I 
108TH CONGRESS 
1ST SESSION 
H. R. 25
To promote freedom, fairness, and economic opportunity by repealing the 
income tax and other taxes, abolishing the Internal Revenue Service, 
and enacting a national sales tax to be administered primarily by the 
States. 
IN THE HOUSE OF REPRESENTATIVES 
JANUARY 7, 2003
Mr. LINDER (for himself and Mr. PETERSON of Minnesota) introduced the 
following bill; which was referred to the Committee on Ways and Means 
A BILL 
To promote freedom, fairness, and economic opportunity by 
repealing the income tax and other taxes, abolishing the 
Internal Revenue Service, and enacting a national sales 
tax to be administered primarily by the States.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Fair Tax Act of 2003’’. 
(b) TABLE OF CONTENTS.—The table of contents for 
this Act is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. Congressional findings. 
TITLE I—REPEAL OF THE INCOME TAX, PAYROLL TAXES, AND 
ESTATE AND GIFT TAXES 
Sec. 101. Income taxes repealed. 
Sec. 102. Payroll taxes repealed. 
Sec. 103. Estate and gift taxes repealed. 
Sec. 104. Conforming amendments; effective date. 
TITLE II—SALES TAX ENACTED 
Sec. 201. Sales tax. 
Sec. 202. Conforming and technical amendments. 
TITLE III—OTHER MATTERS 
Sec. 301. Phase-out of administration of repealed Federal taxes. 
Sec. 302. Administration of other Federal taxes. 
Sec. 303. Sales tax inclusive Social Security benefits indexation.
SEC. 2. CONGRESSIONAL FINDINGS. 
(a) FINDINGS
RELATING
TO
FEDERAL
INCOME 
TAX.—Congress finds the Federal income tax—
(1) retards economic growth and has reduced 
the standard of living of the American public; 
(2) impedes the international competitiveness of 
United States industry; 
(3) reduces savings and investment in the 
United States by taxing income multiple times; 
(4) slows the capital formation necessary for 
real wages to steadily increase; 
(5) lowers productivity; 
(6) imposes unacceptable and unnecessary ad-
ministrative and compliance costs on individual and 
business taxpayers; 
(7) is unfair and inequitable;
(8) unnecessarily intrudes upon the privacy and 
civil rights of United States citizens; 
(9) hides the true cost of government by embed-
ding taxes in the costs of everything Americans buy; 
(10) is not being complied with at satisfactory 
levels and therefore raises the tax burden on law 
abiding citizens; and 
(11) impedes upward social mobility. 
(b) FINDINGS RELATING
TO FEDERAL PAYROLL 
TAXES.—Congress finds further that the Social Security 
and Medicare payroll taxes and self-employment taxes—
(1) raise the cost of employment; 
(2) destroy jobs and cause unemployment; and 
(3) have a disproportionately adverse impact on 
lower income Americans. 
(c) FINDINGS RELATING TO FEDERAL ESTATE AND 
GIFT TAXES.—Congress finds further that the Federal es-
tate and gift taxes—
(1) force family businesses and farms to be sold 
by the family to pay such taxes; 
(2) discourage capital formation and entrepre-
neurship; 
(3) foster the continued dominance of large en-
terprises over small family-owned companies and 
farms; and
(4) impose unacceptably high tax planning costs 
on small businesses and farms. 
(d) FINDINGS
RELATING
TO
NATIONAL
SALES 
TAX.—Congress finds further that a broad-based national 
sales tax on goods and services purchased for final con-
sumption—
(1) is similar in many respects to the sales and 
use taxes in place in 45 of the 50 States;
(2) will promote savings and investment; 
(3) will promote fairness; 
(4) will promote economic growth; 
(5) will raise the standard of living; 
(6) will increase investment; 
(7) will enhance productivity and international 
competitiveness; 
(8) will reduce administrative burdens on the 
American taxpayer; 
(9) will improve upward social mobility; and 
(10) will respect the privacy interests and civil 
rights of taxpayers. 
(e) FINDINGS RELATING TO ADMINISTRATION OF 
NATIONAL SALES TAX.—Congress further finds that—
(1) most of the practical experience admin-
istering sales taxes is found at the State govern-
mental level;
(2) it is desirable to harmonize Federal and 
State collection and enforcement efforts to the max-
imum extent possible; 
(3) it is sound tax administration policy to fos-
ter administration and collection of the Federal sales 
tax at the State level in return for a reasonable ad-
ministration fee to the States; and 
(4) businesses that must collect and remit taxes 
should receive reasonable compensation for the cost 
of doing so. 
(f) FINDINGS RELATING TO REPEAL OF PRESENT 
FEDERAL TAX SYSTEM.—Congress further finds that the 
16th amendment to the United States Constitution should 
be repealed. 
TITLE I—REPEAL OF THE IN-
COME TAX, PAYROLL TAXES, 
AND ESTATE AND GIFT TAXES 
SEC. 101. INCOME TAXES REPEALED. 
Subtitle A of title 26 of the Internal Revenue Code 
of 1986 (relating to income taxes and self-employment 
taxes) is repealed. 
SEC. 102. PAYROLL TAXES REPEALED. 
(a) IN GENERAL.—Subtitle C of title 26 of the Inter-
nal Revenue Code of 1986 (relating to payroll taxes and 
withholding of income taxes) is repealed.
(b) FUNDING OF SOCIAL SECURITY.—For funding of 
the Social Security Trust Funds from general revenue, see 
section 201 of the Social Security Act (42 U.S.C. 401). 
SEC. 103. ESTATE AND GIFT TAXES REPEALED. 
Subtitle B of title 26 of the Internal Revenue Code 
of 1986 (relating to estate and gift taxes) is repealed. 
SEC. 104. CONFORMING AMENDMENTS; EFFECTIVE DATE. 
(a) CONFORMING AMENDMENTS.—The Internal Rev-
enue Code of 1986 is amended—
(1) by striking subtitle H (relating to financing 
of Presidential election campaigns), and 
(2) by redesignating—
(A) subtitle D (relating to miscellaneous 
excise taxes) as subtitle B, 
(B) subtitle E (relating to alcohol, tobacco, 
and certain other excise taxes) as subtitle C, 
(C) subtitle F (relating to procedure and 
administration) as subtitle D, 
(D) subtitle G (relating to the Joint Com-
mittee on Taxation) as subtitle E, 
(E) subtitle I (relating to the Trust Fund 
Code) as subtitle F, 
(F) subtitle J (relating to coal industry 
health benefits) as subtitle G, and
(G) subtitle K (relating to group health 
plan portability, access, and renewability re-
quirements) as subtitle H. 
(b) REDESIGNATION OF 1986 CODE.—
(1) IN GENERAL.—The Internal Revenue Code 
of 1986 enacted on October 22, 1986, as heretofore, 
hereby, or hereafter amended, may be cited as the 
‘‘Internal Revenue Code of 2003’’. 
(2) REFERENCES IN LAWS, ETC.—Except when 
inappropriate, any reference in any law, Executive 
order, or other document—
(A) to the Internal Revenue Code of 1986 
shall include a reference to the Internal Rev-
enue Code of 2003, and 
(B) to the Internal Revenue Code of 2003 
shall include a reference to the provisions of law 
formerly known as the Internal Revenue Code 
of 1986. 
(c) ADDITIONAL AMENDMENTS.—For additional con-
forming amendments, see section 202 of this Act. 
(d) EFFECTIVE DATE.—Except as otherwise pro-
vided in this Act, the amendments made by this Act shall 
take effect on January 1, 2005.
TITLE II—SALES TAX ENACTED 
SEC. 201. SALES TAX. 
(a) IN GENERAL.—The Internal Revenue Code of 
2003 is amended by inserting before subtitle B (as redes-
ignated by section 104(a)(2)(A)) the following new sub-
title: 
‘‘Subtitle A—Sales Tax
‘‘Sec. 1. Principles of interpretation. 
‘‘Sec. 2. Definitions. 
‘‘CHAPTER 1. Interpretation; definitions; imposition of tax; etc. 
‘‘CHAPTER 2. Credits; refunds. 
‘‘CHAPTER 3. Family consumption allowance. 
‘‘CHAPTER 4. State and Federal cooperative tax administration. 
‘‘CHAPTER 5. Other administrative provisions. 
‘‘CHAPTER 6. Collection; appeals; taxpayer rights. 
‘‘CHAPTER 7. Special rules. 
‘‘CHAPTER 8. Financial intermediation services. 
‘‘CHAPTER 9. Additional matters.
‘‘SECTION 1. PRINCIPLES OF INTERPRETATION. 
‘‘(a) IN GENERAL.—Any court, the Secretary, and 
any sales tax administering authority shall consider the 
purposes of this subtitle (as set forth in subsection (b)) 
as the primary aid in statutory construction. 
‘‘(b) PURPOSES.—The purposes of this subtitle are 
as follows: 
‘‘(1) To raise revenue needed by the Federal 
Government in a manner consistent with the other 
purposes of this subtitle. 
‘‘(2) To tax all consumption of goods and serv-
ices in the United States once, without exception, 
but only once.
‘‘(2) the meaning and construction of concepts 
and terms used in the Internal Revenue Code of 
1986 as in effect before the effective date of this 
subtitle; and 
‘‘(3) construe any ambiguities in this Act in 
favor of reserving powers to the States respectively, 
or to the people. 
‘‘SEC. 2. DEFINITIONS AND SPECIAL RULES. 
‘‘(a) IN GENERAL.—For purposes of this subtitle—
‘‘(1) AFFILIATED FIRMS.—A firm is affiliated 
with another if 1 firm owns 50 percent or more of—
‘‘(A) the voting shares in a corporation, or 
‘‘(B) the capital interests of a business 
firm that is not a corporation. 
‘‘(2) CONFORMING
STATE
SALES
TAX.—The 
term ‘conforming State sales tax’ means a sales tax 
imposed by a State that adopts the same definition 
of taxable property and services as adopted by this 
subtitle. 
‘‘(3) DESIGNATED COMMERCIAL PRIVATE COU-
RIER
SERVICE.—The term ‘designated commercial 
private courier service’ means a firm designated as 
such by the Secretary or any sales tax administering 
authority, upon application of the firm, if the firm—
‘‘(A) provides its services to the general 
public, 
‘‘(B) records electronically to its data base 
kept in the regular course of its business the 
date on which an item was given to such firm 
for delivery, and 
‘‘(C) has been operating for at least 1 
year. 
‘‘(4) EDUCATION
AND
TRAINING.—The term 
‘education and training’ means tuition for primary, 
secondary, or postsecondary level education, and job-
related training courses. Such term does not include 
room, board, sports activities, recreational activities, 
hobbies, games, arts or crafts or cultural activities. 
‘‘(5) GROSS PAYMENTS.—The term ‘gross pay-
ments’ means payments for taxable property or serv-
ices, including Federal taxes imposed by this title. 
‘‘(6) INTANGIBLE PROPERTY.—
‘‘(A) IN GENERAL.—The term ‘intangible 
property’ includes copyrights, trademarks, pat-
ents, goodwill, financial instruments, securities, 
commercial paper, debts, notes and bonds, and 
other property deemed intangible at common 
law. The Secretary shall, by regulation resolve
differences among the provisions of common 
law of the several States. 
‘‘(B) CERTAIN
TYPES
OF
PROPERTY.—
Such term does not include tangible personal 
property (or rents or leaseholds of any term 
thereon), real property (or rents or leaseholds 
of any term thereon) and computer software. 
‘‘(7) PERSON.—The term ‘person’ means any 
natural person, and unless the context clearly does 
not allow it, any corporation, partnership, limited li-
ability company, trust, estate, government, agency, 
administration, organization, association, or other 
legal entity (foreign or domestic.) 
‘‘(8) PRODUCE, PROVIDE, RENDER, OR
SELL 
TAXABLE PROPERTY OR SERVICES.—
‘‘(A) IN GENERAL.—A taxable property or 
service is used to produce, provide, render, or 
sell a taxable property or service if such prop-
erty or service is purchased by a person en-
gaged in a trade or business for the purpose of 
employing or using such taxable property or 
service in the production, provision, rendering, 
or sale of other taxable property or services in 
the ordinary course of that trade or business.
‘‘(B) 
RESEARCH, 
EXPERIMENTATION, 
TESTING, AND DEVELOPMENT.—Taxable prop-
erty or services used in a trade or business for 
the purpose of research, experimentation, test-
ing, and development shall be treated as used to 
produce, provide, render, or sell taxable prop-
erty or services. 
‘‘(C) 
INSURANCE
PAYMENTS.—Taxable 
property or services purchased by an insurer on 
behalf of an insured shall be treated as used to 
produce, provide, render, or sell taxable prop-
erty or services if the premium for the insur-
ance contract giving rise to the insurer’s obliga-
tion was subject to tax pursuant to section 801 
(relating to financial intermediation services). 
‘‘(D) EDUCATION
AND
TRAINING.—Edu-
cation and training shall be treated as services 
used to produce, provide, render, or sell taxable 
property or services. 
‘‘(9) REGISTERED
SELLER.—The term ‘reg-
istered seller’ means a person registered pursuant to 
section 502. 
‘‘(10) SALES
TAX
ADMINISTERING
AUTHOR-
ITY.—The term ‘sales tax administering authority’ 
means—
‘‘(A) the State agency designated to collect 
and administer the sales tax imposed by this 
subtitle, in an administering State, or 
‘‘(B) the Secretary, in a State that is nei-
ther—
‘‘(i) an administering State, nor 
‘‘(ii) a State that has elected to have 
its sales tax administered by an admin-
istering State. 
‘‘(11) 
SECRETARY.—The 
term 
‘Secretary’ 
means the Secretary of the Treasury. 
‘‘(12) TAXABLE EMPLOYER.—
‘‘(A) IN GENERAL.—The term ‘taxable em-
ployer’ includes—
‘‘(i) any household employing domes-
tic servants, and
‘‘(ii) any government except for gov-
ernment enterprises (as defined in section 
704). 
‘‘(B) EXCEPTIONS.—The term ‘taxable 
employer’ does not include any employer which 
is—
‘‘(i) engaged in a trade or business, 
‘‘(ii) a not-for-profit organization (as 
defined in section 706), or
‘‘(iii) a government enterprise (as de-
fined in section 704). 
‘‘(C) CROSS REFERENCE.—
‘‘For rules relating to collection and remittance of 
tax on wages by taxable employers, see section 
103(b)(2).
‘‘(13) TAX INCLUSIVE FAIR MARKET VALUE.—
The term ‘tax inclusive fair market value’ means the 
fair market value of taxable property or services plus 
the tax imposed by this subtitle. 
‘‘(14) TAXABLE PROPERTY OR SERVICE.—
‘‘(A) GENERAL RULE.—The term ‘taxable 
property or service’ means—
‘‘(i) any property (including leaseholds 
of any term or rents with respect to such 
property) but excluding—
‘‘(I) intangible property, and 
‘‘(II) used property, and 
‘‘(ii) any service (including any finan-
cial intermediation services as determined 
by section 801). 
‘‘(B) SERVICE.—For purposes of subpara-
graph (A), the term ‘service’—
‘‘(i) shall include any service per-
formed by an employee for which the em-
ployee is paid wages or a salary by a tax-
able employer, and
‘‘(ii) shall not include any service per-
formed by an employee for which the em-
ployee is paid wages or a salary—
‘‘(I) by an employer in the reg-
ular course of the employer’s trade or 
business, 
‘‘(II) by an employer that is a 
not-for-profit organization (as defined 
in section 706), 
‘‘(III) by an employer that is a 
government enterprise (as defined in 
section 704), and 
‘‘(IV) by taxable employers to 
employees directly providing education 
and training. 
‘‘(15) UNITED
STATES.—The term ‘United 
States’, when used in the geographical sense, means 
each of the 50 states, the District of Columbia, and 
any commonwealth, territory, or possession of the 
United States. 
‘‘(16) USED PROPERTY.—The term ‘used prop-
erty’ means—
‘‘(A) property on which the tax imposed by 
section 101 has been collected and for which no 
credit has been allowed under section 203, and
‘‘(B) property that was held other than for 
a business purpose (as defined in section 
102(b)) on December 31, 2004. 
‘‘(17) WAGES AND SALARY.—The terms ‘wage’ 
and ‘salary’ mean all compensation paid for employ-
ment service including cash compensation, employee 
benefits, disability insurance, or wage replacement 
insurance payments, unemployment compensation 
insurance, workers’ compensation insurance, and the 
fair market value of any other consideration paid by 
an employer to an employee in consideration for em-
ployment services rendered. 
‘‘(b) CROSS REFERENCES.—
‘‘(1) For the definition of business purposes, see 
section 102(b). 
‘‘(2) For the definition of insurance contract, see 
section 206(e). 
‘‘(3) For the definition of qualified family, see sec-
tion 302. 
‘‘(4) For the definition of monthly poverty level, 
see section 303. 
‘‘(5) For the definition of large seller, see section 
501(e)(3). 
‘‘(6) For the definition of hobby activities, see sec-
tion 701. 
‘‘(7) For the definition of gaming sponsor, see sec-
tion 701(a). 
‘‘(8) For the definition of a chance, see section 
701(b). 
‘‘(9) For the definition of government enterprise, 
see section 704(b). 
‘‘(10) For the definition of mixed use property, see 
section 705. 
‘‘(11) For the definition of qualified not-for-profit 
organization, see section 706. 
‘‘(12) For the definition of financial intermediation 
services, see section 801.
‘‘CHAPTER 1—INTERPRETATION; 
DEFINITIONS; IMPOSITION OF TAX; ETC.
‘‘Sec. 101. Imposition of sales tax. 
‘‘Sec. 102. Intermediate and export sales. 
‘‘Sec. 103. Rules relating to collection and remittance of tax.
‘‘SEC. 101. IMPOSITION OF SALES TAX. 
‘‘(a) IN GENERAL.—There is hereby imposed a tax 
on the use or consumption in the United States of taxable 
property or services. 
‘‘(b) RATE.—
‘‘(1) FOR 2005.—In the calendar year 2005, the 
rate of tax is 23 percent of the gross payments for 
the taxable property or service. 
‘‘(2) FOR YEARS AFTER 2005.—For years after 
the calendar year 2005, the rate of tax is the com-
bined Federal tax rate percentage (as defined in 
paragraph (3) of the gross payments for the taxable 
property or service. 
‘‘(3) COMBINED FEDERAL TAX RATE PERCENT-
AGE.—The combined Federal tax rate percentage is 
the sum of—
‘‘(A) the general revenue rate (as defined 
in paragraph (4), and 
‘‘(B) the old-age, survivors and disability 
insurance rate, and
‘‘(C) the hospital insurance rate.
‘‘(4) GENERAL REVENUE RATE.—The general 
revenue rate shall be 14.91 percent. 
‘‘(c) COORDINATION WITH IMPORT DUTIES.—The 
tax imposed by this section is in addition to any import 
duties imposed by chapter 4 of title 19. The Secretary 
shall provide by regulation that, to the maximum extent 
practicable, the tax imposed by this section on imported 
taxable property and services is collected and administered 
in conjunction with any applicable import duties imposed 
by the United States. 
‘‘(d) LIABILITY FOR TAX.—
‘‘(1) IN GENERAL.—The person using or con-
suming taxable property or services in the United 
States is liable for the tax imposed by this section, 
except as provided in paragraph (2) of this sub-
section. 
‘‘(2) EXCEPTION WHERE TAX PAID TO SELL-
ER.—A person using or consuming a taxable prop-
erty or service in the United States is not liable for 
the tax imposed by this section if the person pays 
the tax to a person selling the taxable property or 
service and receives from such person a purchaser’s 
receipt within the meaning of section 510. 
‘‘SEC. 102. INTERMEDIATE AND EXPORT SALES. 
‘‘(a) IN GENERAL.—For purposes of this subtitle—
‘‘(1) BUSINESS AND EXPORT PURPOSES.—No 
tax shall be imposed under section 101 on any tax-
able property or service purchased for—
‘‘(A) a business purpose in a trade or busi-
ness, or 
‘‘(B) export from the United States for use 
or consumption outside the United States, if, 
the purchaser provided the seller with a reg-
istration certificate, and the seller was a whole-
sale seller. 
‘‘(2) INVESTMENT PURPOSE.—No tax shall be 
imposed under section 101 on any taxable property 
or service purchased for an investment purpose and 
held exclusively for an investment purpose. 
‘‘(3) STATE GOVERNMENT FUNCTIONS.—No tax 
shall be imposed under section 101 on State govern-
ment functions that do not constitute the final con-
sumption of property or services. 
‘‘(b) BUSINESS PURPOSES.—For purposes of this 
section, the term ‘purchased for a business purpose in a 
trade or business’ means purchased by a person engaged 
in a trade or business and used in that trade or business—
‘‘(1) for resale, 
‘‘(2) to produce, provide, render, or sell taxable 
property or services, or
‘‘(3) in furtherance of other bona fide business 
purposes. 
‘‘(c) INVESTMENT PURPOSES.—For purposes of this 
section, the term ‘purchased for an investment purpose’ 
means property purchased exclusively for purposes of ap-
preciation or the production of income but not entailing 
more than minor personal efforts. 
‘‘SEC. 103. RULES RELATING TO COLLECTION AND REMIT-
TANCE OF TAX. 
‘‘(a) LIABILITY FOR COLLECTION AND REMITTANCE 
OF THE TAX.—Except as provided otherwise by this sec-
tion, any tax imposed by this subtitle shall be collected 
and remitted by the seller of taxable property or services 
(including financial intermediation services). 
‘‘(b) TAX TO BE REMITTED BY PURCHASER IN CER-
TAIN CIRCUMSTANCES.—
‘‘(1) IN GENERAL.—In the case of taxable prop-
erty or services purchased outside of the United 
States and imported into the United States for use 
or consumption in the United States, the purchaser 
shall remit the tax imposed by section 101. 
‘‘(2) CERTAIN WAGES OR SALARY.—In the case 
of wages or salary paid by a taxable employer which 
are taxable services, the employer shall remit the tax 
imposed by section 101.
‘‘(c) CONVERSION OF BUSINESS OR EXPORT PROP-
ERTY OR SERVICES.—Property or services purchased for 
a business purpose in a trade or business or for export 
(sold untaxed pursuant to section 102(a)) that is subse-
quently converted to personal use shall be deemed pur-
chased at the time of conversion and shall be subject to 
the tax imposed by section 101 at the fair market value 
of the converted property as of the date of conversion. The 
tax shall be due as if the property had been sold at the 
fair market value during the month of conversion. The 
person using or consuming the converted property is liable 
for and shall remit the tax. 
‘‘(d) SELLER RELIEVED OF LIABILITY IN CERTAIN 
CASES.—In the case of any taxable property or service 
which is sold untaxed pursuant to section 102(a), the sell-
er shall be relieved of the duty to collect and remit the 
tax imposed under section 101 on such purchase if the 
seller—
‘‘(1) received in good faith, and retains on file 
for the period set forth in section 509, a copy of a 
registration certificate from the purchaser, and 
‘‘(2) did not, at the time of sale, have reason-
able cause to believe that the buyer was not reg-
istered pursuant to section 502.
‘‘(e) PURCHASER LIABLE TO COLLECT AND REMIT 
IN CERTAIN CASES.—In the case of any taxable property 
or service which is sold untaxed pursuant to section 102, 
if the seller is relieved by reason of subsection (d) of the 
duty to collect and remit the tax imposed by section 101, 
then the duty to pay any tax due shall rest with the pur-
chaser. 
‘‘(f) BARTER TRANSACTIONS.—If gross payment for 
taxable property or services is made in other than money, 
then the person responsible for collecting and remitting 
the tax shall remit the tax to the sales tax administering 
authority in money as if gross payment had been made 
in money at the tax inclusive fair market value of the tax-
able property or services purchased. 
‘‘(g) INTERCOMPANY SALES.—Firms that make pur-
chases from affiliated firms that are untaxed pursuant to 
section 102, or make sales to affiliated firms that are 
untaxed pursuant to section 102, shall not need to comply 
with the requirements of subsection (d) (relating to certifi-
cates) for said purchases or sales to remain untaxed. 
‘‘CHAPTER 2—CREDITS; REFUNDS
‘‘Sec. 201. Credits and refunds. 
‘‘Sec. 202. Business use conversion credit. 
‘‘Sec. 203. Intermediate and export sales credit. 
‘‘Sec. 204. Administration credit. 
‘‘Sec. 205. Bad debt credit. 
‘‘Sec. 206. Insurance proceeds credit. 
‘‘Sec. 207. Refunds.
‘‘SEC. 201. CREDITS AND REFUNDS. 
‘‘(a) IN GENERAL.—Each person shall be allowed a 
credit with respect to the taxes imposed by section 101 
for each month in an amount equal to the sum of—
‘‘(1) such person’s business use conversion 
credit pursuant to section 202 for such month, 
‘‘(2) such person’s intermediate and export 
sales credit pursuant to section 203 for such month, 
‘‘(3) the administration credit pursuant to sec-
tion 204 for such month, 
‘‘(4) the bad debt credit pursuant to section 
205 for such month, 
‘‘(5) the insurance proceeds credit pursuant to 
section 206 for such month, 
‘‘(6) the transitional inventory credit pursuant 
to section 902, and 
‘‘(7) any amount paid in excess of the amount 
due. 
‘‘(b) CREDITS NOT ADDITIVE.—Only one credit al-
lowed by chapter 2 may be taken with respect to any par-
ticular gross payment. 
‘‘SEC. 202. BUSINESS USE CONVERSION CREDIT. 
‘‘(a) IN GENERAL.—For purposes of section 201, a 
person’s business use conversion credit for any month is 
the aggregate of the amounts determined under subsection 
(b) with respect to taxable property and services—
‘‘(1) on which tax was imposed by section 101 
(and actually paid), and 
‘‘(2) which commenced to be 95 percent or 
more used during such month for business purposes 
(within the meaning of section 102(b)). 
‘‘(b) AMOUNT OF CREDIT.—The amount determined 
under this paragraph with respect to any taxable property 
or service is the lesser of—
‘‘(1) the product of—
‘‘(A) the rate imposed by section 101, and 
‘‘(B) the quotient that is—
‘‘(i) the fair market value of the prop-
erty or service when its use is converted, 
divided by 
‘‘(ii) the quantity that is 1 minus the 
tax rate imposed by section 101, or 
‘‘(2) the amount of tax paid with respect to 
such taxable property or service, including the 
amount, if any, determined in accordance with sec-
tion 705 (relating to mixed use property). 
‘‘SEC. 203. INTERMEDIATE AND EXPORT SALES CREDIT. 
‘‘For purposes of section 201, a person’s intermediate 
and export sales credit is the amount of sales tax paid 
on the purchase of any taxable property or service pur-
chased for—
‘‘(1) a business purpose in a trade or business 
(as defined in section 102(b)), or 
‘‘(2) export from the United States for use or 
consumption outside the United States. 
‘‘SEC. 204. ADMINISTRATION CREDIT. 
‘‘(a) IN GENERAL.—Every person filing a timely 
monthly report (with regard to extensions) in compliance 
with section 501 shall be entitled to a taxpayer adminis-
trative credit equal to the greater of—
‘‘(1) $200, or 
‘‘(2) one-quarter of 1 percent of the tax remit-
ted. 
‘‘(b) LIMITATION.—The credit allowed under this sec-
tion shall not exceed 20 percent of the tax due to be remit-
ted prior to the application of any credit or credits per-
mitted by section 201. 
‘‘SEC. 205. BAD DEBT CREDIT. 
‘‘(a) FINANCIAL INTERMEDIATION SERVICES.—Any 
person who has experienced a bad debt (other than unpaid 
invoices within the meaning of subsection (b)) shall be en-
titled to a credit equal to the product of—
‘‘(1) the rate imposed by section 101, and 
‘‘(2) the quotient that is—
‘‘(A) the amount of the bad debt (as de-
fined in section 802), divided by
‘‘(B) the quantity that is 1 minus the rate 
imposed by section 101. 
‘‘(b) UNPAID INVOICES.—Any person electing the ac-
crual method pursuant to section 503 that has with re-
spect to a transaction—
‘‘(1) invoiced the tax imposed by section 101, 
‘‘(2) remitted the invoiced tax,
‘‘(3) actually delivered the taxable property or 
performed the taxable services invoiced, and 
‘‘(4) not been paid 180 days after date the in-
voice was due to be paid, 
shall be entitled to a credit equal to the amount of tax 
remitted and unpaid by the purchaser. 
‘‘(c) SUBSEQUENT PAYMENT.—Any payment made 
with respect to a transaction subsequent to a section 205 
credit being taken with respect to that transaction shall 
be subject to tax in the month the payment was received 
as if a tax inclusive sale of taxable property and services 
in the amount of the payment had been made. 
‘‘(d) PARTIAL PAYMENTS.—Partial payments shall be 
treated as pro rata payments of the underlying obligation 
and shall be allocated proportionately—
‘‘(1) for fully taxable payments, between pay-
ment for the taxable property and service and tax, 
and
‘‘(2) for partially taxable payments, among pay-
ment for the taxable property and service, tax and 
other payment. 
‘‘(e) RELATED PARTIES.—The credit provided by this 
section shall not be available with respect to sales made 
to related parties. For purposes of this section, related 
party means affiliated firms and family members (as de-
fined in section 302(b)). 
‘‘SEC. 206. INSURANCE PROCEEDS CREDIT. 
‘‘(a) IN GENERAL.—A person receiving a payment 
from an insurer by virtue of an insurance contract shall 
be entitled to a credit in an amount determined by sub-
section (b), less any amount paid to the insured by the 
insurer pursuant to subsection (c), if the entire premium 
(except that portion allocable to the investment account 
of the underlying policy) for the insurance contract giving 
rise to the insurer’s obligation to make a payment to the 
insured was subject to the tax imposed by section 101 and 
said tax was paid. 
‘‘(b) CREDIT AMOUNT.—The amount of the credit 
shall be the product of—
‘‘(1) the rate imposed by section 101, and 
‘‘(2) the quotient that is—
‘‘(A) the amount of the payment made by 
the insurer to the insured, divided by
‘‘(B) the quantity that is 1 minus the rate 
imposed by section 101. 
‘‘(c) ADMINISTRATIVE OPTION.—The credit deter-
mined in accordance with subsection (b) shall be paid by 
the insurer to the insured and the insurer shall be entitled 
to the credit in lieu of the insured, except that the insurer 
may elect, in a form prescribed by the Secretary, to not 
pay the credit and require the insured to make application 
for the credit. In the event of such election, the insurer 
shall provide to the Secretary and the insured the name 
and tax identification number of the insurer and of the 
insured and indicate the proper amount of the credit. 
‘‘(d) COORDINATION WITH RESPECT
TO EXEMP-
TION.—If taxable property or services purchased by an in-
surer on behalf of an insured are purchased free of tax 
by virtue of section 2(a)(8)(C), then the credit provided 
by this section shall not be available with respect to that 
purchase. 
‘‘(e) INSURANCE CONTRACT.—For purposes of sub-
section (a), the term insurance contract’ shall include a 
life insurance contract, a health insurance contract, a 
property and casualty loss insurance contract, a general 
liability insurance contract, a marine insurance contract, 
a fire insurance contract, an accident insurance contract, 
a disability insurance contract, a long-term care insurance
contract, and an insurance contract that provides a com-
bination of these types of insurance. 
‘‘SEC. 207. REFUNDS. 
‘‘(a) REGISTERED SELLERS.—If a registered seller 
files a monthly tax report with an overpayment, then, 
upon application by the registered seller in a form pre-
scribed by the sales tax administering authority, the over-
payment shown on the report shall be refunded to the reg-
istered seller within 60 days of receipt of said application. 
In the absence of such application, the overpayment may 
be carried forward, without interest, by the person entitled 
to the credit. 
‘‘(b) OTHER PERSONS.—If a person other than a reg-
istered seller has an overpayment for any month, then, 
upon application by the person in a form prescribed by 
the sales tax administering authority, the credit balance 
due shall be refunded to the person within 60 days of re-
ceipt of said application. 
‘‘(c) INTEREST.—No interest shall be paid on any 
balance due from the sales tax administering authority 
under this subsection for any month if such balance due 
is paid within 60 days after the application for refund is 
received. Balances due not paid within 60 days after the 
application for refund is received shall bear interest from
the date of application. Interest shall be paid at the Fed-
eral short-term rate (as defined in section 512). 
‘‘(d) SUSPENSION
OF PERIOD TO PAY REFUND 
ONLY IF FEDERAL OR STATE COURT RULING.—The 60-
day periods under subsections (a) and (b) shall be sus-
pended with respect to a purported overpayment (or por-
tion thereof) only during any period that there is in effect 
a preliminary, temporary, or final ruling from a Federal 
or State court that there is reasonable cause to believe 
that such overpayment may not actually be due. 
‘‘CHAPTER 3—FAMILY CONSUMPTION 
ALLOWANCE
‘‘Sec. 301. Family consumption allowance. 
‘‘Sec. 302. Qualified family. 
‘‘Sec. 303. Monthly poverty level.
‘‘Sec. 304. Rebate mechanism. 
‘‘Sec. 305. Change in family circumstances.
‘‘SEC. 301. FAMILY CONSUMPTION ALLOWANCE. 
‘‘Each qualified family shall be eligible to receive a 
sales tax rebate each month. The sales tax rebate shall 
be in an amount equal to the product of—
‘‘(1) the rate of tax imposed by section 101, 
and 
‘‘(2) the monthly poverty level. 
‘‘SEC. 302. QUALIFIED FAMILY. 
‘‘(a) GENERAL RULE.—For purposes of this chapter, 
the term ‘qualified family’ shall mean 1 or more family 
members sharing a common residence. All family members
sharing a common residence shall be considered as part 
of 1 qualified family. 
‘‘(b) FAMILY SIZE DETERMINATION.—
‘‘(1) IN GENERAL.—To determine the size of a 
qualified family for purposes of this chapter, family 
members shall mean—
‘‘(A) an individual, 
‘‘(B) the individual’s spouse, 
‘‘(C) all lineal ancestors and descendants 
of said individual (and such individual’s 
spouse), 
‘‘(D) all legally adopted children of such 
individual (and such individual’s spouse), and 
‘‘(E) all children under legal guardianship 
of such individual (or such individual’s spouse). 
‘‘(2) 
IDENTIFICATION
REQUIREMENTS.—In 
order for a person to be counted as a member of the 
family for purposes of determining the size of the 
qualified family, such person must—
‘‘(A) have a bona fide Social Security num-
ber; and 
‘‘(B) be a lawful resident of the United 
States. 
‘‘(c) CHILDREN LIVING AWAY FROM HOME.—
‘‘(1) STUDENTS LIVING AWAY FROM HOME.—
Any person who was a registered student during not 
fewer than 5 months in a calendar year while living 
away from the common residence of a qualified fam-
ily but who receives over 50 percent of such person’s 
support during a calendar year from members of the 
qualified family shall be included as part of the fam-
ily unit whose members provided said support for 
purposes of this chapter. 
‘‘(2) CHILDREN OF DIVORCED OR SEPARATED 
PARENTS.—If a child’s parents are divorced or le-
gally separated, a child for purposes of this chapter 
shall be treated as part of the qualified family of the 
custodial parent. In cases of joint custody, the custo-
dial parent for purposes of this chapter shall be the 
parent that has custody of the child for more than 
one-half of the time during a given calendar year. A 
parent entitled to be treated as the custodial parent 
pursuant to this paragraph may release this claim to 
the other parent if said release is in writing. 
‘‘(d) ANNUAL REGISTRATION.—In order to receive 
the family consumption allowance provided by section 301, 
a qualified family must register with the sales tax admin-
istering authority in a form prescribed by the Secretary. 
The annual registration form shall provide—
‘‘(1) the name of each family member who 
shared the qualified family’s residence on the family 
determination date, 
‘‘(2) the Social Security number of each family 
member on the family determination date who 
shared the qualified family’s residence on the family 
determination date, 
‘‘(3) the family member or family members to 
whom the family consumption allowance should be 
paid, 
‘‘(4) a certification that all listed family mem-
bers are lawful residents of the United States, 
‘‘(5) a certification that all family members 
sharing the common residence are listed, 
‘‘(6) a certification that no family members 
were incarcerated on the family determination date 
(within the meaning of subsection (l)), and 
‘‘(7) the address of the qualified family. 
Said registration shall be signed by all members of the 
qualified family that have attained the age of 21 years 
as of the date of filing. 
‘‘(e) REGISTRATION NOT MANDATORY.—Registra-
tion is not mandatory for any qualified family. 
‘‘(f) EFFECT
OF FAILURE TO PROVIDE ANNUAL 
REGISTRATION.—Any qualified family that fails to reg-
ister in accordance with this section within 30 days of the 
family determination date, shall cease receiving the 
monthly family consumption allowance in the month be-
ginning 90 days after the family determination date. 
‘‘(g) EFFECT OF CURING FAILURE TO PROVIDE AN-
NUAL REGISTRATION.—Any qualified family that failed to 
timely make its annual registration in accordance with this 
section but subsequently cures its failure to register, shall 
be entitled to up to 6 months of lapsed sales tax rebate 
payments. No interest on lapsed payment amount shall be 
paid. 
‘‘(h) EFFECTIVE
DATE
OF
ANNUAL
REGISTRA-
TIONS.—Annual registrations shall take effect for the 
month beginning 90 days after the family registration 
date. 
‘‘(i) EFFECTIVE
DATE
OF
REVISED
REGISTRA-
TIONS.—A revised registration made pursuant to section 
305 shall take effect for the first month beginning 60 days 
after the revised registration was filed. The existing reg-
istration shall remain in effect until the effective date of 
the revised registration. 
‘‘(j) DETERMINATION
OF
REGISTRATION
FILING 
DATE.—An annual or revised registration shall be deemed 
filed when—
‘‘(1) deposited in the United States mail, post-
age prepaid, to the address of the sales tax admin-
istering authority. 
‘‘(2) delivered and accepted at the offices of the 
sales tax administering authority; or 
‘‘(3) provided to a designated commercial pri-
vate courier service for delivery within 2 days to the 
sales tax administering authority at the address of 
the sales tax administering authority. 
‘‘(k) PROPOSED REGISTRATION TO BE PROVIDED.—
30 or more days before the family registration date, the 
sales tax administering authority shall mail to the address 
shown on the most recent rebate registration or change 
of address notice filed pursuant to section 305(d) a pro-
posed registration that may be simply signed by the appro-
priate family members if family circumstances have not 
changed. 
‘‘(l) INCARCERATED INDIVIDUALS.—An individual 
shall not be eligible under this chapter to be included as 
a member of any qualified family if that individual—
‘‘(1) is incarcerated in a local, State, or Federal 
jail, prison, mental hospital, or other institution on 
the family determination date, and 
‘‘(2) is scheduled to be incarcerated for 6 
months or more in the 12-month period following
the effective date of the annual registration or the 
revised registration of said qualified family. 
‘‘(m) FAMILY DETERMINATION DATE.—The family 
determination date is a date assigned to each family by 
the Secretary for purposes of determining qualified family 
size and other information necessary for the administra-
tion of this chapter. The Secretary shall promulgate regu-
lations regarding the issuance of family determination 
dates. In the absence of any regulations, the family deter-
mination date for all families shall be October 1. The Sec-
retary may assign family determination dates for adminis-
trative convenience. Permissible means of assigning family 
determination dates include a method based on the 
birthdates of family members. 
‘‘(n) CROSS REFERENCE.—
‘‘For penalty for filing false rebate claim, see sec-
tion 505(i).
‘‘SEC. 303. MONTHLY POVERTY LEVEL. 
‘‘(a) IN GENERAL.—The monthly poverty level for 
any particular month shall be one-twelfth of the ‘annual 
poverty level.’ For purposes of this section the ‘annual 
poverty level’ shall be the sum of—
‘‘(1) the annual level determined by the Depart-
ment of Health and Human Services poverty guide-
lines required by sections 652 and 673(2) of the
Omnibus Reconciliation Act of 1981 for a particular 
family size, and 
‘‘(2) in case of families that include a married 
couple, the ‘annual marriage penalty elimination 
amount’. 
‘‘(b) ANNUAL MARRIAGE PENALTY ELIMINATION 
AMOUNT.—The annual marriage penalty elimination 
amount shall be the amount that is—
‘‘(1) the amount that is two times the annual 
level determined by the Department of Health and 
Human Services poverty guidelines required by sec-
tions 652 and 673(2) of the Omnibus Reconciliation 
Act of 1981 for a family of one, less 
‘‘(2) the annual level determined by the Depart-
ment of Health and Human Services poverty guide-
lines required by sections 652 and 673(2) of the 
Omnibus Reconciliation Act of 1981 for a family of 
two. 
‘‘SEC. 304. REBATE MECHANISM. 
‘‘(a) GENERAL RULE.—The Social Security Adminis-
tration shall provide a monthly sales tax rebate to duly 
registered qualified families in an amount determined in 
accordance with section 301. 
‘‘(b) PERSONS RECEIVING REBATE.—The payments 
shall be made to the persons designated by the qualifying
family in the annual or revised registration for each quali-
fied family in effect with respect to the month for which 
payment is being made. Payments may only be made to 
persons 18 years or older. If more than 1 person is des-
ignated in a registration to receive the rebate, then the 
rebate payment shall be divided evenly between or among 
those persons designated. 
‘‘(c) WHEN REBATES MAILED.—Rebates shall be 
mailed on or before the first business day of the month 
for which the rebate is being provided. 
‘‘(d) SMARTCARDS AND DIRECT ELECTRONIC DE-
POSIT PERMISSIBLE.—The Social Security Administration 
may provide rebates in the form of smartcards that carry 
cash balances in their memory for use in making pur-
chases at retail establishments or by direct electronic de-
posit. 
‘‘SEC. 305. CHANGE IN FAMILY CIRCUMSTANCES. 
‘‘(a) GENERAL RULE.—In the absence of the filing 
of a revised registration in accordance with this chapter, 
the common residence of the qualified family, marital sta-
tus and number of persons in a qualified family on the 
family registration date shall govern determinations re-
quired to be made under this chapter for purposes of the 
following calendar year.