‘‘SEC. 3905. TAXABLE PERSON. 
‘‘(a) GENERAL RULE.—Except as otherwise provided 
in this chapter, for purposes of this chapter, the term ‘tax-
able person’ means a person who engages in a business 
or in a commercial-type transaction. 
‘‘(b) TREATMENT OF EMPLOYEES, ETC.—For pur-
poses of this chapter, an employee shall not be treated 
as a taxable person with respect to activities engaged in 
as an employee. 
‘‘SEC. 3906. TRANSACTIONS IN THE UNITED STATES. 
‘‘(a) SALES OF PROPERTY.—For purposes of this 
chapter— 
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), the sale of property shall be treated as 
occurring where delivery takes place. 
‘‘(2) REAL PROPERTY.—The sale of real prop-
erty shall be treated as occurring where the real 
property is located. 
‘‘(b) PERFORMANCE OF SERVICE.—For purposes of 
this chapter— 
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, a service shall be treated as 
occurring where it is performed. 
‘‘(2) SERVICES PERFORMED INSIDE AND OUT-
SIDE
THE
UNITED
STATES.—If a service is per-
formed both inside and outside the United States, 
such service shall be treated as performed— 
‘‘(A) inside the United States, if 50 per-
cent or more of such service is performed inside 
the United States, and 
‘‘(B) outside the United States, if less than 
50 percent of such service is performed inside 
the United States. 
‘‘SEC. 3907. RULES RELATING TO OTHER TERMS USED IN 
SECTION 3903. 
‘‘(a) EXCHANGES TREATED AS SALES.—For pur-
poses of this chapter— 
‘‘(1) an exchange of property for property or 
services shall be treated as a sale of property, and 
‘‘(2) an exchange of services for property or 
services shall be treated as the performance of serv-
ices. 
‘‘(b) CERTAIN TRANSFERS TO EMPLOYEES TREATED 
AS SALES.—For purposes of this chapter, the transfer of 
property to an employee as compensation (other than a 
transfer of a type for which no amount is includible in 
the gross income of employees for purposes of chapter 1) 
shall be treated as the sale of property. 
‘‘(c) PERFORMANCE OF SERVICES.—For purposes of 
this chapter—
‘‘(1) CERTAIN
ACTIVITIES
TREATED
AS
PER-
FORMANCE OF SERVICES.—Activities treated as in-
cluded in the performance of services shall include 
(but shall not be limited to)— 
‘‘(A) permitting the use of property, 
‘‘(B) the granting of a right to the per-
formance of services or to reimbursement (in-
cluding the granting of warranties, insurance, 
and similar items), and 
‘‘(C) the making of a covenant not to com-
pete (or similar agreement to refrain from 
doing something). 
‘‘(2) EMPLOYERS AND EMPLOYEES.— 
‘‘(A) SERVICES FOR EMPLOYER.—An em-
ployee’s services for the employee’s employer 
shall not be treated as the performance of serv-
ices. 
‘‘(B) SERVICES FOR EMPLOYEE.—An em-
ployer’s services for the employer’s employee 
shall not be treated as the performance of serv-
ices unless such services are of a type which 
constitute gross income to the employee for 
purposes of chapter 1.
‘‘(3) PERFORMANCE OF SERVICES TREATED AS 
SALE OF SERVICES.—The performance of services 
shall be treated as the sale of services. 
‘‘Subchapter C—Taxable Amount; Rate of Tax 
for Certain Transactions; Credit Against Tax 
‘‘Sec. 3911. Taxable amount. 
‘‘Sec. 3912. Zero rating for food, housing, and medical care. 
‘‘Sec. 3913. Zero rating for exports and interest. 
‘‘Sec. 3914. Governmental entities. 
‘‘Sec. 3915. Exempt organizations. 
‘‘Sec. 3916. Credit against tax. 
‘‘SEC. 3911. TAXABLE AMOUNT. 
‘‘(a) AMOUNT CHARGED CUSTOMER.—For purposes 
of this chapter, the taxable amount for any transaction 
for which money is the only consideration shall be the 
price charged the purchaser of the property or services by 
the seller thereof— 
‘‘(1) including all invoiced charges for transpor-
tation, and other items payable to the seller with re-
spect to this transaction, but 
‘‘(2) excluding the tax imposed by section 3901 
with respect to this transaction and excluding any 
State and local sales and use taxes with respect to 
this transaction. 
‘‘(b) EXCHANGES.—For purposes of this chapter, the 
taxable amount in any exchange of property or services 
shall be the fair market value of the property or services 
transferred by the person liable for the tax (determined
as if such person had sold the property or services to the 
other party to the exchange). 
‘‘(c) IMPORTS.—For purposes of this chapter, the 
taxable amount in the case of any import shall be— 
‘‘(1) the customs value plus customs duties and 
any other duties which may be imposed, or 
‘‘(2) if there is no such customs value, the fair 
market value (determined as if the importer had sold 
the property). 
‘‘(d) SPECIAL RULE IN THE CASE OF SALES OF CER-
TAIN USED CONSUMER GOODS.—For purposes of this 
chapter, if— 
‘‘(1) a taxable person acquires any tangible per-
sonal property in a transaction which was not a tax-
able transaction, and 
‘‘(2) such property had been used by an ulti-
mate consumer before such acquisition, 
the taxable amount in the case of any sale of such property 
by such taxable person (determined without regard to this 
subsection) shall be reduced by the amount paid for such 
property by such taxable person.
‘‘SEC. 3912. ZERO RATING FOR FOOD, HOUSING, AND MED-
ICAL CARE. 
‘‘(a) ZERO RATING FOR FOOD, HOUSING, AND MED-
ICAL CARE.—The rate of the tax imposed by section 3901 
shall be zero with respect to the following: 
‘‘(1) FOOD.—The retail sale of food and non-
alcoholic beverages for human consumption (other 
than consumption on the premises). 
‘‘(2) HOUSING.—The sale and renting of resi-
dential real property for use by the purchaser or 
tenant as a principal residence. 
‘‘(3) MEDICAL CARE.—Medical care. 
‘‘(b) DEFINITIONS.—For purposes of subsection 
(a)— 
‘‘(1) NONALCOHOLIC
BEVERAGES.—The term 
‘nonalcoholic beverages’ does not include any article 
which is taxable under chapter 51. 
‘‘(2) MEDICAL CARE.—The term ‘medical care’ 
means the performance of any service, and the retail 
sale of any property, payment for which by the pur-
chaser would constitute medical care within the 
meaning of section 213. 
‘‘(3) MOBILE HOMES, ETC., TREATED AS REAL 
PROPERTY.—A mobile or floating home shall be 
treated as real property.
‘‘(c) ADVANCE ZERO RATING.—The Secretary shall 
prescribe regulations under which any item which becomes 
clearly identifiable as an item to which subsection (a) will 
apply when it reaches the retail stage shall be zero rated 
for all transactions after it becomes so clearly identifiable. 
‘‘SEC. 3913. ZERO RATING FOR EXPORTS AND INTEREST. 
‘‘The rate of the tax imposed by section 3901 shall 
be zero with respect to the following: 
‘‘(1) EXPORTS.—Exports of property. 
‘‘(2) INTEREST.—Interest. 
‘‘SEC. 3914. GOVERNMENTAL ENTITIES. 
‘‘(a) ZERO RATING FOR SALES TO GOVERNMENTAL 
ENTITIES AND EDUCATIONAL ACTIVITIES OF GOVERN-
MENTAL ENTITIES.—The rate of the tax imposed by sec-
tion 3901 shall be zero with respect to the following: 
‘‘(1) SALES
TO
GOVERNMENTAL
ENTITIES.— 
Any sale of property or services to a governmental 
entity. 
‘‘(2) EDUCATIONAL ACTIVITIES.—The providing 
by a governmental entity of property and services in 
connection with the education of students. 
‘‘(b) SALES, ETC., BY GOVERNMENTAL ENTITIES 
TAXABLE ONLY WHERE SEPARATE CHARGE IS MADE.— 
For purposes of this chapter, the sale of property and the 
performance of services by a governmental entity shall be
a taxable transaction if (and only if) a separate charge 
of fee is made therefor. 
‘‘(c) GOVERNMENTAL ENTITY DEFINED.—For pur-
poses of this chapter, the term ‘governmental entity’ 
means the United States, any State or political subdivision 
thereof, the District of Columbia, a Commonwealth or pos-
session of the United States, or any agency or instrumen-
tality of any of the foregoing. 
‘‘SEC. 3915. EXEMPT ORGANIZATIONS. 
‘‘(a) ZERO RATING FOR SECTION 501(C)(3) ORGANI-
ZATIONS; CREDIT ALLOWED FOR ALL PURCHASES.— 
‘‘(1) ZERO RATING.—The rate of the tax im-
posed by section 3901 shall be zero with respect to 
any taxable transaction engaged in by a section 
501(c)(3) organization other than as part of an un-
related business. 
‘‘(2) CREDIT ALLOWED FOR ALL PURCHASES.— 
For purposes of this chapter, a section 501(c)(3) or-
ganization shall be treated as engaged in a business 
with respect to all of its activities. 
‘‘(b) TAXABLE TRANSACTIONS IN CASE OF OTHER 
EXEMPT ORGANIZATIONS.—For purposes of this chapter, 
the sale of property and the performance of services by 
any exempt organization other than a section 501(c)(3)
organization shall be a taxable transaction if (and only 
if) a charge or fee is made for such services. 
‘‘(c) DEFINITIONS.—For purposes of this chapter— 
‘‘(1) SECTION
501(C)(3)
ORGANIZATIONS.—The 
term ‘section 501(c)(3) organization’ means an orga-
nization described in section 501(c)(3) which is ex-
empt from tax under section 501(a). 
‘‘(2) OTHER
EXEMPT
ORGANIZATION.—The 
term ‘other exempt organization’ means any organi-
zation (other than a section 501(c)(3) organization) 
which is exempt from tax under chapter 1. 
‘‘SEC. 3916. CREDIT AGAINST TAX. 
‘‘(a) GENERAL RULE.—There shall be allowed as a 
credit against the tax imposed by section 3901 the aggre-
gate amount of tax imposed by section 3901 which has 
been paid by sellers to the taxpayer of property and serv-
ices which the taxpayer uses in the business to which the 
transaction relates. 
‘‘(b) EXEMPT TRANSACTIONS, ETC.—If— 
‘‘(1) property or services are used partly in the 
business and partly for other purposes, or 
‘‘(2) property or services are used partly for 
taxable transactions and partly for other trans-
actions,
the credit shall be allowable only with respect to the prop-
erty and services used for taxable transactions in the busi-
ness. No credit shall be allowable for any transaction oc-
curring when the taxpayer was a nontaxable person. 
‘‘(c) EXCESS CREDIT TREATED AS OVERPAYMENT.— 
‘‘(1) IN GENERAL.—If for any taxable period 
the aggregate amount of the credits allowable by 
subsection (a) exceeds the aggregate amount of the 
tax imposed by section 3901 for such period, such 
excess shall be treated as an overpayment of the tax 
imposed by section 3901. 
‘‘(2) TIME WHEN OVERPAYMENT ARISES.—Any 
overpayment under paragraph (1) for any taxable 
period shall be treated as arising on the later of— 
‘‘(A) the due date for the return for such 
period, or 
‘‘(B) the date on which the return is filed. 
‘‘Subchapter D—Administration 
‘‘Sec. 3921. Seller liable for tax. 
‘‘Sec. 3922. Tax invoices. 
‘‘Sec. 3923. De minimis exemption. 
‘‘Sec. 3924. Time for filing return and claiming credit; deposits of tax. 
‘‘Sec. 3925. Treatment of related businesses, etc. 
‘‘Sec. 3926. Secretary to be notified of certain events. 
‘‘Sec. 3927. Regulations. 
‘‘SEC. 3921. SELLER LIABLE FOR TAX. 
‘‘The person selling the property or services shall be 
liable for the tax imposed by section 3901.
‘‘SEC. 3922. TAX INVOICES. 
‘‘(a) SELLER MUST GIVE PURCHASER TAX IN-
VOICE.—Any taxable person engaging in a taxable trans-
action shall give the purchaser a tax invoice with respect 
to such transaction if the seller has reason to believe that 
the purchaser is a taxable person. 
‘‘(b) CONTENT OF INVOICE.—The tax invoice re-
quired by subsection (a) with respect to any transaction 
shall set forth— 
‘‘(1) the name and identification number of the 
seller, 
‘‘(2) the name of the purchaser, 
‘‘(3) the amount of the tax imposed by section 
3901, and 
‘‘(4) such other information as may be pre-
scribed by regulations. 
‘‘(c) NO CREDIT WITHOUT INVOICE.— 
‘‘(1) IN GENERAL.—Except as provided in para-
graphs (2) and (3), a purchaser may claim a credit 
with respect to a transaction only if the purchaser— 
‘‘(A) has received from the seller and has 
in the purchaser’s possession a tax invoice 
which meets the requirements of subsection (b), 
and 
‘‘(B) is named as the purchaser in such in-
voice.
‘‘(2) EMPLOYEES OR OTHER AGENTS NAMED IN 
INVOICES.—To the extent provided in regulations, 
the naming of an employee or other agent of the 
purchaser shall be treated as the naming of the pur-
chaser. 
‘‘(3) WAIVER
OF
INVOICE
REQUIREMENT
IN 
CERTAIN CASES.—To the extent provided in regula-
tions, paragraph (1) shall not apply— 
‘‘(A) where the purchaser without fault on 
the purchaser’s part fails to receive or fails to 
have in the purchaser’s possession a tax invoice, 
‘‘(B) to a taxable transaction (or category 
of transactions) where— 
‘‘(i) the amount involved is de mini-
mis, or 
‘‘(ii) the information required by sub-
section (b) can be reliably established by 
sampling or by another method and can be 
adequately documented. 
‘‘(d) TIME FOR FURNISHING INVOICE.—Any invoice 
required to be furnished by subsection (a) with respect to 
any transaction shall be furnished not later than 15 busi-
ness days after the tax point for such transaction. 
‘‘SEC. 3923. DE MINIMIS EXEMPTION. 
‘‘(a) IN GENERAL.—Under regulations, a person—
‘‘(1) whose aggregate taxable transactions for 
the calendar year do not exceed $20,000, and 
‘‘(2) whose aggregate taxable transactions for 
the next calendar year can reasonably be expected 
not to exceed $20,000, 
may elect to be treated as a person who is not a taxable 
person for the next calendar year. 
‘‘(b) EXCEPTIONS.—Subsection (a) shall not apply— 
‘‘(1) to any sale or leasing of real property, and 
‘‘(2) to any importing of property. 
‘‘(c) TERMINATION
OF ELECTION.—Any election 
under subsection (a) for a calendar year shall terminate 
if the aggregate taxable transactions— 
‘‘(1) for the first calendar quarter in such year 
exceed $7,000, 
‘‘(2) for the first 2 calendar quarters in such 
year exceed $12,000, or 
‘‘(3) for the first 3 calendar quarters in such 
year exceed $17,000. 
Such termination shall take effect on the first day of the 
second month following the close of the first period in 
which the requirements of paragraph (1), (2), or (3) are 
met. 
‘‘(d) TAXABLE AMOUNT TREATED
AS ZERO
FOR 
ZERO-RATED TRANSACTIONS.—For purposes of this sec-
tion, the taxable amount of any zero-rated transaction 
shall be treated as zero. 
‘‘(e) CONDITION OF ELECTION.—In the case of a per-
son who is a taxable person for any period, an election 
under subsection (a) may be made for succeeding periods 
only with the consent of the Secretary. Such consent shall 
be conditioned on placing such person, for all succeeding 
periods, in the same position with respect to the tax im-
posed by section 3901 (and the credit allowed by section 
3916) he would have been in if all property and services 
he holds at the time he becomes a nontaxable person had 
been acquired as a nontaxable person. 
‘‘(f) CASUAL SALES AND LEASES OF REAL PROP-
ERTY EXCLUDED.—For purposes of this section, the term 
‘taxable transaction’ does not include a transaction which 
is treated as a commercial-type transaction solely by rea-
son of section 3904(b)(1)(A). 
‘‘SEC. 3924. TIME FOR FILING RETURN AND CLAIMING 
CREDIT; DEPOSITS OF TAX. 
‘‘(a) FILING RETURN.—Before the first day of the 
second calendar month beginning after the close of each 
taxable period, each taxable person shall file a return of 
the tax imposed by section 3901 on taxable transactions 
having a tax point within such taxable period.
‘‘(b) CREDIT ALLOWED FOR TAXABLE PERIOD IN 
WHICH PURCHASER RECEIVES INVOICE.— 
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), a credit allowable by section 3916 with 
respect to a transaction may be allowed only for the 
first taxable period by the close of which the tax-
payer— 
‘‘(A) has paid or accrued amounts properly 
allocable to the tax imposed by section 3901 
with respect to such transaction, and 
‘‘(B) has a tax invoice (or equivalent) with 
respect to such transaction. 
‘‘(2) USE FOR LATER PERIOD.—Under regula-
tions, a credit allowable by section 3916 may be al-
lowed for a period after the period set forth in para-
graph (1). 
‘‘(c) TAXABLE PERIOD.—For purposes of this chap-
ter— 
‘‘(1) IN GENERAL.—The term ‘taxable period’ 
means a calendar quarter. 
‘‘(2) EXCEPTION.— 
‘‘(A) ELECTION OF 1-MONTH PERIOD.—If 
the taxpayer so elects, the term ‘taxable period’ 
means a calendar month.
‘‘(B) OTHER PERIODS.—To the extent pro-
vided in regulations, the term ‘taxable period’ 
includes a period, other than a calendar quarter 
or month, selected by the taxpayer. 
‘‘(d) TAX POINT.—For purposes of this chapter— 
‘‘(1) CHAPTER
RULES
WITH
RESPECT
TO 
SELLER GOVERN.—Except as provided in paragraph 
(2), the tax point for any sale of property or services 
is the earlier of— 
‘‘(A) the time (or times) when any income 
from the sale should be treated by the seller as 
received or accrued (or any loss should be taken 
into account by the seller) for purposes of chap-
ter 1, or 
‘‘(B) the time (or times) when the seller 
receives payment for the sale. 
‘‘(2) IMPORTS.—In the case of the importing of 
property, the tax point is when the property is en-
tered, or withdrawn from warehouse, for consump-
tion in the United States. 
‘‘(e) MONTHLY DEPOSITS REQUIRED.—To the extent 
provided in regulations, monthly deposits may be required 
of the estimated liability for any taxable period for the 
tax imposed by section 3901.
‘‘SEC. 3925. TREATMENT OF RELATED BUSINESSES, ETC. 
‘‘(a) GENERAL RULE.—For purposes of this chapter 
(other than section 3923), to the extent provided in regu-
lations, the taxpayer may elect— 
‘‘(1) to treat as 1 taxable person 2 or more 
businesses which may be treated under section 52(b) 
as 1 employer, and 
‘‘(2) to treat as separate taxable persons sepa-
rate divisions of the same business. 
‘‘(b) DE MINIMIS EXEMPTION.—For purposes of sec-
tion 3923, all businesses which are under common control 
(within the meaning of section 52(b)) shall be treated as 
1 business. 
‘‘SEC. 3926. SECRETARY TO BE NOTIFIED OF CERTAIN 
EVENTS. 
‘‘To the extent provided in regulations, each person 
engaged in a business shall notify the Secretary (at such 
time or times as may be prescribed by such regulations) 
of any change in the form in which a business is conducted 
or any other change which might affect the liability for 
the tax imposed by section 3901 or the amount of such 
tax or any credit against such tax, or otherwise affect the 
administration of such tax in the case of such person.
‘‘SEC. 3927. REGULATIONS. 
‘‘The Secretary shall prescribe such regulations as 
may be necessary to carry out the purposes of this chap-
ter. 
‘‘Subchapter E—Definitions and Special 
Rules; Treatment of Certain Transactions 
‘‘Sec. 3931. Definitions. 
‘‘Sec. 3932. Special rules. 
‘‘Sec. 3933. Personal use by owner of business property or services. 
‘‘Sec. 3934. Gift of business property or services. 
‘‘Sec. 3935. Special rules for dispositions of nonbusiness real property. 
‘‘Sec. 3936. Special rule for insurance contracts. 
‘‘SEC. 3931. DEFINITIONS. 
‘‘(a) PROPERTY.—For purposes of this chapter, the 
term ‘property’ means any tangible property. 
‘‘(b) BUSINESS.—For purposes of this chapter, the 
term ‘business’ includes— 
‘‘(1) a trade, and 
‘‘(2) an activity regularly carried on for profit. 
‘‘(c) EMPLOYEE.—For purposes of this chapter, the 
term ‘employee’ has the meaning such term has for pur-
poses of chapter 24 (relating to withholding). 
‘‘(d) PERSON.—For purposes of this chapter, the 
term ‘person’ includes any governmental entity. 
‘‘(e) BUSINESS DAY.—For purposes of this chapter, 
the term ‘business day’ means any day other than Satur-
day and Sunday and other than a legal holiday (within 
the meaning of section 7503).
100 
‘‘(f) UNITED STATES.—For purposes of this chapter, 
the term ‘United States’, when used in a geographical 
sense, includes a Commonwealth and any possession of the 
United States. 
‘‘SEC. 3932. SPECIAL RULES. 
‘‘(a) COORDINATION WITH SUBTITLE A.—For pur-
poses of subtitle A— 
‘‘(1) TREATMENT OF CREDIT.—Any credit al-
lowable to a taxpayer under section 3916 which is 
attributable to any property or services shall be 
treated as a reduction in the amount paid or in-
curred by the taxpayer for such property or services. 
‘‘(2) AMOUNT OF DEDUCTION FOR TAX.—The 
amount allowable as a deduction for the tax imposed 
by section 3901 shall be determined without regard 
to any credit allowable under section 3916. 
‘‘(3) COMPUTATION
OF
PERCENTAGE
DEPLE-
TION.—For purposes of sections 613 and 613A— 
‘‘(A) gross income shall be reduced by the 
amount of the tax imposed by section 3901, 
and 
‘‘(B) taxable income shall be determined 
without regard to any deduction allowed for 
such tax.
101 
‘‘(b) SPECIAL RULE SALE OF PROPERTY INCLUDES 
INCIDENTAL PERFORMANCE
OF SERVICES.—For pur-
poses of this chapter, if in connection with the sale of any 
property there is an incidental performance of services, 
such performance of services shall be treated as part of 
the sale of such property. 
‘‘(c) SPECIAL RULE WHERE PERFORMANCE
OF 
SERVICES INCLUDES INCIDENTAL TRANSFER OF PROP-
ERTY.—For purposes of this chapter, if in connection with 
the performance of any services there is an incidental 
transfer of property, such transfer shall be treated as part 
of the performance of such services. 
‘‘(d) AUTHORITY
TO
ZERO
RATE
DE
MINIMIS 
TRANSACTIONS, ETC.—The Secretary may prescribe regu-
lations providing that the rate of tax shall be zero for a 
taxable transaction (or category of such transactions) 
where— 
‘‘(1) the amount involved is de minimis, or 
‘‘(2) the revenue raised by taxing the trans-
action is not sufficient to justify the administrative 
and other costs involved in the payment and collec-
tion of the tax. 
‘‘(e) IMPORTING TREATED
AS SALE
AND PUR-
CHASE.—For purposes of this chapter, the importing of 
any property into the United States shall be treated as
102 
both a sale and purchase of such property by the person 
importing such property. 
‘‘(f) SUBCHAPTER S CORPORATION TREATED AS NOT 
A CORPORATION.—For purposes of this chapter, an S cor-
poration (as defined in section 1361(a)) shall be treated 
as a person which is not a corporation. 
‘‘(g) USE INCLUDES HELD FOR USE.—For purposes 
of this chapter, property and services held for use by any 
person shall be treated as used by the person. 
‘‘SEC. 3933. PERSONAL USE BY OWNER OF BUSINESS PROP-
ERTY OR SERVICES. 
‘‘(a) GENERAL RULE.—If any business property or 
services are used by an owner of the taxpayer for personal 
purposes, for purposes of this chapter such use shall be 
treated as a taxable transaction. 
‘‘(b) TAXABLE AMOUNT.—In the case of a use de-
scribed in subsection (a), for purposes of this chapter, the 
taxable amount shall be— 
‘‘(1) except as provided in paragraph (2), the 
fair market value of the property or the services, or 
‘‘(2) if such use is only the temporary use of 
property, the fair rental value of such use. 
‘‘(c) DEFINITIONS.—For purposes of this section— 
‘‘(1) BUSINESS PROPERTY OR SERVICES.—The 
term ‘business property or services’ means any prop-