I 
109TH 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 4, 2005 
Mr. LINDER (for himself, Mr. DELAY, Mr. BRADY of Texas, Mr. CULBERSON, 
Mr. DEAL of Georgia, Mr. FLAKE, Mr. GUTKNECHT, Mr. KING of Iowa, 
Mr. KINGSTON, Mr. WESTMORELAND, and Mr. PRICE of Georgia) intro-
duced 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 2005’’.
(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 Income taxes repealed.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 Payroll taxes repealed.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 Estate and gift taxes repealed.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 Phase-out of administration of repealed Federal taxes.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 the Internal Revenue Code of 1986 (re-
lating to income taxes and self-employment taxes) is re-
pealed. 
SEC. 102. PAYROLL TAXES REPEALED. 
(a) IN GENERAL.—Subtitle C of the Internal Rev-
enue Code of 1986 (relating to payroll taxes and with-
holding 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 the Internal Revenue Code of 1986 (re-
lating 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 2005’’. 
(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 2005, and
(B) to the Internal Revenue Code of 2005 
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, 2007. 
TITLE II—SALES TAX ENACTED 
SEC. 201. SALES TAX. 
(a) IN GENERAL.—The Internal Revenue Code of 
2005 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
‘‘SEC. 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. 
‘‘(3) To prevent double, multiple, or cascading 
taxation. 
‘‘(4) To simplify the tax law and reduce the ad-
ministration costs of, and the costs of compliance 
with, the tax law. 
‘‘(5) To provide for the administration of the 
tax law in a manner that respects privacy, due proc-
ess, individual rights when interacting with the gov-
ernment, the presumption of innocence in criminal 
proceedings, and the presumption of lawful behavior 
in civil proceedings.
‘‘(6) To increase the role of State governments 
in Federal tax administration because of State gov-
ernment expertise in sales tax administration. 
‘‘(7) To enhance generally cooperation and co-
ordination among State tax administrators; and to 
enhance cooperation and coordination among Fed-
eral and State tax administrators, consistent with 
the principle of intergovernmental tax immunity. 
‘‘(c) SECONDARY AIDS TO STATUTORY CONSTRUC-
TION.—As a secondary aid in statutory construction, any 
court, the Secretary, and any sales tax administering au-
thority shall consider— 
‘‘(1) the common law canons of statutory con-
struction; 
‘‘(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. 
‘‘(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 relat-
ing 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—