by a fine not exceeding $50,000 or by imprisonment not 
exceeding one year, or both. 
SEC. 505. PROHIBITION AGAINST DISCRIMINATION. 
In carrying out the provisions of this Act there shall 
be no discrimination on account of race, creed, or color. 
Personal health services shall be made available as bene-
fits to all eligible individuals, and all persons qualified 
under title II to enter into agreements to furnish or pro-
vide such services shall be permitted to do so. 
TITLE VI—ELIGIBILITY DETER-
MINATIONS, 
COMPLAINTS, 
HEARINGS, AND JUDICIAL RE-
VIEW 
SEC. 601. DETERMINATIONS AS TO ELIGIBILITY FOR BENE-
FITS. 
(a) IN GENERAL.—The Secretary of Health and 
Human Services through such units of the Department 
of Health and Human Services as the Secretary may de-
termine, shall upon the Secretary’s own initiative or upon 
application of any individual make determinations as to 
the eligibility of individuals for benefits under this Act. 
Whenever requested by any individual determined by the 
Secretary not to be eligible for benefits for any period, 
or by a dependent of any such individual, the Secretary 
shall give such individual or such dependent reasonable
notice and opportunity for a hearing with respect to such 
determination and on the basis of the evidence adduced 
at the hearing shall affirm, modify, or reverse the Sec-
retary’s determination. 
(b) AUTHORITY.—
(1) IN
GENERAL.—In carrying out the Sec-
retary’s responsibility under this section, the Sec-
retary shall have all the powers and duties conferred 
upon the Secretary under sections 205 and 206 of 
the Social Security Act. Such powers and duties 
shall be subject to the same limitations and rights 
of judicial review as are contained in section 205 of 
such Act. 
(2) CIVIL
SERVICE
ELIGIBILITY
DETERMINA-
TIONS.—Eligibility for benefits under this title based 
on entitlement to an annuity under subchapter III 
(relating to civil service retirement) of chapter 83 of 
title 5, United States Code, shall be determined on 
the basis of certification by the Office of Personnel 
Management. 
(c) ROLE OF STATES.—Nothing in title IV shall be 
deemed to require or authorize any assumption by the 
State agency, designated in accordance with an approved 
State plan of operations approved under such title, of any 
of the Secretary’s responsibilities under this section, but
the Secretary may utilize existing facilities and services 
of any such agency on the basis of mutual agreements with 
such agency. 
SEC. 602. COMPLAINTS OF ELIGIBLE INDIVIDUALS AND OF 
PERSONS FURNISHING BENEFITS. 
(a) IN GENERAL.—
(1) FILING.—Any eligible individual aggrieved 
by reason of the individual’s failure to receive any 
personal health-service benefits to which the believes 
entitled, or dissatisfied with any service rendered the 
individual as a personal health-service benefit, and 
any person who has entered into an agreement to 
furnish services as personal health-service benefits 
and who is aggrieved by the failure or alleged failure 
of a local or other administrative officer or a local 
administrative committee to carry out the agreement 
in accordance with its terms, may make a complaint 
to the local administrative officer or local executive 
officer in the area in which the action or inaction 
complained of occurred, or to such other officer as 
may be provided in regulations. 
(2) RESPONSE.—If the officer to whom such 
complaint is made finds, after investigation, that the 
complaint is well founded, the officer shall prompt-
ly—
(A) take such steps as may be necessary 
and appropriate to correct the action or inac-
tion complained of; and 
(B) notify the individual or other person 
making the complaint of the officer’s disposition 
thereof. 
(3) HEARING.—Any such individual or other 
person dissatisfied with the action taken may in 
writing request a hearing thereon and shall be af-
forded opportunity for the same pursuant to sub-
section (b). 
(b) HEARINGS.—
(1) IN GENERAL.—Provision shall be made for 
the establishment of necessary and sufficient impar-
tial tribunals to afford hearings to individuals and 
other persons entitled thereto under subsection (a), 
or section 207(d), and for further review of the find-
ings, conclusions, and recommendations of such tri-
bunals, in accordance with regulations made by the 
Board, after consultation with the Advisory Council. 
(2) SPECIFIC SUBJECTS.—With respect to any 
complaint involving—
(A) matters or questions of professional 
practice or conduct, the hearing body shall con-
tain competent and disinterested professional 
representation; and 
(B) only matters or questions of profes-
sional practice or conduct, the hearing body
shall consist exclusively of such professional 
persons. 
(c) POWERS OF BOARD.—In administering this sec-
tion in any State which has not assumed responsibility for 
the administration of benefits under this Act as provided 
in title IV, the Board (subject to the provisions of section 
501(b)) shall, insofar as they are applicable to its func-
tions under this Act, have all the powers and duties con-
ferred upon the Secretary by sections 205 and 206 of the 
Social Security Act. Such powers and duties shall be sub-
ject to the limitations and rights of judicial review con-
tained in section 205 of such Act. 
(d) JUDICIAL REVIEW.—In any State which has as-
sumed responsibility for the administration of benefits 
under this Act as provided in title IV the powers and du-
ties of the State agency shall be subject to such rights 
of judicial review in the courts of the State as the law 
of the State may provide; subject, however, to review by 
the Supreme Court of the United States in such cases and 
in such manner as is provided in section 1257 of title 28 
of the United States Code.
TITLE VII—APPLICATION OF ACT 
TO 
INDIVIDUALS 
COVERED 
UNDER MEDICARE PROGRAM 
SEC. 701. ELIGIBILITY; BENEFITS AVAILABLE. 
(a) LIMITATION TO SUPPLEMENTARY BENEFITS.—
(1) IN GENERAL.—In the case of any individual 
who is entitled to hospital insurance benefits under 
part A of title XVIII of the Social Security Act, or 
to supplementary medical insurance benefits under 
the insurance program established by part B of such 
title, during any benefit year or part thereof in 
which the individual is otherwise eligible for benefits 
under this Act in accordance with section 104 or 
would otherwise be furnished such benefits in ac-
cordance with section 105, the personal health serv-
ices (specified in section 101) which may be made 
available to the individual as benefits under this Act 
shall be limited to those services (otherwise available 
to the individual in accordance with section 102) for 
which the individual is ineligible under part A or B 
of such title XVIII. 
(2) TREATMENT.—For purposes of paragraph 
(1), an individual shall be considered ineligible under 
part A or B of such title XVIII if no payment is or 
can be made to the individual or on the individual’s
behalf thereunder with respect to the item or service 
involved, whether because the individual is not enti-
tled to benefits under whichever such part is applica-
ble, because no payment is provided under either 
such part for the item or service involved, or because 
the individual has exhausted entitlement to have 
payment made thereunder for items or services of 
the type involved. An individual shall also be consid-
ered ineligible under part A or B of such title XVIII 
with respect to any item or service (for which the in-
dividual is otherwise entitled to have payment made 
thereunder) to the extent that payment is not made 
with respect to such item or service because of the 
application of the deductible and coinsurance provi-
sions of sections 1813 and 1833 of the Social Secu-
rity Act. 
(b) REGULATIONS.—The Board, after consultation 
with the Advisory Council, shall prescribe such regulations 
as may be necessary or appropriate to insure, in the case 
of individuals whose benefits under this Act are limited 
under subsection (a), that the combination of benefits 
under this Act and title XVIII of the Social Security Act 
will effectively carry out (without duplication of benefits) 
the purpose of this Act.
(c) NO IMPACT ON DEPENDENTS.—The limitation 
under subsection (a) of an individual’s benefits under this 
Act shall not be construed as affecting the eligibility of 
the individual’s dependents for such benefits in accordance 
with subsection (a)(3) or (b)(3) of section 104. 
SEC. 702. STUDY AND REPORT. 
(a) STUDY.—As soon as practicable after the date of 
the enactment of this Act, the Secretary of Health and 
Human Services shall undertake and carry out a full and 
complete study of the interrelationship of the program of 
national health insurance under this Act and the program 
of health insurance under title XVIII of the Social Secu-
rity Act, in order to determine the way in which the latter 
program may be most effectively and equitably transferred 
to and incorporated in the program under this Act. 
(b) CONSIDERATIONS.—In conducting such study, 
the Secretary shall give particular attention to the transi-
tional problems which would result from such a transfer, 
and shall consider in detail (with respect to each such pro-
gram)—
(1) the benefits provided; 
(2) the standards of eligibility therefor; 
(3) the standards and qualifications for partici-
pation by providers of services of various types; 
(4) the methods of administration;
(5) the costs and methods of financing; and 
(6) any other matters which might assist in 
making such determination and in insuring that all 
desirable features of the program under title XVIII 
of the Social Security Act will to the maximum ex-
tent feasible be preserved with respect to the individ-
uals covered by that program (and, in appropriate 
cases, included in the program under this Act for all 
individuals who are eligible thereunder, without re-
gard to any transfer). 
(c) REPORT.—The Secretary shall submit to the 
President and the Congress, no later than one year after 
the date of the enactment of this Act, a complete report 
of the study conducted under this section together with 
the Secretary’s findings as to the most effective and equi-
table way in which the transfer under consideration could 
be effected and detailed recommendations for legislative, 
administrative, and other actions to accomplish it. 
TITLE VIII—FISCAL PROVISIONS 
SEC. 801. USE OF TRUST FUND. 
(a) AVAILABILITY OF FUNDS.—Funds in the Na-
tional Health Care Trust Fund shall be available for all 
expenditures necessary or appropriate to carry out this 
Act; except that (subject to the provisions of section 
802(g)) only so much of such funds shall be available for
salaries or other administrative expenses of any depart-
ment or agency of the United States as may be authorized 
in annual or other appropriation Acts. 
(b) DEPOSIT OF REIMBURSEMENTS.—Sums received 
as reimbursements to the National Health Care Trust 
Fund pursuant to section 104(c) or section 105, or by vir-
tue of subrogation pursuant to section 104(c), shall be de-
posited in the National Health Care Trust Fund and shall 
be available in accordance with the provisions of sub-
section (a). 
SEC. 802. ALLOTMENT OF FUNDS. 
(a) FOR CLASSES OF SERVICES.—
(1) IN GENERAL.—The Board, after consulta-
tion with the Advisory Council, shall determine, as 
far in advance of the beginning of each fiscal year 
as is possible, the sums which shall be available from 
the Trust Fund for provision during the fiscal year 
of all classes, and of each of the five classes, of per-
sonal health-service benefits specified in section 
101(a). 
(2) CONSIDERATIONS.—Such sums shall be de-
termined, after taking into consideration the esti-
mated amount which will be in the Trust Fund at 
the beginning of the fiscal year and the anticipated
income of the National Health Care Trust Fund 
thereafter, with a view—
(A) to maintaining as nearly as practicable 
a uniform rate of expenditure for personal 
health-service benefits in successive fiscal years, 
except for appropriated allowance on account of 
anticipated increase in the personnel and facili-
ties available to furnish personal health-service 
benefits and on account of reduction or with-
drawal of restrictions or limitations pursuant to 
section 102(b); and 
(B) to establishing and maintaining a re-
serve in the Trust Fund adequate to meet 
emergency demands in accordance with sub-
section (d) and adequate to maintain the rate 
of expenditure or to permit its gradual reduc-
tion if the income of the Trust Fund should fall 
below the income which had been anticipated. 
(b) INITIAL STATE ALLOTMENTS.—
(1) IN GENERAL.—In accordance with regula-
tions prescribed after consultation with the State 
agencies, the Board, prior to the beginning of each 
fiscal year shall allot to the several States, for the 
fiscal years 2004, 2005, and 2006, 90 percent, and
for each fiscal year thereafter 95 percent of each 
sum determined pursuant to subsection (a). 
(2) BASIS OF ALLOTMENTS.—Such regulations 
shall provide for allotments on the basis of—
(A) the population in the several States eli-
gible for benefits under this Act; 
(B) professional and other personnel, hos-
pitals, and other facilities, and supplies and 
commodities, to be available in the several 
States in the provision of such benefits; and 
(C) the cost of reasonable and equitable 
compensation to such personnel and facilities 
and for such supplies and commodities. 
(3) OPERATION OF ALLOTMENTS.—Such allot-
ments shall operate, to the maximum extent pos-
sible, both to assure provision to eligible individuals 
of adequate personal health-service benefits in all 
States and all local health-service areas, and also to 
increase the adequacy of services where personnel 
and facilities are below the national average. 
(c) ALLOTMENT OF REMAINDER TO STATES.—
(1) IN GENERAL.—From time to time during 
each fiscal year, the Board shall allot to the several 
States the remaining 10 percent or the remaining 5
percent, as the case may be, of each sum determined 
pursuant to subsection (a). 
(2) CONSIDERATIONS.—In making allotments 
under this subsection, the Board shall take into con-
sideration the factors specified in subsection (b), but 
shall, in addition, give special consideration to the 
extent of which allotments under subsection (b) have 
proved to be insufficient to permit provision of rea-
sonably adequate benefits under this Act. 
(d) EMERGENCY ALLOTMENTS.—In addition to the 
sums determined pursuant to subsection (a) to be avail-
able for the provision of personal health-service benefits, 
the Board, after consultation with the Advisory Council, 
is authorized to make emergency allotments from the Na-
tional Health Care Trust Fund if it finds that a disaster, 
epidemic, or other cause has substantially increased the 
volume of personal health-service benefits required in any 
part of the United States over the volume anticipated 
when the determinations pursuant to subsection (a) were 
made. Allotments pursuant to this subsection shall be 
made to such State or States, for such class or classes 
of personal health-service benefits, and in such amounts, 
as the Board may find necessary to meet the emergency. 
(e) PAYMENT FROM ALLOTMENTS.—The Board shall 
from time to time determine the amounts to be paid to
each State from its allotments under this section, and 
shall certify to the Secretary of the Treasury the amounts 
so determined. The Secretary shall thereupon, and prior 
to audit or settlement by the General Accounting Office, 
pay to the State the amounts so certified. 
(f) USE OF FUNDS.—
(1) IN GENERAL.—Funds paid to a State for 
any class of personal health-service benefits shall be 
used exclusively for the provision of benefits of that 
class, except that the administrative costs of the 
State in administering personal health-service bene-
fits under this Act may be met from the allotments 
to the State. 
(2) LIMITATION ON ADMINISTRATIVE COSTS.—
Such administrative costs, which in any fiscal year 
shall not exceed 5 percent of the aggregate allot-
ments to the State for such fiscal year, shall be ap-
portioned as between the several allotments in ac-
cordance with the costs of administering the respec-
tive classes of benefits. Such apportionment may be 
made in such manner, and by such sampling, statis-
tical, or other methods, as may be agreed upon be-
tween the Board and the State agency. 
(g) BOARD ASSUMPTION OF RESPONSIBILITY.—In 
any case in which the Board has assumed responsibility
for the administration in a State of benefits under this 
Act in accordance with section 402 (d) or (e), all allot-
ments or balances of allotments to such State shall be 
available for expenditure by the Board for the provision 
of personal health-service benefits in that State, and (until 
the Congress shall make funds available therefor pursuant 
to section 801(a)) for the costs of administration of such 
benefits in such State. Expenditures authorized pursuant 
to section 801(a) for such costs of administration shall 
be charged against allotments to such State. 
SEC. 803. GRANTS-IN-AID FOR TRAINING AND EDUCATION. 
(a) AUTHORITY.—For the purpose of increasing the 
availability of training and education for professional and 
technical personnel engaged or undertaking to engage in 
the provision or administration of personal health services 
as benefits under this Act, and to carry out the policies 
of section 209(a), the Board is authorized to make 
grants—
(1) to public or nonprofit institutions or agen-
cies engaging in undergraduate or postgraduate pro-
fessional, technical, or administration education or 
training, for the cost (in whole or in part) of courses 
or projects which the Board finds, after consultation 
with the Advisory Council and appropriate Federal 
departments and agencies, (A) cannot be carried out
without financial assistance under this section, and 
(B) show promise of making valuable contributions 
to the education, training, or retraining of profes-
sional or technical personnel engaged or undertaking 
to engage in the provision or administration of bene-
fits, or 
(2) to individuals who are professional or tech-
nical persons engaged or who undertake to engage 
in the provision of personal health-service benefits, 
or who are engaged or undertake to engage in the 
administration of such benefits, for maintenance (in 
whole or in part) while in attendance at courses or 
projects assisted under paragraph (1) or approved 
by the Board for similar training or education, and 
for costs of necessary travel. 
(b) PAYMENT UNDER GRANTS.—Such grants, in 
such amounts and for payment at such times as are ap-
proved by the Board, shall be certified for payment to the 
Secretary of the Treasury, who shall pay them from the 
National Health Care Trust Fund to the designated indi-
viduals, institutions, or agencies. 
(c) AVAILABILITY OF FUNDS.—For the purposes of 
this section there shall be available for the fiscal year 2004 
the sum of $5,000,000, for the fiscal year 2004 the sum 
of $5,000,000, and for each fiscal year thereafter an
amount not to exceed one-half of 1 percent of the amount 
expended for benefits under this Act in the last preceding 
calendar year. 
TITLE IX—MISCELLANEOUS 
PROVISIONS 
SEC. 901. DEFINITIONS. 
As used in this Act: 
(1) WAGES.—The term ‘‘wages’’ means the 
sum of the following items, excluding any amount in 
excess of the applicable contribution and benefit 
base (as determined under section 230 of the Social 
Security Act with respect to the hospital insurance 
tax) which is received (or, in the case of income 
from self-employment, accrued) by any individual 
during any calendar year—
(A) all remuneration for employment, in-
cluding the cash value of all remuneration paid 
in any medium other than cash; except that 
such term does not include—
(i) the amount of any payment made 
to, or on behalf of, an employee under a 
plan or system established by an employer 
which makes provision for the employer’s 
employees generally or for a class or class-
es of the employer’s employees (including
any amount paid by an employer for insur-
ance or annuities, or into a fund to provide 
for any such payment), on account of re-
tirement, or sickness or accident disability, 
or medical and hospitalization expenses in 
connection with sickness or accident dis-
ability, or death; provided, in the case of a 
death benefit, that the employee (I) has 
not the option to receive, instead of provi-
sion for such death benefit, any part of 
such payment or, if such death benefit is 
insured, any part of the premiums (or con-
tributions to premiums) paid by the em-
ployee’s employer, and (II) has not the 
right, under the provisions of the plan or 
system or policy of insurance providing for 
such death benefit, to assign such benefit, 
or to receive a cash consideration in lieu of 
such benefit either upon the employee’s 
withdrawal from the plan or system pro-
viding for such benefit or upon termination 
of such plan or system or policy of insur-
ance or of the employee’s employment with 
such employer;
(ii) the payment by an employer 
(without deductions from the remuneration 
of the employee) of any social-insurance 
taxes or contributions imposed upon an 
employee; or 
(iii) the value of services exchanged 
for other services for which there is no 
payment other than the exchange; and 
(B) all net income from farm, business, 
professional, or other self-employment. 
(2) EMPLOYMENT.—The term ‘‘employment’’ 
means any service of whatever nature performed by 
an employee for the person employing the employee, 
irrespective of the citizenship or residence of either, 
within United States, or on or in connection with an 
American vessel or an American civil aircraft under 
a contract of service which is entered into within the 
United States or during the performance of which 
the vessel or aircraft touches at a port or airport in 
the United States, if the employee is employed on 
and in connection with such vessel or aircraft when 
outside the United States, except—
(A) service on active duty in the Armed 
Forces of the United States;
(B) service performed in the employ of a 
State or any political subdivision thereof, or any 
instrumentality of any one or more of the fore-
going which is wholly owned by one or more 
States or political subdivisions; 
(C) casual labor not in the course of the 
employer’s trade or business;
(D) service performed by an employee on 
or in connection with a vessel not an American 
vessel, or an aircraft not an American aircraft, 
if the employee is employed on and in connec-
tion with such vessel or aircraft when outside 
the United States; 
(E) service performed by a duly ordained 
or duly commissioned or licensed minister of 
any church in the regular exercise of the min-
ister’s ministry and service performed by a reg-
ular member of a religious order in the exercise 
of duties required by such order; 
(F) service performed by an individual as 
an employee or employee representative as de-
fined in section 1 of the Railroad Retirement 
Act of 1937 or section 1 of the Railroad Retire-
ment Act of 1974;
(G) service performance in any calendar 
quarter in the employ of any organization ex-
empt from income tax under section 501 of the 
Internal Revenue Code of 1986 if—
(i) the remuneration for such services 
does not exceed $150; or 
(ii) such service is in connection with 
the collection of dues or premiums for a 
fraternal beneficiary society, order, or as-
sociation, and is performed away from the 
home office or is ritualistic service in con-
nection with any such society, order, or as-
sociation; or 
(iii) such service is performed by a 
student who is enrolled and is regularly at-
tending classes at a school, college, or uni-
versity; 
(H) service performed in the employ of a 
foreign government (including service as a con-
sular or other officer or employee or a nondiplo-
matic representative); 
(I) service performed in the employ of an 
instrumentality wholly owned by a foreign gov-
ernment, if—
(i) the service is of a character similar 
to that performed in foreign countries by 
employees of the United States Govern-
ment or of an instrumentality thereof; and
(ii) the Secretary of State shall certify 
to the Secretary of Health and Human 
Services that the foreign government, with 
respect to whose instrumentality and em-
ployees thereof exemption is claimed, 
grants an equivalent exemption with re-
spect to similar service performed in the 
foreign country by employees of the United 
States Government and of instrumental-
ities thereof; and 
(J) service performed in the employ of an 
international organization entitled to enjoy 
privileges, exemptions, and immunities as an 
international organization under the Inter-
national Organizations Immunities Act. 
(3) In any case in which an individual has re-
ceived wages equal to the applicable contribution and 
benefit base (as determined under section 230 of the 
Social Security Act), in a calendar year, not less 
than $500 of such wages shall be deemed, for the 
purpose of section 104(a), to have been received by
the individual in the quarter during which the first 
of such wages were in fact received by the individual 
and in each quarter of such calendar year thereafter. 
(4) BENEFIT YEAR.—The term ‘‘benefit year’’ 
means a period commencing on July 1 of any year 
and ending on June 30 of the succeeding year. 
(5) QUARTER.—The term ‘‘quarter’’ and the 
term ‘‘calendar quarter’’ mean a period of three cal-
endar months ending on March 31, June 30, Sep-
tember 30, or December 31. 
(6) EMPLOYEE.—The term ‘‘employee’’ includes 
(in addition to any individual who is a servant under 
the law of master and servant) any individual who 
performs service, of whatever nature, for a person, 
unless the service is performed by the individual in 
pursuit of the individual’s own independently estab-
lished business. The term ‘‘employee’’ also includes 
an officer of a corporation. 
(7) AMERICAN VESSEL.—The term ‘‘American 
vessel’’ means any vessel documented or numbered 
under the laws of the United States; and includes 
any vessel which is neither documented nor num-
bered under the laws of any foreign country, if its 
crew is employed solely by one or more citizens or 
residents of the United States or corporations orga-
nized under the laws of the United States or of any 
State. 
(8) AMERICAN
AIRCRAFT.—The term ‘‘Amer-
ican aircraft’’ means an aircraft registered under the 
laws of the United States. 
(9) STATE.—The term ‘‘State’’ includes the 
District of Columbia. 
(10) UNITED
STATES.—The term ‘‘United 
States’’, when used in a geographic sense, means the 
several States, as defined in paragraph (9). 
(11) DEPENDENT.—The term ‘‘dependent’’ 
means—
(A) an unmarried child (including a step-
child, adopted, or foster child) of an individual, 
who is under the age of 18, or who is under a 
total disability which has continued for a period 
of not less than six consecutive calendar months 
and is living with such individual or receiving 
regular support from the individual; 
(B) a wife of an individual living with such 
individual or receiving regular support from the 
individual; 
(C) a husband who is under a total dis-
ability which has continued for a period of not 
less than six consecutive calendar months, and
is living with or receiving regular and substan-
tial support from such individual; and 
(D) a parent who is living with or receiving 
regular and substantial support from such indi-
vidual. 
(12) PERSON.—The term ‘‘person’’ means an 
individual, a trust or estate, a partnership, a cor-
poration, an association, a consumer cooperative, or 
other organization. 
SEC. 902. EFFECTIVE DATE. 
The effective date of this Act shall be the date of its 
enactment, but personal health services shall first become 
available as benefits in accordance with this Act on Octo-
ber 1, 2004.
TITLE 
X—VALUE 
ADDED 
TAX 
AND 
NATIONAL 
HEALTH 
CARE TRUST FUND 
SEC. 1001. IMPOSITION OF VALUE ADDED TAX. 
(a) IN GENERAL.—Subtitle D of the Internal Rev-
enue Code of 1986 (relating to miscellaneous excise taxes) 
is amended by inserting before chapter 31 the following 
new chapter: 
‘‘CHAPTER 30—VALUE ADDED TAX
‘‘SUBCHAPTER A. Imposition of tax. 
‘‘SUBCHAPTER B. Taxable transaction. 
‘‘SUBCHAPTER C. Taxable amount; rate of tax for certain trans-
actions; credit against tax. 
‘‘SUBCHAPTER D. Administration.
‘‘SUBCHAPTER E. Definitions and special rules; treatment of cer-
tain transactions.
‘‘Subchapter A—Imposition of Tax
‘‘Sec. 3901. Imposition of tax.
‘‘SEC. 3901. IMPOSITION OF TAX. 
‘‘(a) GENERAL RULE.—A tax is hereby imposed on 
each taxable transaction. 
‘‘(b) AMOUNT OF TAX.—Except as otherwise pro-
vided in this chapter, the amount of the tax shall be 5 
percent of the taxable amount. 
‘‘Subchapter B—Taxable Transaction
‘‘Sec. 3903. Taxable transaction. 
‘‘Sec. 3904. Commercial-type transaction. 
‘‘Sec. 3905. Taxable person. 
‘‘Sec. 3906. Transactions in the United States. 
‘‘Sec. 3907. Rules relating to other terms used in section 3903.
‘‘SEC. 3903. TAXABLE TRANSACTION. 
‘‘For purposes of this chapter, the term ‘taxable 
transaction’ means—
‘‘(1) the sale of property in the United States, 
‘‘(2) the performance of services in the United 
States, and 
‘‘(3) the importing of property into the United 
States, 
by a taxable person in a commercial-type transaction.
‘‘SEC. 3904. COMMERCIAL-TYPE TRANSACTION. 
‘‘(a) GENERAL RULE.—For purposes of this chapter, 
the term ‘commercial-type transaction’ means a trans-
action engaged in by—
‘‘(1) a corporation, or 
‘‘(2) any person (other than a corporation) in 
connection with a business. 
‘‘(b) SALES AND LEASES OF REAL PROPERTY; IM-
PORTS.—For purposes of this chapter—
‘‘(1) IN GENERAL.—The term ‘commercial-type 
transaction’ includes—
‘‘(A) any sale or leasing of real property, 
and 
‘‘(B) any importing of property, 
whether or not such transaction is described in sub-
section (a).
‘‘(2) CERTAIN IMPORTED ARTICLES.—Notwith-
standing paragraph (1)(B), the importing of an arti-
cle which is free of duty under part 2 of schedule 
8 of the Tariff Schedules of the United States shall 
not be treated as a commercial-type transaction un-
less such transaction is described in subsection (a). 
‘‘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).
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