I 
108TH CONGRESS 
2D SESSION 
H. R. 4168 
To promote freedom, fairness, and economic opportunity for families by re-
pealing the income tax, abolishing the Internal Revenue Service, and 
enacting a national retail sales tax to be administered primarily by 
the States. 
IN THE HOUSE OF REPRESENTATIVES 
APRIL 2, 2004 
Mr. TAUZIN (for himself, Mr. BURTON of Indiana, Mr. DEMINT, and Mr. 
NORWOOD) introduced the following bill; which was referred to the Com-
mittee on Ways and Means, and in addition to the Committee on Rules, 
for a period to be subsequently determined by the Speaker, in each case 
for consideration of such provisions as fall within the jurisdiction of the 
committee concerned 
A BILL 
To promote freedom, fairness, and economic opportunity for 
families by repealing the income tax, abolishing the In-
ternal Revenue Service, and enacting a national retail 
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 
‘‘Individual Tax Freedom Act of 2004’’.
(b) TABLE OF CONTENTS.—The table of contents of 
this Act is as follows: 
Sec. 1. Short title; table of contents. 
Sec. 2. Congressional findings. 
Sec. 3. Repeal of the income tax, estate and gift taxes, and certain excise taxes. 
Sec. 4. Sales tax. 
‘‘CHAPTER 1—SALES TAX 
‘‘SUBCHAPTER A—IMPOSITION OF TAX 
‘‘Sec. 1. Imposition of tax. 
‘‘Sec. 2. Exemptions. 
‘‘Sec. 3. Rules relating to collection and remittance of tax. 
‘‘SUBCHAPTER B—CREDITS; REFUNDS; INSTALLMENT PAYMENTS OF TAX ON 
PURCHASES OF RESIDENCES 
‘‘Sec. 11. Credits and refunds. 
‘‘Sec. 12. Installment payments of tax on purchase of principal residences. 
‘‘Sec. 13. Family consumption refund. 
‘‘SUBCHAPTER C—DEFINITIONS AND SPECIAL RULES; FINANCIAL 
INTERMEDIATION SERVICES 
‘‘Sec. 21. Definitions. 
‘‘Sec. 22. Special rules. 
‘‘Sec. 23. Determination of financial intermediation services amount. 
‘‘Sec. 24. Bad debts. 
‘‘Sec. 25. Timing of tax on financial intermediation services. 
‘‘Sec. 26. Alternative method for calculating tax due. 
‘‘Sec. 27. Basic interest rate. 
‘‘Sec. 28. Applicable interest rate. 
‘‘SUBCHAPTER D—AUTHORITY FOR STATES TO COLLECT TAX 
‘‘Sec. 31. Authority for States to collect tax. 
‘‘Sec. 32. Federal administrative support for States. 
‘‘Sec. 33. Federal administration option for multistate vendors. 
‘‘Sec. 34. General administrative matters. 
‘‘SUBCHAPTER E—OTHER ADMINISTRATIVE PROVISIONS 
‘‘Sec. 41. Monthly reports and payments. 
‘‘Sec. 42. Records. 
‘‘Sec. 43. Registration. 
‘‘Sec. 44. Certificate. 
‘‘Sec. 45. Penalties. 
‘‘Sec. 46. Burden of persuasion and burden of production. 
‘‘Sec. 47. Attorneys and accountancy fees. 
‘‘Sec. 48. Appeals. 
‘‘Sec. 49. Taxpayer subject to subpoena on production. 
‘‘Sec. 50. Tax Court jurisdiction. 
‘‘Sec. 51. Power to levy. 
‘‘Sec. 52. Problem resolution officers. 
‘‘Sec. 53. Jurisdiction and interstate allocation.
‘‘Sec. 54. Tax to be stated and charged separately. 
‘‘Sec. 55. Installment agreements; compromises. 
‘‘Sec. 56. Accounting. 
‘‘Sec. 57. Hobby activities. 
Sec. 5. Phase-out of the Internal Revenue Service. 
Sec. 6. Social Security Administration to collect payroll taxes. 
Sec. 7. Self-employment tax. 
Sec. 8. Social Security benefits indexed on sales tax inclusive basis. 
Sec. 9. Compensating payments to certain persons on fixed income. 
Sec. 10. Interest. 
Sec. 11. Supermajority required to raise rate. 
SEC. 2. CONGRESSIONAL FINDINGS. 
(a) The Congress finds that the 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; 
(4) lowers productivity; 
(5) imposes unacceptable administrative costs 
on taxpayers, individuals and businesses alike; 
(6) is unfair and inequitable; and 
(7) unnecessarily intrudes upon the privacy and 
civil rights of United States citizens. 
(b) The Congress finds further that national sales, 
services and use tax on final consumption of goods and 
services— 
(1) is similar in many respects to those in place 
in 45 of the 50 States; 
(2) will promote savings;
(3) will promote fairness; 
(4) will promote economic growth; 
(5) will raise the standard of living; 
(6) will increase savings and investment; 
(7) will enhance productivity and international 
competitiveness; 
(8) will reduce administrative burdens on the 
taxpayer; and 
(9) will respect the privacy interests and civil 
rights of taxpayers. 
(c) The 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 ad-
minister and collect the Federal sales and service tax 
at the State level in return for a reasonable adminis-
tration fee to the States; 
(4) businesses that must collect and remit taxes 
should receive reasonable compensation for the cost 
of doing so; and
(5) the sixteenth amendment to the Constitu-
tion should be repealed. 
SEC. 3. REPEAL OF THE INCOME TAX, ESTATE AND GIFT 
TAXES, AND CERTAIN EXCISE TAXES. 
(a) IN GENERAL.—The following provisions of the In-
ternal Revenue Code of 1986 are hereby repealed: 
(1) Chapter 1 (relating to income tax). 
(2) Chapter 5 (relating to tax on transfers to 
avoid income tax). 
(3) Chapter 6 (relating to consolidated returns). 
(4) Chapter 24 (relating to collection of income 
tax at source). 
(5) Subtitle B (relating to estate and gift 
taxes). 
(6) Chapter 31 (relating to retail excise taxes). 
(7) Chapter 32 (relating to manufacturers ex-
cise taxes). 
(8) Subtitle E (relating to alcohol, tobacco, and 
certain other excise taxes). 
(9) Subtitle F (relating to procedure and ad-
ministration of the income tax and certain other 
taxes) except for section 6103 (relating to confiden-
tiality), chapter 66 (relating to limitations), chapter 
67 (relating to interest), section 6656 (relating to 
failure to make deposit of taxes), section 6657 (re-
lating to bad checks), section 6658 (relating to co-
ordination with title 11), chapter 75 (relating to 
crimes), chapter 76 (relating to Judicial Pro-
ceedings), section 7431 (relating to damages for un-
authorized disclosure), section 7432 (relating to 
damages for failure to release lien), section 7433 
(relating to damages for unauthorized collection 
data) and chapter 77 (relating to miscellaneous pro-
visions). References to provisions repealed by the 
preceding sentence shall be treated as references to 
such provisions as in effect on the day before the 
date of the enactment of this Act. 
(b) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by subsection (a) 
shall take effect on July 1, 2006. 
(2) INCOME
TAX.—The amendment made by 
subsection (a)(1) shall apply to taxable years begin-
ning after June 30, 2006. 
(3) SALES TAX.—The amendment made by sec-
tion 4 shall take effect on July 1, 2006. 
(4) SOCIAL SECURITY BENEFITS.—The amend-
ment made by section 9 shall take effect on January 
1, 2006.
(5) SUPERMAJORITY REQUIRED.—The amend-
ment made by section 11 shall take effect on Janu-
ary 1, 2006. 
SEC. 4. SALES TAX. 
Subtitle A of the Internal Revenue Code of 1986 is 
amended by inserting at the beginning the following new 
chapter: 
‘‘CHAPTER 1—SALES TAX 
‘‘SUBCHAPTER A. Imposition of tax. 
‘‘SUBCHAPTER B. Credits; refunds; installment payments of tax 
on purchases of residences. 
‘‘SUBCHAPTER C. Definitions and special rules; financial inter-
mediation services. 
‘‘SUBCHAPTER D. Authority for States to collect tax. 
‘‘SUBCHAPTER E. Other administrative provisions. 
‘‘Subchapter A—Imposition of Tax 
‘‘Sec. 1. Imposition of tax. 
‘‘Sec. 2. Exemptions. 
‘‘Sec. 3. Special rules relating to collection and remittance of tax. 
‘‘SECTION 1. IMPOSITION OF TAX. 
‘‘(a) IN GENERAL.—There is hereby imposed a tax 
of 15 percent on the gross payments for the use, consump-
tion or enjoyment in the United States of any taxable 
property or service, whether produced or rendered within 
or without the United States. 
‘‘(b) COORDINATION WITH IMPORT DUTIES.—The 
taxes imposed by this section are in addition to any import 
duties imposed by law. The Secretary shall provide by reg-
ulation that, to the maximum extent practicable, the taxes 
imposed by this section on imported property and services
are collected and administered in conjunction with any ap-
plicable import duties. 
‘‘(c) LIABILITY FOR COLLECTION AND REMITTANCE 
OF THE TAX.— 
‘‘(1) GENERAL
RULE.—The tax imposed by 
subsection (a) shall be collected and remitted by the 
seller, except as provided in subsection (2). 
‘‘(2) TAX TO BE PAID BY PURCHASER IN CER-
TAIN CIRCUMSTANCES.— 
‘‘(A) GENERAL RULE.—In the case of tax-
able property or services purchased outside of 
the United States for use, consumption or en-
joyment in the United States, the purchaser 
shall remit the tax imposed by subsection (a). 
‘‘(B) In the case of a purchaser electing to 
pay tax in installments pursuant to section 12, 
the purchaser shall remit the tax imposed by 
subsection (a). 
‘‘(C) Employers that pay wages that are 
taxable services within the meaning of section 
21(n) shall be responsible for paying and remit-
ting the tax. 
‘‘(D) The Secretary may provide by regula-
tion that the tax imposed by subsection (a) is
to be collected and remitted by the purchaser 
rather than the seller. 
‘‘SEC. 2. EXEMPTIONS. 
‘‘(a) IN GENERAL.—Except as provided in section 
3(b)(2), no tax shall be imposed under section 1 on any 
taxable property or service purchased for— 
‘‘(1) a business purpose in an active trade or 
business, or 
‘‘(2) export from the United States for use or 
consumption outside the United States, provided 
that the purchaser provided the seller with— 
‘‘(A) an intermediate sales certificate, or 
‘‘(B) an export sales certificate. 
‘‘(b) BUSINESS PURPOSES.—For purposes of this 
section, the term ‘purchased for a business purpose in an 
active trade or business’ means purchased by a person en-
gaged in an active trade or business and used in that ac-
tive trade or business— 
‘‘(1) for resale, 
‘‘(2) to produce taxable property or services (as 
defined in section 21(e)), or 
‘‘(3) in furtherance of other bona fide business 
purposes. 
‘‘(c) DE MINIMIS PAYMENTS.—Up to $400 of gross 
payments per calendar year—
‘‘(1) made by a person not engaged in an active 
trade or business at any time during such calendar 
year prior to making such 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, 
shall be exempt from the tax imposed by section 1. 
‘‘(d) DE MINIMIS SALES.—Up to $2,500 per cal-
endar year of gross payments received— 
‘‘(1) by a person not engaged in an active trade 
or business during such calendar year prior to the 
receipt of such gross payments, and 
‘‘(2) in connection with a casual or isolated 
sale, 
shall be exempt from the tax imposed by section 1. 
‘‘(e) AFFILIATED FIRMS.—Firms that make pur-
chases from or sell to affiliated firms which are exempt 
pursuant to subsection (a) shall not need to comply with 
the requirements of subsection (g) for such purchases to 
remain exempt. For purposes of this section, a firm is af-
filiated with another if 1 firm owns 50 percent of the vot-
ing shares or interest in the other. 
‘‘(f) DE MINIMIS SALE OF FINANCIAL INTERMEDI-
ATION SERVICES.—The first $10,000 per calendar year
of gross payments received by a person from the sale of 
financial intermediation services shall be exempt from the 
tax imposed by section 1. The exemption provided by this 
subsection is in addition to other exemptions afforded by 
this chapter. 
‘‘(g) SELLER RELIEVED OF LIABILITY IN CERTAIN 
CASES.—In the case of any property or service which is 
sold exempt from tax pursuant to subsection (a), if the 
seller— 
‘‘(1) has on file a copy of an exemption certifi-
cate (whether an intermediate sale or export sale 
certificate) from the purchaser, and 
‘‘(2) did not have reasonable cause to believe 
that an exemption from the tax imposed by section 
1 was unavailable to the purchaser with respect to 
such purchase, then the seller shall be relieved of li-
ability to collect and remit the tax imposed by sec-
tion 1 on such purchase. 
‘‘SEC. 3. RULES RELATING TO COLLECTION AND REMIT-
TANCE OF TAX. 
‘‘(a) OBLIGATION OF GOVERNMENTAL UNITS AND 
NOT-FOR-PROFIT ORGANIZATIONS TO COLLECT, REMIT 
AND PAY TAXES.— 
‘‘(1) GOVERNMENTAL UNITS.—Nothing in this 
subtitle shall be construed to exempt any Federal,
State, or local governmental unit or political subdivi-
sion from paying any tax imposed by this subtitle on 
any sale, purchase, use, consumption or enjoyment 
by such a unit. 
‘‘(2) NOT-FOR-PROFIT ORGANIZATIONS.— 
‘‘(A) IN
GENERAL.—Dues, contributions 
and payments to qualified not-for-profit organi-
zations shall not be considered gross payments 
for taxable property or services for purposes of 
this subtitle. 
‘‘(B) EXCEPTION.—Notwithstanding sub-
paragraph (2)(A), payments of any form to a 
qualified not-for-profit organization shall be 
considered gross payments for taxable property 
or services unless said organization establishes 
that the property or service provided in ex-
change is— 
‘‘(i) substantially related to the pur-
poses of the qualified not-for-profit organi-
zation, or 
‘‘(ii) is not commercially available. 
‘‘(C) For purposes of this section, qualified 
not-for-profit organization means a not-for-prof-
it organization organized and operated exclu-
sively—
‘‘(i) for religious, charitable, scientific, 
testing for public safety, literary or edu-
cational purposes; 
‘‘(ii) as civic leagues or social welfare 
organizations; 
‘‘(iii) as labor, agricultural or horti-
cultural organizations; 
‘‘(iv) as chambers of commerce, busi-
ness leagues or trade associations; or 
‘‘(v) as fraternal beneficiary societies, 
orders or associations; 
no part of the net earnings of which inures to 
the benefit of any private shareholder or indi-
vidual. 
‘‘(D) Upon application in a form pre-
scribed by the State Administrator, the State 
Administrator shall provide qualification certifi-
cates to qualified not-for-profit organizations. 
‘‘(E) If a not-for-profit organization pro-
vides taxable property or services in connection 
with contributions or dues to the organizations, 
then it shall be required to treat the provision 
of said taxable property or services as a pur-
chase taxable pursuant to this subtitle at the
fair market value of said property or personal 
services. 
‘‘(F) Taxable property and services pur-
chased by not-for-profit organizations for resale 
or for use in the production of taxable property 
or services shall be eligible for the exemptions 
provided in section 2. 
‘‘(b) TAX COLLECTED ON CERTAIN EXEMPT PUR-
CHASES.— 
‘‘(1) IN GENERAL.—In the case of a purchase 
which would (but for this subsection (b)) be exempt 
from the tax imposed by section 1 by reason of sec-
tion 2(a), such subsection shall not apply to such 
purchase if the seller— 
‘‘(A) elects the application of this sub-
section, and 
‘‘(B) immediately provides the purchaser 
with a receipt reflecting the information re-
quired by section 54. Seller may elect to exer-
cise the application of this section with respect 
to some or all purchases or purchasers. 
‘‘(2) The Secretary may by regulation provide 
that certain industries or specific products are such 
that the vendor must collect the tax on otherwise ex-
empt purchases if, in the Secretary’s judgment, said
‘‘(5) the compliance equipment cost credit 
under section (f), 
‘‘(6) the bad debt credit under subsection (g), 
‘‘(7) the insurance proceeds credit under sub-
section (h), 
‘‘(8) the transition inventory credit under sub-
section (i), and 
‘‘(9) any amount paid in excess of amount due. 
‘‘(b) REFUNDS.— 
‘‘(1) FILERS.—If a person files two consecutive 
monthly tax reports with a credit balance, then, 
upon application in a form prescribed by the State 
Administrator, then the credit balance shown on the 
second monthly report shall be refunded to the tax-
payer within 60 days of said application. 
‘‘(2) NONFILERS.—If a person other than a 
monthly filer has an excess credit for any month, 
then, upon application in a form prescribed by the 
State Administrator, then the credit balance due 
shall be refunded to the taxpayer within 60 days of 
said application. 
‘‘(3) INTEREST.—No interest shall be required 
to be paid on any overpayment under this subsection 
for any month if such overpayment is paid within 60 
days after the close of such month.
‘‘(4) SUSPENSION OF PERIOD TO PAY REFUND 
ONLY IF FEDERAL COURT RULING.—The 60-day pe-
riods under paragraphs (1) and (2) shall be sus-
pended with respect to a purported credit balance 
(or portion thereof) only during any period that 
there is in effect a preliminary ruling from a Federal 
court that there is reasonable cause to believe that 
such credit balance is not actually the amount due. 
‘‘(5) FILER.—For purposes of this subsection, 
the term ‘filer’ means, with respect to any month, 
any person required to register under section 43 for 
such month. 
‘‘(c) USED PROPERTY CREDIT.— 
‘‘(1) IN GENERAL.—For purposes of subsection 
(a), a seller shall receive credit for previous sales tax 
paid on the resale of taxable property or services, as 
provided in this subsection (c). 
‘‘(2) DETERMINATION
OF
USED
PROPERTY 
CREDIT AMOUNT.—The used property credit amount 
determined under this paragraph with respect to any 
property is the lesser of— 
‘‘(A) the amount of tax due and paid by 
virtue of the present transaction (without re-
gard to any credits), or
‘‘(B) the most recent prior tax imposed by 
section 1 with respect to such property trans-
action (without regard to any credits). 
‘‘(3) TRANSITIONAL DEEMED PAID RULE FOR 
PROPERTY OWNED ON EFFECTIVE DATE OF ACT.— 
In the case of property which was acquired by the 
seller before July 1, 2006, the amount under para-
graph (2)(B) shall be the amount which is the prod-
uct of— 
‘‘(A) that which would be determined 
under paragraph (2)(B) as if this subtitle had 
been in effect at the time of such acquisition, 
and 
‘‘(B) the equity ratio (as defined in para-
graph (4)). 
‘‘(4) The equity ratio is the quotient of— 
‘‘(A) the income tax basis in the property 
at the end of the taxable year 2006, less the 
mortgage or debt secured by said property at 
the end of said taxable year, divided by 
‘‘(B) the income tax basis in the property 
at the end of the taxable year 2006, 
provided, however, that the quantity defined in sub-
paragraph (1) cannot be less than zero and further
providing that the equity ratio so calculated cannot 
be less than zero or greater than one. 
‘‘(d) BUSINESS USE CONVERSION CREDIT.— 
‘‘(1) IN GENERAL.—For purposes of subsection 
(a), a person’s business use conversion credit for any 
month is the aggregate of the amounts determined 
under paragraph (2) with respect to property— 
‘‘(A) on which a prior tax was imposed by 
section 1 on the purchase by such person, and 
‘‘(B) which commences to be exclusively 
used during such month in the production by 
such person of other taxable property or serv-
ices. 
‘‘(2) AMOUNT OF CREDIT.—The amount deter-
mined under this paragraph with respect to any 
property is lesser of— 
‘‘(A) the product of the rate imposed by 
section 1 and the fair market value of the prop-
erty when its use is converted, and 
‘‘(B) the prior tax referred to in paragraph 
(1)(A). 
‘‘(3) Property converted from business use to 
personal use shall be subject to tax pursuant to sec-
tion 1 on the book value of the converted property 
as of the date of conversion, provided that the books
are kept in accordance with generally accepted ac-
counting principles. 
‘‘(e) ADMINISTRATION CREDIT.—Every taxpayer fil-
ing a timely monthly report in compliance with section 41 
shall be entitled to a taxpayer administrative credit equal 
to the greater of— 
‘‘(1) $200, or 
‘‘(2) one-half of 1 percent of the tax remitted, 
provided, however, that in no event will the credit af-
forded by this section exceed 20 percent of the tax 
due to be remitted prior to the application of this 
credit. 
‘‘(f) COMPLIANCE EQUIPMENT COST CREDIT.—Ven-
dors required to purchase new equipment to comply with 
the provisions of section 54 shall be entitled to a credit 
in the amount of 50 percent of the cost of such equipment. 
‘‘(g) BAD DEBT CREDIT.— 
‘‘(1) FINANCIAL INTERMEDIATION SERVICES.— 
Any person registered pursuant to section 43 who 
has experienced a bad debt (other than unpaid in-
voices within the meaning of paragraph (2)) shall be 
entitled to a credit equal to the product of— 
‘‘(A) the rate imposed by section 1, and 
‘‘(B) the quotient that is—
‘‘(i) the amount of the bad debt (as 
defined in section 24), divided by 
‘‘(ii) the quantity that is 1 minus the 
rate imposed by section 1. 
‘‘(2) UNPAID INVOICES.—Any person electing 
the accrual method pursuant to section 56 that has 
with respect to a transaction— 
‘‘(A) invoiced the tax imposed by section 1, 
‘‘(B) remitted the invoiced tax, 
‘‘(C) actually delivered the taxable prop-
erty or performed the taxable services invoiced, 
and 
‘‘(D) not been paid 90 days after the date 
the invoice was due to be paid, 
shall be entitled to a credit equal to the amount of 
tax remitted and unpaid by the purchaser. 
‘‘(3) SUBSEQUENT
PAYMENT.—Any payment 
made with respect to a transaction subsequent to a 
subsection (g) credit being taken with respect to 
that transaction shall be subject to tax in the month 
the payment was received as if a tax inclusive sale 
of taxable property and services in the amount of 
the payment had been made. 
‘‘(4) PARTIAL
PAYMENTS.—Partial payments 
shall be treated as pro rata payments of the under-