‘‘(3) MIXED
USE
PROPERTY
OR
SERVICES
CREDIT.—A person registered pursuant to section
502 is entitled to a business use conversion credit
(pursuant to section 202) equal to the product of—
‘‘(A) the mixed use property amount; and
‘‘(B) the business use ratio; and
‘‘(C) the rate of tax imposed by section
101.
‘‘(4) MIXED
USE
PROPERTY
AMOUNT.—The
mixed use property amount for each month (or frac-
tion thereof) in which the property was owned shall
be—
‘‘(A) 
one-three-hundred-sixtieth 
of 
the
gross payments for real property for 360
months or until the property is sold;
‘‘(B) one-eighty-fourth of the gross pay-
ments for tangible personal property for 84
months or until the property is sold;
‘‘(C) one-sixtieth of the gross payments for
vehicles for 60 months or until the property is
sold; or
‘‘(D) for other types of taxable property or
services, a reasonable amount or in accordance
with regulations prescribed by the Secretary.
‘‘(5) BUSINESS USE RATIO.—For purposes of
this section, the term ‘business use ratio’ means the
ratio of business use to total use for a particular cal-
endar month (or portion thereof if the property was
owned for only part of said calendar month). For ve-
hicles, the business use ratio will be the ratio of
business purpose miles to total miles in a particular
calendar month. For real property, the business use
ratio is the ratio of floor space used primarily for
business purposes to total floor space in a particular
calendar month. For tangible personal property (ex-
cept for vehicles), the business use ratio is the ratio
of total time used for business purposes to total time
used in a particular calendar year. For other prop-
erty or services, the business ratio shall be cal-
culated using a reasonable method. Reasonable
records must be maintained to support a person’s
business use of the mixed use property or service.
‘‘(b) TIMING OF BUSINESS USE CONVERSION CRED-
IT ARISING OUT OF OWNERSHIP OF MIXED USE PROP-
ERTY.—A person entitled to a credit pursuant to sub-
section (a)(3) arising out of the ownership of mixed use
property must account for the mixed use on a calendar
year basis, and may file for the credit with respect to
mixed used property in any month following the calendar
year giving rise to the credit.
‘‘(c) CROSS REFERENCES.—
‘‘For business use conversion credit, see section
202.
‘‘SEC. 706. NOT-FOR-PROFIT ORGANIZATIONS.
‘‘(a) NOT-FOR-PROFIT ORGANIZATIONS.—Dues, con-
tributions, and similar payments to qualified not-for-profit
organizations shall not be considered gross payments for
taxable property or services for purposes of this subtitle.
‘‘(b) DEFINITION.—For purposes of this section, the
term ‘qualified not-for-profit organization’ means a not-
for-profit 
organization 
organized 
and 
operated
exclusively—
‘‘(1) for religious, charitable, scientific, testing
for public safety, literary, or educational purposes;
‘‘(2) as civic leagues or social welfare organiza-
tions;
‘‘(3) as labor, agricultural, or horticultural or-
ganizations;
‘‘(4) as chambers of commerce, business
leagues, or trade associations; or
‘‘(5) as fraternal beneficiary societies, orders, or
associations;
no part of the net earnings of which inures to the benefit
of any private shareholder or individual.
‘‘(c) QUALIFICATION CERTIFICATES.—Upon applica-
tion in a form prescribed by the Secretary, the sales tax
administering authority shall provide qualification certifi-
cates to qualified not-for-profit organizations.
‘‘(d) TAXABLE TRANSACTIONS.—If a qualified not-
for-profit organization provides taxable property or serv-
ices in connection with contributions, dues, or similar pay-
ments to the organization, then it shall be required to
treat the provision of said taxable property or services as
a purchase taxable pursuant to this subtitle at the fair
market value of said taxable property or services.
‘‘(e) EXEMPTIONS.—Taxable property and services
purchased by a qualified not-for-profit organization shall
be eligible for the exemptions provided in section 102.
‘‘CHAPTER 8—FINANCIAL
INTERMEDIATION SERVICES
‘‘Sec. 801. Determination of financial intermediation services
amount.
‘‘Sec. 802. Bad debts.
‘‘Sec. 803. Timing of tax on financial intermediation services.
‘‘Sec. 804. Financing leases.
‘‘Sec. 805. Basic interest rate.
‘‘Sec. 806. Foreign financial intermediation services.
‘‘SEC. 801. DETERMINATION OF FINANCIAL INTERMEDI-
ATION SERVICES AMOUNT.
‘‘(a) FINANCIAL INTERMEDIATION SERVICES.—For
purposes of this subtitle—
‘‘(1) IN GENERAL.—The term ‘financial inter-
mediation services’ means the sum of—
‘‘(A) explicitly charged fees for financial
intermediation services, and
‘‘(B) implicitly charged fees for financial
intermediation services.
‘‘(2) EXPLICITLY CHARGED FEES FOR FINAN-
CIAL INTERMEDIATION SERVICES.—The term ‘explic-
itly charged fees for financial intermediation serv-
ices’ includes—
‘‘(A) brokerage fees;
‘‘(B) explicitly stated banking, loan origi-
nation, processing, documentation, credit check
fees, or other similar fees;
‘‘(C) safe-deposit box fees;
‘‘(D) insurance premiums, to the extent
such premiums are not allocable to the invest-
ment account of the underlying insurance pol-
icy;
‘‘(E) trustees’ fees; and
‘‘(F) other financial services fees (includ-
ing mutual fund management, sales, and exit
fees).
‘‘(3) IMPLICITLY CHARGED FEES FOR FINAN-
CIAL INTERMEDIATION SERVICES.—
‘‘(A) IN GENERAL.—The term ‘implicitly
charged fees for financial intermediation serv-
ices’ includes the gross imputed amount in rela-
tion to any underlying interest-bearing invest-
ment, account, or debt.
‘‘(B) GROSS IMPUTED AMOUNT.—For pur-
poses of subparagraph (A), the term ‘gross im-
puted amount’ means—
‘‘(i) with respect to any underlying in-
terest-bearing investment or account, the
product of—
‘‘(I) the excess (if any) of the
basic interest rate (as defined in sec-
tion 805) over the rate paid on such
investment; and
‘‘(II) the amount of the invest-
ment or account; and
‘‘(ii) with respect to any underlying
interest-bearing debt, the product of—
‘‘(I) the excess (if any) of the
rate paid on such debt over the basic
interest rate (as defined in section
805); and
‘‘(II) the amount of the debt.
‘‘(b) SELLER OF FINANCIAL INTERMEDIATION SERV-
ICES.—For purposes of section 103(a), the seller of finan-
cial intermediation services shall be—
‘‘(1) in the case of explicitly charged fees for fi-
nancial intermediation services, the seller shall be
the person who receives the gross payments for the
charged financial intermediation services;
‘‘(2) in the case of implicitly charged fees for fi-
nancial intermediation services with respect to any
underlying interest-bearing investment or account,
the person making the interest payments on the in-
terest-bearing investment or account; and
‘‘(3) in the case of implicitly charged fees for fi-
nancial intermediation services with respect to any
interest-bearing debt, the person receiving the inter-
est payments on the interest-bearing debt.
‘‘SEC. 802. BAD DEBTS.
‘‘(a) IN GENERAL.—For purposes of section 205(a),
a bad debt shall be a business debt that becomes wholly
or partially worthless to the payee.
‘‘(b) BUSINESS LOAN.—For purposes of subsection
(a), a business loan or debt is a bona fide loan or debt
made for a business purpose that both parties intended
be repaid.
‘‘(c) DETERMINATION OF WORTHLESSNESS.—
‘‘(1) IN GENERAL.—No loan or debt shall be
considered wholly or partially worthless unless it has
been in arrears for 180 days or more, except that if
100
a debt is discharged wholly or partially in bank-
ruptcy before 180 days has elapsed, then it shall be
deemed wholly or partially worthless on the date of
discharge.
‘‘(2) DETERMINATION BY HOLDER.—A loan or
debt that has been in arrears for 180 days or more
may be deemed wholly or partially worthless by the
holder unless a payment schedule has been entered
into between the debtor and the lender.
‘‘(d) CROSS REFERENCE.—
‘‘See section 205(c) for tax on subsequent pay-
ments.
‘‘SEC. 803. TIMING OF TAX ON FINANCIAL INTERMEDIATION
SERVICES.
‘‘The tax on financial intermediation services pro-
vided by section 801 with respect to an underlying invest-
ment account or debt shall be imposed and collected with
the same frequency that statements are rendered by the
financial institution in connection with the investment ac-
count or debt but not less frequently than quarterly.
‘‘SEC. 804. FINANCING LEASES.
‘‘(a) DEFINITION.—For purposes of this section, the
term ‘financing lease’ means any lease under which the
lessee has the right to acquire the property for 50 percent
or less of its fair market value at the end of the lease
term.
101
‘‘(b) GENERAL RULE.—Financing leases shall be
taxed in the method set forth in this section.
‘‘(c) DETERMINATION OF PRINCIPAL AND INTEREST
COMPONENTS
OF FINANCING LEASE.—The Secretary
shall promulgate rules for disaggregating the principal
and interest components of a financing lease. The prin-
cipal amount shall be determined to the extent possible
by examination of the contemporaneous sales price or
prices of property the same or similar as the leased prop-
erty.
‘‘(d) ALTERNATIVE METHOD.—In the event that con-
temporaneous sales prices of property the same or similar
as the leased property are not available, the principal and
interest components of a financing lease shall be
disaggregated using the applicable interest rate (as de-
fined in section 512) plus 4 percent.
‘‘(e) PRINCIPAL COMPONENT.—The principal compo-
nent of the financing lease shall be subject to tax as if
a purchase in the amount of the principal component had
been made on the day on which said lease was executed.
‘‘(f) INTEREST COMPONENT.—The financial inter-
mediation services amount with respect to the interest
component of the financing lease shall be subject to tax
under this subtitle.
102
‘‘(g) COORDINATION.—If the principal component
and financial intermediation services amount with respect
to the interest component of a lease have been taxed pur-
suant to this section, then the gross lease or rental pay-
ments shall not be subject to additional tax.
‘‘SEC. 805. BASIC INTEREST RATE.
‘‘For purposes of this chapter, the basic interest rate
with respect to a debt instrument, investment, financing
lease, or account shall be the applicable interest rate (as
determined in section 512). For debt instruments, invest-
ments, or accounts of contractually fixed interest, the ap-
plicable interest rate of the month of issuance shall apply.
For debt instruments, investments, or accounts of variable
interest rates and which have no reference interest rate,
the applicable interest shall be the Federal short-term in-
terest rate for each month. For debt instruments, invest-
ments, or accounts of variable interest rates and which
have a reference interest rate, the applicable interest shall
be the applicable interest rate for the reference interest
rate for each month.
‘‘SEC. 806. FOREIGN FINANCIAL INTERMEDIATION SERV-
ICES.
‘‘(a) SPECIAL RULES RELATING TO INTERNATIONAL
FINANCIAL
INTERMEDIATION
SERVICES.—Financial
intermediation services shall be deemed as used or con-
103
sumed within the United States if the person (or any re-
lated party as defined in section 205(e)) purchasing the
services is a resident of the United States.
‘‘(b) DESIGNATION OF TAX REPRESENTATIVE.—Any
person that provides financial intermediation services to
United States residents must, as a condition of lawfully
providing such services, designate, in a form prescribed
by the Secretary, a tax representative for purposes of this
subtitle. The tax representative shall be responsible for en-
suring that the taxes imposed by this subtitle are collected
and remitted and shall be jointly and severally liable for
collecting and remitting these taxes. The Secretary may
require reasonable bond of the tax representative. The
Secretary or a sales tax administering authority may bring
an action seeking a temporary restraining order, an in-
junction, or such other order as may be appropriate to
enforce this section.
‘‘(c) CROSS REFERENCES.—
‘‘For definition of person, see section 901.
‘‘CHAPTER 9—ADDITIONAL MATTERS
‘‘Sec. 901. Additional matters.
‘‘Sec. 902. Transition matters.
‘‘Sec. 903. Wages to be reported to Social Security Administra-
tion.
‘‘Sec. 904. Trust Fund revenue.
‘‘Sec. 905. Withholding of tax on nonresident aliens and foreign
corporations.
104
‘‘SEC. 901. ADDITIONAL MATTERS.
‘‘(a) 
INTANGIBLE
PROPERTY
ANTIAVOIDANCE
RULE.—Notwithstanding section 2(a)(14)(A)(i), the sale
of a copyright or trademark shall be treated as the sale
of taxable services (within the meaning of section 101(a))
if the substance of the sales of copyright or trademark
constituted the sale of the services that produced the copy-
righted material or the trademark.
‘‘(b) DE MINIMIS PAYMENTS.—Up to $400 of gross
payments per calendar year shall be exempt from the tax
imposed by section 101 if—
‘‘(1) made by a person not in connection with
a trade or business at any time during such calendar
year prior to making said gross payments, and
‘‘(2) made to purchase any taxable property or
service which is imported into the United States by
such person for use or consumption by such person
in the United States.
‘‘(c) DE MINIMIS SALES.—Up to $1,200 per calendar
year of gross payments shall be exempt from the tax im-
posed by section 101 if received—
‘‘(1) by a person not in connection with a trade
or business during such calendar year prior to the
receipt of said gross payments; and
‘‘(2) in connection with a casual or isolated
sale.
105
‘‘(d) DE MINIMIS SALE OF FINANCIAL INTERMEDI-
ATION SERVICES.—Up to $10,000 per calendar year of
gross payments received by a person from the sale of fi-
nancial intermediation services (as determined in accord-
ance with section 801) shall be exempt from the tax im-
posed by section 101. The exemption provided by this sub-
section is in addition to other exemptions afforded by this
chapter. The exemption provided by this subsection shall
not be available to large sellers (as defined in section
501(e)(3)).
‘‘(e) PROXY BUYING TAXABLE.—If a registered per-
son provides taxable property or services to a person either
as a gift, prize, reward, or as remuneration for employ-
ment, and such taxable property or services were not pre-
viously subject to tax pursuant to section 101, then the
provision of such taxable property or services by the reg-
istered person shall be deemed the conversion of such tax-
able property or services to personal use subject to tax
pursuant to section 103(c) at the tax inclusive fair market
value of such taxable property or services.
‘‘(f) SUBSTANCE OVER FORM.—The substance of a
transaction will prevail over its form if the transaction has
no bona fide economic purpose and is designed to evade
tax imposed by this subtitle.
‘‘(g) CERTAIN EMPLOYEE DISCOUNTS TAXABLE.—
106
‘‘(1) EMPLOYEE DISCOUNT.—For purposes of
this subsection, the term ‘employee discount’ means
an employer’s offer of taxable property or services
for sale to its employees or their families (within the
meaning of section 302(b)) for less than the offer of
such taxable property or services to the general pub-
lic.
‘‘(2) EMPLOYEE DISCOUNT AMOUNT.—For pur-
poses of this subsection, the employee discount
amount is the amount by which taxable property or
services are sold pursuant to an employee discount
below the amount for which such taxable property or
services would have been sold to the general public.
‘‘(3) TAXABLE AMOUNT.—If the employee dis-
count amount exceeds 20 percent of the price that
the taxable property or services would have been sold
to the general public, then the sale of such taxable
property or services by the employer shall be deemed
the conversion of such taxable property or services
to personal use and tax shall be imposed on the tax-
able employee discount amount. The taxable em-
ployee discount amount shall be—
‘‘(A) the employee discount amount, minus
107
‘‘(B) 20 percent of the amount for which
said taxable property or services would have
been sold to the general public.
‘‘(h) SATURDAY, SUNDAY, OR LEGAL HOLIDAY.—
When the last day prescribed for performing any act re-
quired by this subtitle falls on a Saturday, Sunday, or
legal holiday (in the jurisdiction where the return is to
be filed), the performance of such act shall be considered
timely if it is performed on the next day which is not a
Saturday, Sunday, or legal holiday (in the jurisdiction
where the return is to be filed).
‘‘SEC. 902. TRANSITION MATTERS.
‘‘(a) INVENTORY.—
‘‘(1) QUALIFIED
INVENTORY.—Inventory held
by a trade or business on the close of business on
December 31, 2002, shall be qualified inventory if it
is sold—
‘‘(A) before December 31, 2006;
‘‘(B) by a registered person; and
‘‘(C) subject to the tax imposed by section
101.
‘‘(2) COST.—For purposes of this section, quali-
fied inventory shall have the cost that it had for
Federal income tax purposes for the trade or busi-
ness as of December 31, 2002 (including any
108
amounts capitalized by reason of section 263A of the
Internal Revenue Code of 1986 as in effect on De-
cember 31, 2002).
‘‘(3) TRANSITIONAL INVENTORY CREDIT.—The
trade or business which held the qualified inventory
on the close of business on December 31, 2002, shall
be entitled to a transitional inventory credit equal to
the cost of the qualified inventory (determined in ac-
cordance with paragraph (2)) times the rate of tax
imposed by section 101.
‘‘(4) TIMING OF CREDIT.—The credit provided
under paragraph (3) shall be allowed with respect to
the month when the inventory is sold subject to the
tax imposed by this subtitle. Said credit shall be re-
ported as an intermediate and export sales credit
and the person claiming said credit shall attach sup-
porting schedules in the form that the Secretary
may prescribe.
‘‘(b) WORK-IN-PROCESS.—For purposes of this sec-
tion, inventory shall include work-in-process.
‘‘(c) QUALIFIED INVENTORY HELD BY BUSINESSES
NOT SELLING SAID QUALIFIED INVENTORY
AT RE-
TAIL.—
‘‘(1) IN GENERAL.—Qualified inventory held by
businesses that sells said qualified inventory not sub-
109
ject to tax pursuant to section 102(a) shall be eligi-
ble for the transitional inventory credit only if that
business (or a business that has successor rights
pursuant to paragraph (2)) receives certification in
a form satisfactory to the Secretary that the quali-
fied inventory was subsequently sold subject to the
tax imposed by this subtitle.
‘‘(2) TRANSITIONAL INVENTORY CREDIT RIGHT
MAY BE SOLD.—The business entitled to the transi-
tional inventory credit may sell the right to receive
said transitional inventory credit to the purchaser of
the qualified inventory that gave rise to the credit
entitlement. Any purchaser of such qualified inven-
tory (or property or services into which the qualified
inventory has been incorporated) may sell the right
to said transitional inventory credit to a subsequent
purchaser of said qualified inventory (or property or
services into which the qualified inventory has been
incorporated).
‘‘SEC. 903. WAGES TO BE REPORTED TO SOCIAL SECURITY
ADMINISTRATION.
‘‘(a) IN GENERAL.—Employers shall submit such in-
formation to the Social Security Administration as is re-
quired by the Social Security Administration to calculate
social security benefits under title II of the Social Security
110
Act, including wages paid, in a form prescribed by the Sec-
retary. A copy of the employer submission to the Social
Security Administration relating to each employee shall be
provided to each employee by the employer.
‘‘(b) WAGES.—For purposes of this section, the term
‘wages’ means all cash remuneration for employment (in-
cluding tips to an employee by third parties provided that
the employer or employee maintains records documenting
such tips) including self-employment income; except that
such term shall not include—
‘‘(1) any insurance benefits received (including
death benefits);
‘‘(2) pension or annuity benefits received;
‘‘(3) tips received by an employee over $5,000
per year; and
‘‘(4) benefits received under a government enti-
tlement program (including social security benefits
and unemployment compensation benefits).
‘‘(c) SELF-EMPLOYMENT INCOME.—For purposes of
subsection (b), the term ‘self-employment income’ means
gross payments received for taxable property or services
minus the sum of—
‘‘(1) gross payments made for taxable property
or services (without regard to whether tax was paid
111
pursuant to section 101 on such taxable property or
services), and
‘‘(2) wages paid by the self-employed person to
employees of the self-employed person.
‘‘SEC. 904. TRUST FUND REVENUE.
‘‘(a) SECRETARY TO MAKE ALLOCATION OF SALES
TAX REVENUE.—The Secretary shall allocate the revenue
received by virtue of the tax imposed by section 101 in
accordance with this section. The revenue shall be allo-
cated among—
‘‘(1) the general revenue,
‘‘(2) the old-age and survivors insurance trust
fund,
‘‘(3) the disability insurance trust fund,
‘‘(4) the hospital insurance trust fund, and
‘‘(5) the Federal supplementary medical insur-
ance trust fund.
‘‘(b) GENERAL RULE.—
‘‘(1) GENERAL REVENUE.—The proportion of
total revenue allocated to the general revenue shall
be the same proportion as the rate in section
101(b)(4) bears to the combined Federal tax rate
percentage (as defined in section 101(b)(3)).
‘‘(2) The amount of revenue allocated to the
old-age and survivors insurance and disability insur-
112
ance trust funds shall be the same proportion as the
old-age, survivors and disability insurance rate (as
defined in subsection (d)) bears to the combined
Federal tax rate percentage (as defined in section
101(b)(3)).
‘‘(3) The amount of revenue allocated to the
hospital insurance and Federal supplementary med-
ical insurance trust funds shall be the same propor-
tion as the hospital insurance rate (as defined in
subsection (e)) bears to the combined Federal tax
rate percentage (as defined in section 101(b)(3)).
‘‘(c) CALENDAR YEAR 2003.—Notwithstanding sub-
section (b), the revenue allocation pursuant to subsection
(a) for calendar year 2003 shall be as follows:
‘‘(1) 64.83 percent of total revenue to general
revenue;
‘‘(2) 27.43 percent of total revenue to the old-
age and survivors insurance and disability insurance
trust funds, and
‘‘(3) 7.74 percent of total revenue to the hos-
pital insurance and Federal supplementary medical
insurance trust funds.
‘‘(d) OLD-AGE, SURVIVORS AND DISABILITY INSUR-
ANCE RATE.—The old-age, survivors and disability insur-
ance rate shall be determined by the Social Security Ad-
113
ministration. The old-age, survivors and disability insur-
ance rate shall be that sales tax rate which is necessary
to raise the same amount of revenue that would have been
raised by imposing a 12.4 percent tax on the Social Secu-
rity wage base (including self-employment income) as de-
termined in accordance with chapter 21 of the Internal
Revenue Code most recently in effect prior to the enact-
ment of this Act. The rate shall be determined using actu-
arially sound methodology and announced at least 6
months prior to the beginning of the calendar year for
which it applies.
‘‘(e) HOSPITAL INSURANCE RATE.—The hospital in-
surance rate shall be determined by the Social Security
Administration. The hospital insurance rate shall be that
sales tax rate which is necessary to raise the same amount
of revenue that would have been raised by imposing a 2.9
percent tax on the Medicare wage base (including self-em-
ployment income) as determined in accordance with chap-
ter 21 of the Internal Revenue Code most recently in effect
prior to the enactment of this Act. The rate shall be deter-
mined using actuarially sound methodology and an-
nounced at least 6 months prior to the beginning of the
calendar year for which it applies.
‘‘(f) ASSISTANCE.—The Secretary shall provide such
technical assistance as the Social Security Administration
114
shall require to determine the old-age, survivors and dis-
ability insurance rate and the hospital insurance rate.
‘‘(g) FURTHER ALLOCATIONS.—
‘‘(1) OLD-AGE, SURVIVORS AND DISABILITY IN-
SURANCE.—The Secretary shall allocate revenue re-
ceived because of the old-age, survivors and dis-
ability insurance rate to the old-age and survivors
insurance trust fund and the disability insurance
trust fund in accordance with law or, in the absence
of other statutory provision, in the same proportion
that the old-age and survivors insurance trust fund
receipts bore to the sum of the old-age and survivors
insurance trust fund receipts and the disability in-
surance trust fund receipts in calendar year 2002
(taking into account only receipts pursuant to chap-
ter 21 of the Internal Revenue Code).
‘‘(2) HOSPITAL
INSURANCE.—the Secretary
shall allocate revenue received because of the hos-
pital insurance rate to the hospital insurance trust
fund and the Federal supplementary medical insur-
ance trust fund in accordance with law or, in the ab-
sence of other statutory provision, in the same pro-
portion that hospital insurance trust fund receipts
bore to the sum of the hospital insurance trust fund
receipts and Federal supplementary medical insur-