 lease. The principle amount shall be determined to 

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

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

14 that contemporaneous sales prices of the same or 

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

19 4 percent. 

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

21 component of the financing lease shall be subject to 

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

23 component had been made on the day the lease was 

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

2 intermediation services amount with respect to the 

3 interest component of the financing lease shall be 

4 subject to tax. 

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

7 with respect to the interest component of a lease 

8 have been taxed pursuant to this section, then the 

9 gross lease or rental payments shall not be subject 

10 to additional tax. 

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

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

14 payment for the taxable property and services sold, 

15 consumed, used or enjoyed is actually received. 

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

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

19 election must apply to all sales made by vendor in 

20 a particular calendar year. 

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

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

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

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

4 property and services is made by the vendor to the 

5 person returning the taxable property and services. 

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

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

9 property or services purchased both for a purpose 

10 that would give rise to an exemption pursuant to 

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

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

14 Property or Service shall not be exempt pursuant to 

15 section 2 unless said property is used more than 95 

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

18 ‘‘(3) MIXED USE PROPERTY OR SERVICES

19 CREDIT.—A business registered pursuant to section 

20 43 is entitled to a business use conversion credit 

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

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

23 ‘‘(B) the business use ratio, and 

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

2 mixed use property amount for each year shall be— 

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

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

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

7 tangible personal property for seven years or 

8 until the property is sold, 

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

11 sold, and 

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

13 of taxable property or services or in accordance 

14 with regulations. 

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

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

17 particular year. For vehicles, the business use ratio 

18 will be the ratio of business purpose miles to total 

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

20 the ratio of floor space used for business purposes 

21 to total floor space. For tangible personal property 

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

23 ratio of total time used for business purposes to 

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

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

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

3 property or service. 

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

5 tax on taxable gaming services. Taxable gaming services 

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

8 offering the gaming services. 

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

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

12 purposes of this subtitle— 

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

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

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

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

21 financial intermediation services’ includes— 

22 ‘‘(A) brokerage fees, 

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

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

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

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

6 ‘‘(E) trustees’ fees, and 

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

8 but not limited to, mutual fund management, 

9 sales, and exit fees). 

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

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

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

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

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

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

22 product of— 

23 ‘‘(I) the excess (if any) of the 

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

3 ‘‘(II) such account balance, and 

4 ‘‘(ii) with respect to any underlying 

5 interest bearing debt, the product of— 

6 ‘‘(I) the excess (if any) of the 

7 rate paid on such debt over the basic 

8 interest rate (as defined in section 

9 27), and 

10 ‘‘(II) such debt balance. 

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

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

14 intermediation services (as defined in subsection 

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

16 for the charged financial intermediation services, 

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

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

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

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

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

2 debt. 

3 ‘‘SEC. 24. BAD DEBTS. 

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

5 a business loan or debt that becomes wholly or partially 

6 worthless. 

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

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

9 purpose that both parties intended be repaid. 

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

11 partially worthless unless it has been in arrears for 90 

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

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

15 worthless on the date of discharge. 

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

17 days or more may be deemed wholly or partially worthless 

18 by the holder unless a payment schedule has been entered 

19 into between the debtor and the lender. 

20 ‘‘(e) CROSS REFERENCE.— 

‘‘For tax on subsequent payments, see section 

11(g)(3). 

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

22 SERVICES. 

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

2 frequency that statements are rendered by the financial 

3 institution in connection with the investment account or 

4 debt but not less frequently than quarterly. 

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

6 DUE. 

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

11 the financial intermediation services provider— 

12 ‘‘(1) is reasonable, and 

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

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

17 and the reasons why it meets the criteria set forth 

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

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

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

22 accepted by the Secretary unless the Secretary rules that 

23 the proposed alternative method— 

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

3 sales tax principles. 

4 The Secretary shall set forth the reasons for his ruling 

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

6 120 days of receiving the petition and notify the petitioner 

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

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

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

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

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

13 rule). 

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

17 effective indefinitely and may take effect as early as the 

18 month after the alternative method becomes permissible. 

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

20 or otherwise, subsequently rule on his own initiative that 

21 the method is not permissible. Such subsequent ruling 

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

23 latter of— 

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

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

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

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

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

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

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

11 the decision of the Secretary should be reversed. 

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

13 regulation permissible alternative methods for calculating 

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

16 ‘‘SEC. 27. BASIC INTEREST RATE. 

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

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

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

22 applicable interest rate of the month of issuance shall 

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

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

3 and which have a reference interest rate, the applicable 

4 interest rate shall be the applicable interest rate for the 

5 reference interest rate for each month. 

6 ‘‘SEC. 28. APPLICABLE INTEREST RATE. 

7 ‘‘(a) IN GENERAL.— 

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

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

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

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

15 rate is the Federal mid-term rate. 

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

18 9 years, the applicable interest rate is the Federal 

19 long-term rate. 

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

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

23 month) on outstanding marketable obligations of the 

24 United States with remaining periods to maturity of 3 

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

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

6 9 years. 

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

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

10 month) on outstanding marketable obligations of the 

11 United States with remaining periods to maturity of over 

12 9 years. 

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

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

17 calendar month. 

18 ‘‘Subchapter D—Authority for States to 

19 Collect Tax 

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

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

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

‘‘Sec. 34. General administrative matters. 

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

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

22 on gross payments for the use, consumption or enjoyment 

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

2 remitted to the United States Treasury by such State. 

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

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

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

6 and 

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

8 with the Secretary containing reasonable provisions, 

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

11 chapter and the remittance to the United States in 

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

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

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

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

17 tax— 

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

19 chapter in all significant respects (other than the 

20 rate of tax), including— 

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

23 ‘‘(B) the same exemptions, and 

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

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

2 the family consumption refund)), and 

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

4 1 percent. 

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

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

7 but include provisions for the expeditious transfer of 

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

10 of importance. 

11 ‘‘(e) TIMELY REMITTANCE OF TAX.— 

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

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

16 than 15 days after receipt. 

17 ‘‘(2) ADMINISTRATION FEE.—Administering 

18 States may retain an administration fee equal to one 

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

21 the State. 

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

23 UNITED STATES.—The Secretary may administer the tax 

24 imposed by this chapter in an administering State only 

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

2 sustained basis to timely remit to the United States 

3 taxes collected under this chapter on behalf of the 

4 United States, or 

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

6 basis otherwise materially breached the agreement 

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

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

9 and alleged breaches within a reasonable time, 

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

11 written notice of such failures and alleged breaches, 

12 and 

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

14 such State has rendered a decision permitting such 

15 administration. 

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

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

18 not an administering State. 

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

20 to contract with another conforming State to administer 

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

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

23 the Federal Government as parties. 

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

2 States shall honor exemption certificates issued by 

3 other conforming States. 

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

5 conduct audits at facilities in other Conforming 

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

8 section 32 of this subchapter or by other agreement 

9 or Compact. 

10 ‘‘SEC. 32. FEDERAL ADMINISTRATIVE SUPPORT FOR 

11 STATES. 

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

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

15 to a Compact Among Conforming States for purposes of 

16 facilitating the taxation of interstate purchases and for 

17 other purposes that may facilitate implementation of this 

18 chapter. 

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

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

2 MULTISTATE VENDORS. 

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

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

6 tax obligations administered by the Federal Government 

7 under the multistate vendor program. 

8 ‘‘(b) FEDERAL GOVERNMENT TO COLLECT AND

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

11 and conforming State sales taxes and remit the State sales 

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

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

16 with respect to multi-State vendors exercising the election 

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

18 vendors, the Federal Government exclusively will— 

19 ‘‘(1) audit; 

20 ‘‘(2) provide certificates; and 

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

23 State. 

24 ‘‘SEC. 34. GENERAL ADMINISTRATIVE MATTERS. 

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

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

2 this subtitle and may delegate to employees the authority 

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

6 ‘‘(b) RESOLUTION OF ANY INCONSISTENT RULES

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

8 any State Administrator have issued inconsistent rules or 

9 regulations, the rule or regulation issued by the Secretary 

10 shall govern provided that the Secretary possessed the 

11 statutory authority to issue the rule or regulation. 

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

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

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

16 effect before 90 days have elapsed after its publication in 

17 the Federal Register. Upon issuance, the Secretary shall 

18 provide copies of all rules or regulations issued under this 

19 title to each sales tax administering authority. 

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

21 RETROACTIVE EFFECT.— 

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

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

2 in effect. 

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

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

6 its issuance. 

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

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

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

13 ruling, or regulation. 

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

15 AND REGULATIONS ON SMALL BUSINESS.— 

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

19 relating to internal revenue laws, the Secretary 

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

23 regulation on small businesses. Not later than 

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

2 comments on such regulation to the Secretary. 

3 ‘‘(B) CONSIDERATION OF COMMENTS.—In 

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

6 had been submitted under this subsection to the 

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

9 ‘‘(i) consider the comments of the 

10 Chief Counsel for Advocacy of the Small 

11 Business Administration on such proposed 

12 or temporary regulation, and 

13 ‘‘(ii) discuss any response to such 

14 comments in the preamble to the regula15 tion. 

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

18 Secretary of any final regulations (other than a 

19 temporary regulation) which do not supersede a 

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

22 the submission under subparagraph (A) shall be 

23 made at least 4 weeks before the date of such 

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

2 such final regulation. 

3 ‘‘Subchapter E—Other Administrative 

4 Provisions 

‘‘Sec. 41. Monthly reports and payments. 

‘‘Sec. 42. Records. 

‘‘Sec. 43. Registration. 

‘‘Sec. 44. Certificates. 

‘‘Sec. 45. Penalties. 

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

‘‘Sec. 47. Attorneys and accountancy fees. 

‘‘Sec. 48. Appeals. 

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

‘‘Sec. 50. Tax Court jurisdiction. 

‘‘Sec. 51. Power to levy. 

‘‘Sec. 52. Problem resolution officers. 

‘‘Sec. 53. Jurisdiction and interstate allocation. 

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

‘‘Sec. 55. Installment agreements; compromises. 

‘‘Sec. 56. Accounting. 

‘‘Sec. 57. Hobby activities. 

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

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

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

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

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

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

13 the previous month that sets forth— 

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

15 1, 

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

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

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

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

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

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

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

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

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

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

13 thereof) for the first month, and 

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

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

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

19 under paragraph (1) shall be 2 percent per 

20 month (or any fraction thereof) with respect to 

21 amounts paid only after the commencement of 

22 a collection action with respect to such 

23 amounts. 

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

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

3 any court. 

4 ‘‘(d) PENALTY FOR LATE FILING.— 

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

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

7 on or before due date (determined with regard to 

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

9 a penalty equal to the greater of— 

10 ‘‘(A) $50, or 

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

13 the report. 

14 ‘‘(2) INCREASED PENALTY ON RETURNS FILED

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

18 respect to such report is received by the taxpayer 

19 from the State Administrator. 

20 ‘‘(3) EXCEPTIONS.— 

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

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

3 subparagraph (A), the State Administrator, on 

4 application, shall waive the penalty imposed by 

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

7 a penalty determined under paragraph (2). 

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

9 ‘‘(1) AUTOMATIC EXTENSIONS FOR LESS THAN

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

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

12 automatically granted. 

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

14 90 days to file such reports shall be liberally granted 

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

17 State Administrator to avoid hardship. 

18 ‘‘(3) NO EXTENSION FOR PAYMENT OF

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

20 no extension shall be granted with respect to the 

21 time for paying the taxes under this chapter. 

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

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

2 services by virtue of said acceptance. 

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

4 violation of the Individual Tax Freedom Act of 2004 can 

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

7 otherwise. 

8 ‘‘SEC. 42. RECORDS. 

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

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

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

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

15 certificates and tax number and the net of tax amount 

16 of purchase) sufficient to provide a reasonable basis for 

17 determining the amounts reported, collected, and remitted 

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

19 which the records formed the basis. Any purchaser who 

20 purchased taxable property or services but did not pay tax 

21 by reason of asserting an exemption shall keep records 

22 sufficient to provide a reasonable basis for determining 

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

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

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

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

4 active trade or business shall register with the State or 

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

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

8 Every person registered pursuant to subsection (a) shall 

9 designate a tax matters person. Each person registered 

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

11 matters person within 30 days of said change. 

12 ‘‘SEC. 44. CERTIFICATE. 

13 ‘‘The State Administrator shall issue certificates of 

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

17 taxes imposed by this chapter. 

18 ‘‘SEC. 45. PENALTIES. 

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

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

21 so prior to notification by the State Administrator shall 

22 be liable for a penalty of $500. 

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

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

2 collected or remitted. 

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

4 willfully fails as part of an active trade or business 

5 to collect or remit taxes imposed by this chapter 

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

7 ‘‘(c) FAILURE TO PAY TAX.— 

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

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

11 20 percent of the tax not paid. 

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

13 willfully fails to pay taxes imposed by this chapter 

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

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

17 ‘‘In all disputes concerning taxes imposed by this 

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

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

21 have the burden of persuasion. In all disputes concerning 

22 the legitimacy of an exemption claimed by a purchaser, 

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

24 certificate and did not have reasonable cause to believe 

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

2 of production of documents and records relating to that 

3 exemption shall rest with the purchaser and not with the 

4 seller. 

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

6 ‘‘In all disputes concerning taxes imposed by this 

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

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

9 be entitled to reasonable attorneys and accountancy fees 

10 incurred in direct relation to the dispute unless the State 

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

13 ‘‘SEC. 48. APPEALS. 

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

17 any disputes he has with the State Administrator or the 

18 Secretary. 

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

21 ‘‘Taxpayers are subject to subpoena for records and 

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

2 ‘‘The United States Tax Court shall have jurisdiction 

3 pursuant to section 7442 in connection with all disputes 

4 with taxpayers arising under this chapter. 

5 ‘‘SEC. 51. POWER TO LEVY. 

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

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

9 and seize property and garnish wages to collect amounts 

10 due under this chapter. 

11 ‘‘SEC. 52. PROBLEM RESOLUTION OFFICERS. 

12 ‘‘The State Administrator shall establish a Problem 

13 Resolution Office. Problem Resolution Officers shall have 

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

16 Resolution Officer, said collection activity is reasonably 

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

19 in the relevant State or Federal taxing authority or by 

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

22 authority to reverse this administrative injunction may not 

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

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

4 the dispute at issue. 

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

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

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

9 allocated to those states that are the destination of the 

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

12 in accordance with this section. 

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

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

17 and services for purposes of allocating revenue between or 

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

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

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

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

3 the mail or common carrier shall be deemed delivered to 

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

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

8 or territory in which the real property is located. 

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

10 property shall be residence of the purchaser. 

11 ‘‘(f) SERVICES.— 

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

16 jurisdiction shall be on the basis of time. 

17 ‘‘(2) TELECOMMUNICATIONS SERVICES.—The 

18 destination of telecommunications services shall be 

19 the residence of the purchaser. Telecommunications 

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

22 services. 

23 ‘‘(3) DOMESTIC TRANSPORTATION SERVICES.— 

24 For transportation services where all of the final 

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

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

4 allocated among the final destinations). 

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

7 destination or origin of the trip is without the 

8 United States, the service amount shall be deemed 

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

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

12 destination of financial intermediation services shall be the 

13 residence of the purchase. 

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

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

18 jurisdiction is not exclusive of other jurisdiction that said 

19 State Tax Administrator may have. 

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

21 OF TANGIBLE PROPERTY.— 

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

23 and royalties paid for the lease of tangible property 

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

2 lease payments on vehicles shall be— 

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

4 term one month or less, the location where the 

5 vehicle was originally delivered to the lessee; 

6 and 

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

8 term greater than one month, the residence of 

9 the lessee. 

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

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

12 property or services for which a tax is imposed pursuant 

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

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

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

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

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

20 tax. 

21 ‘‘(2) The amount of tax paid. 

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

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

2 subparagraph 2) divided by the property or service 

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

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

5 ‘‘(6) The name of the vendor. 

6 ‘‘(7) The vendor registration number. 

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

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

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

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

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

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

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

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

19 to satisfy liability for payment of any tax in installment 

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

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

23 information that the person provided to the Secretary or 

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

2 compromise any amounts alleged to be due. 

3 ‘‘SEC. 56. ACCOUNTING. 

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

5 Vendors and other persons shall remit taxes and report 

6 transactions with respect to the month for which payment 

7 was received or the tax imposed by this chapter otherwise 

8 becomes due. 

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

11 prescribed by the Secretary, to remit taxes and report 

12 transactions with respect to the month where a sale was 

13 invoiced and accrued. 

14 ‘‘(c) CROSS REFERENCE.— 

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

15 ‘‘SEC. 57. HOBBY ACTIVITIES. 

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

17 not be available for any taxable property or service used 

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

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

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

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

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

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

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

6 (a) IN GENERAL.—Appropriations for any expenses 

7 of the Internal Revenue Service including processing in8 come tax returns for years prior to the repeal of the in9 come tax, revenue accounting, management, transfer of 

10 payroll tax data to the Social Security Administration and 

11 otherwise for years after fiscal year 2007 are not author12 ized. 

13 (b) EXCISE AND SALES TAX BUREAUS.—Section 

14 7801 is amended by adding the following new subsections: 

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

16 Department of Treasury an Excise Tax Bureau to admin17 ister those excise taxes not repealed by this Act. 

18 ‘‘(e) SALES TAX BUREAU.—There shall be in the De19 partment of Treasury a Sales Tax Bureau to administer 

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

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

22 duties and powers relating to the national sales tax (in23 cluding those required by sections 32, 33, and 53(b)). The 

24 Office of Revenue Allocation shall be within the Sales Tax 

25 Bureau.’’. 
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1 (c) 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 (d) SHORT YEAR.— 

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

10 tax imposed by section 1 and section 11 for taxable 

11 years ending June 30, 2006, shall be modified as set 

12 forth in this subsection. 

13 (2) For calendar year taxpayers, the dollar fig14 ures in section 1 and section 11 shall be reduced by 

15 dividing by 2 all dollar figures that would be applica16 ble but for this subsection. 

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

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

19 product of— 

20 (A) the dollar amount that would be appli21 cable but for this subsection, and 

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

23 number of months in the taxpayer’s taxable 

24 year ending June 30, 2006, and as its denomi25 nator 12. 
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1 (4) The Secretary shall publish tax rate sched2 ules in accordance with this subsection. 

3 SEC. 6. SOCIAL SECURITY ADMINISTRATION TO COLLECT 

4 PAYROLL TAXES. 

5 (a) IN GENERAL.—Commencing January 1, 2006, 

6 the Social Security Administration shall collect and ad7 minister the taxes imposed pursuant to chapter 2 of sub8 title A (relating to self employment income taxes) and sub9 title C (relating to employment taxes) of the Internal Rev10 enue Code of 1986. 

11 (b) CROSS REFERENCES.— 

For revised rules relating to the self-employment 

tax, see section 7 of this Act. 

For rules relating to revised withholding tax 

schedules and family consumption refund, see section 13. 

12 SEC. 7. SELF-EMPLOYMENT TAX. 

13 (a) IN GENERAL.—Subsection 1402(a) of the Inter14 nal Revenue Code of 1986 is amended to read as follows: 

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

16 mean gross payments received in a calendar year from the 

17 sale of taxable property or services (without regard to ex18 emption) less the sum in a calendar year of— 

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

20 (without regard to exemption) in furtherance of a 

21 business purpose, 
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1 ‘‘(2) any wages paid (whether to the self-em2 ployed person or others) in furtherance of a business 

3 purpose, 

4 ‘‘(3) unused transition amounts, and 

5 ‘‘(4) undeducted negative self employment in6 come amounts from prior periods. 

7 ‘‘(b) TRANSITION AMOUNTS.— 

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

9 for the ten calendar years commencing in 2006 shall 

10 be the unrecovered basis amount as of the end of 

11 December 31, 2005, divided by ten. 

12 ‘‘(2) UNRECOVERED BASIS AMOUNT.—The un13 recovered basis amount shall be remaining income 

14 tax basis relating to— 

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

16 in service prior to January 1, 2006, and 

17 ‘‘(B) inventory held as of the end of 2005 

18 (including any amounts capitalized in accord19 ance with prior law section 263A).’’. 

20 (b) CONFORMING AMENDMENTS.—Subsections 

21 1402(b) and 1402(c) are hereby repealed. Subsections 

22 1402(d) et seq. are hereby renumbered as subsections 

23 1402(b) et seq. 
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1 SEC. 8. SOCIAL SECURITY BENEFITS INDEXED ON SALES 

2 TAX INCLUSIVE BASIS. 

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

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

5 (relating to cost-of-living increases in Social Security bene6 fits) is amended to read as follows: 

7 ‘‘(D)(i) the term ‘CPI increase percentage’, 

8 with respect to a base quarter or cost-of-living quar9 ter in any calendar year, means the percentage 

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

11 which the Consumer Price Index for that quarter (as 

12 prepared by the Department of Labor) exceeds such 

13 index for the most recent prior calendar quarter 

14 which was a base quarter under subparagraph 

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

16 computation quarter under subparagraph (B); 

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

18 by the Department of Labor) does not include the 

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

20 percentage’ with respect to a base quarter or cost21 of-living quarter in any calendar year, means the 

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

23 percent) by which the product of— 

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

25 quarter (as prepared by the Department of 

26 Labor); and 
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1 ‘‘(II) the national sales tax factor, 

2 exceeds such index for the most recent prior cal3 endar quarter which was a base quarter under sub4 paragraph (A)(ii) or, if later, the most recent cost5 of-living computation quarter under subparagraph 

6 (B); and 

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

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

9 that is— 

10 ‘‘(I) the sales tax rate (as defined in sec11 tion 1 of title 26), divided by 

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

13 sales tax rate.’’. 

14 SEC. 9. COMPENSATING PAYMENTS TO CERTAIN PERSONS 

15 ON FIXED INCOME. 

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

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

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

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

20 (b) COMPENSATING PAYMENT DEFINED.—The term 

21 ‘‘compensating payment’’ means the product of the quali22 fied fixed income payment amount (as defined in sub23 section (e)) and the excess inflation rate (as defined in 

24 subsection (f)). 
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1 (c) ELIGIBLE PERSON DEFINED.—An eligible person 

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

3 entitled to— 

4 (1) Social Security benefits; and 

5 (2) qualified fixed income payments (as defined 

6 in subsection (d)). 

7 (d) QUALIFIED FIXED INCOME PAYMENT DE8 FINED.—A qualified fixed income payment is a payment 

9 received by— 

10 (1) a beneficiary under a defined benefit plan 

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

12 Revenue Code as in effect prior to the enactment of 

13 this Act) whether sponsored by a private or Govern14 ment employer; or 

15 (2) by an annuitant pursuant to an annuity 

16 contract between the annuitant and a bona fide in17 surance company. 

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

19 a qualified fixed income payment if the payment varies 

20 with investment performance, interest rates, or inflation. 

21 Payments pursuant to an annuity contract entered into 

22 after June 30, 2006, shall not be qualified fixed income 

23 payments. Payments pursuant to a defined benefit plan 

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

25 benefit plan (within the meaning of section 410 of the In-
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1 ternal Revenue Code as in effect prior to the enactment 

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

3 fixed income payments. 

4 (e) QUALIFIED FIXED INCOME PAYMENT

5 AMOUNT.—The qualified fixed income payment amount is 

1 6 ⁄12 of qualified fixed income payments that an eligible 

7 person is entitled to receive during the calendar year sub8 sequent to the year for which the compensating payment 

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

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

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

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

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

14 period ending December 31, 2006, over the increase pro15 jected for the consumer price index (all urban) in the Of16 fice of Management and Budget baseline reported in the 

17 Budget of the United States for Fiscal Year 2006 for said 

18 18-month period. The baseline assumption for the 6 

months in 2006 shall be 1 19 ⁄2 of the assumed increase for 

20 the entire calendar year 2006. 

21 (g) APPLICATION REQUIRED.—In order to receive 

22 compensating payments, each eligible person must apply 

23 in a form prescribed by the Secretary of Health and 

24 Human Services and provide such documentation as the 

25 Secretary may reasonably require. 
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1 (h) MEANS OF PAYMENT.—Each person entitled to 

2 a compensating payment shall receive the compensating 

3 payment with their Social Security benefit payment. The 

4 compensating payment shall be separately indicated but 

5 may be included in one check. The funds to make compen6 sating payments shall come from the general fund. 

7 (i) The Secretary of Health and Human Services may 

8 require insurers that are parties to annuity contracts and 

9 defined benefit plan sponsors to issue a statement to an10 nuitants or plan participants including such information 

11 as the Secretary may require to determine the qualified 

12 fixed income payment amount. 

13 SEC. 10. INTEREST. 

14 Section 6621 of the Internal Revenue Code of 1986 

15 is amended by striking the last sentence in section 

16 6621(a)(1) and by striking ‘‘3’’ in section 6621(a)(2)(B) 

17 and substituting in its stead ‘‘2’’. 

18 SEC. 11. SUPERMAJORITY REQUIRED TO RAISE RATE. 

19 (a) IN GENERAL.—It shall not be in order in the 

20 House of Representatives or the Senate to consider any 

21 bill, joint resolution, amendment thereto, or conference re22 port thereon that includes any provision that— 

23 (1) increases any federal sales tax rate, and 
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1 (2) provides any exemption, deduction, credit or 

2 other benefit which results in a reduction in federal 

3 revenues. 

4 (b) WAIVER OR SUSPENSION.—This section may be 

5 waived or suspended in the House of Representatives or 

6 the Senate only by the affirmative vote of two-thirds of 

7 the Members, duly chosen and sworn. 

Æ