106TH CONGRESS
1ST SESSION
H. R. 2525
To promote freedom, fairness, and economic opportunity by repealing the
income tax and other taxes, abolishing the Internal Revenue Service,
and enacting a national sales tax to be administered primarily by the
States.
IN THE HOUSE OF REPRESENTATIVES
JULY 14, 1999
Mr. LINDER (for himself, and Mr. PETERSON of Minnesota) introduced the
following bill; which was referred to the Committee on Ways and Means
A BILL
To promote freedom, fairness, and economic opportunity by
repealing the income tax and other taxes, abolishing the
Internal Revenue Service, and enacting a national sales
tax to be administered primarily by the States.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Fair Tax Act of 1999’’.
(b) TABLE OF CONTENTS.—The table of contents for
this Act is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. Congressional findings.
TITLE I—REPEAL OF THE INCOME TAX, PAYROLL TAXES, AND
ESTATE AND GIFT TAXES
Sec. 101. Income taxes repealed.
Sec. 102. Payroll taxes repealed.
Sec. 103. Estate and gift taxes repealed.
Sec. 104. Conforming amendments; effective date.
TITLE II—SALES TAX ENACTED
Sec. 201. Sales tax.
Sec. 202. Conforming and technical amendments.
TITLE III—OTHER MATTERS
Sec. 301. Phase-out of administration of repealed Federal taxes.
Sec. 302. Administration of other Federal taxes.
Sec. 303. Sales tax inclusive social security benefits indexation.
SEC. 2. CONGRESSIONAL FINDINGS.
(a) FINDINGS
RELATING
TO
FEDERAL
INCOME
TAX.—Congress finds that the Federal income tax—
(1) retards economic growth and has reduced
the standard of living of the American public;
(2) impedes the international competitiveness of
United States industry;
(3) reduces savings and investment in the
United States by taxing income multiple times;
(4) slows the capital formation necessary for
real wages to steadily increase;
(5) lowers productivity;
(6) imposes unacceptable and unnecessary ad-
ministrative and compliance costs on individual and
business taxpayers;
(7) is unfair and inequitable;
(8) unnecessarily intrudes upon the privacy and
civil rights of United States citizens;
(9) hides the true cost of government by embed-
ding taxes in the costs of everything Americans buy;
(10) is not being complied with at satisfactory
levels and therefore raises the tax burden on law
abiding citizens; and
(11) impedes upward social mobility.
(b) FINDINGS RELATING
TO FEDERAL PAYROLL
TAXES.—Congress finds further that the social security
and medicare payroll taxes and self-employment taxes—
(1) raise the cost of employment;
(2) destroy jobs and cause unemployment; and
(3) have a disproportionately adverse impact on
lower income Americans.
(c) FINDINGS RELATING TO FEDERAL ESTATE AND
GIFT TAXES.—Congress finds further that the Federal es-
tate and gift taxes—
(1) force family businesses and farms to be sold
by the family to pay such taxes;
(2) discourages capital formation and entrepre-
neurship;
(3) fosters the continued dominance of large en-
terprises over small family-owned companies and
farms; and
(4) imposes unacceptably high tax planning
costs on small businesses and farms.
(d) FINDINGS
RELATING
TO
NATIONAL
SALES
TAX.—Congress finds further that a broad-based national
sales tax on goods and services purchased for final
consumption—
(1) is similar in many respects to the sales and
use taxes in place in 45 of the 50 States;
(2) will promote savings and investment;
(3) will promote fairness;
(4) will promote economic growth;
(5) will raise the standard of living;
(6) will increase investment;
(7) will enhance productivity and international
competitiveness;
(8) will reduce administrative burdens on the
American taxpayer;
(9) will improve upward social mobility; and
(10) will respect the privacy interests and civil
rights of taxpayers.
(e) FINDINGS RELATING TO ADMINISTRATION OF
NATIONAL SALES TAX.—Congress further finds that—
(1) most of the practical experience admin-
istering sales taxes is found at the State govern-
mental level;
(2) it is desirable to harmonize Federal and
State collection and enforcement efforts to the max-
imum extent possible;
(3) it is sound tax administration policy to fos-
ter administration and collection of the Federal sales
tax at the State level in return for a reasonable ad-
ministration fee to the States; and
(4) businesses that must collect and remit taxes
should receive reasonable compensation for the cost
of doing so.
(f) FINDINGS RELATING TO REPEAL OF PRESENT
FEDERAL TAX SYSTEM.—Congress further finds that the
16th amendment to the United States Constitution should
be repealed and that the repealing amendment should pro-
hibit Federal taxation of incomes, wages, estates, and
gifts.
TITLE I—REPEAL OF THE IN-
COME TAX, PAYROLL TAXES,
AND ESTATE AND GIFT TAXES
SEC. 101. INCOME TAXES REPEALED.
Subtitle A of title 26 of the Internal Revenue Code
of 1986 (relating to income taxes and self-employment
taxes) is repealed.
SEC. 102. PAYROLL TAXES REPEALED.
(a) IN GENERAL.—Subtitle C of title 26 of the Inter-
nal Revenue Code of 1986 (relating to payroll taxes and
withholding of income taxes) is repealed.
(b) FUNDING OF SOCIAL SECURITY.—For funding of
the Social Security Trust Funds from general revenue, see
section 201 of the Social Security Act (42 U.S.C. 401).
SEC. 103. ESTATE AND GIFT TAXES REPEALED.
Subtitle B of title 26 of the Internal Revenue Code
of 1986 (relating to estate and gift taxes) is repealed.
SEC. 104. CONFORMING AMENDMENTS; EFFECTIVE DATE.
(a) CONFORMING AMENDMENTS.—The Internal Rev-
enue Code of 1986 is amended—
(1) by striking subtitle H (relating to financing
of Presidential election campaigns), and
(2) by redesignating—
(A) subtitle D (relating to miscellaneous
excise taxes) as subtitle B,
(B) subtitle E (relating to alcohol, tobacco,
and certain other excise taxes) as subtitle C,
(C) subtitle F (relating to procedure and
administration) as subtitle D,
(D) subtitle G (relating to the Joint Com-
mittee on Taxation) as subtitle E,
(E) subtitle I (relating to the Trust Fund
Code) as subtitle F,
(F) subtitle J (relating to coal industry
health benefits) as subtitle G, and
(G) subtitle K (relating to group health
plan portability, access, and renewability re-
quirements) as subtitle H.
(b) REDESIGNATION OF 1986 CODE.—
(1) IN GENERAL.—The Internal Revenue Code
of 1986 enacted on October 22, 1986, as heretofore,
hereby, or hereafter amended, may be cited as the
‘‘Internal Revenue Code of 1999’’.
(2) REFERENCES IN LAWS, ETC.—Except when
inappropriate, any reference in any law, Executive
order, or other document—
(A) to the Internal Revenue Code of 1986
shall include a reference to the Internal Rev-
enue Code of 1999, and
(B) to the Internal Revenue Code of 1999
shall include a reference to the provisions of law
formerly known as the Internal Revenue Code
of 1986.
(c) ADDITIONAL AMENDMENTS.—For additional con-
forming amendments, see section 202 of this Act.
(d) EFFECTIVE DATE.—Except as otherwise pro-
vided in this Act, the amendments made by this Act shall
take effect on January 1, 2001.
TITLE II—SALES TAX ENACTED
SEC. 201. SALES TAX.
(a) IN GENERAL.—The Internal Revenue Code of
1999 is amended by inserting before subtitle B (as redes-
ignated by section 104(a)(2)(A)) the following new sub-
title:
‘‘Subtitle A—Sales Tax
‘‘Sec. 1. Principles of interpretation.
‘‘Sec. 2. Definitions.
‘‘CHAPTER 1. Interpretation; definitions; imposition of tax; etc.
‘‘CHAPTER 2. Credits; refunds.
‘‘CHAPTER 3. Family consumption allowance.
‘‘CHAPTER 4. State and Federal cooperative tax administration.
‘‘CHAPTER 5. Other administrative provisions.
‘‘CHAPTER 6. Collection; appeals; taxpayer rights.
‘‘CHAPTER 7. Special rules.
‘‘CHAPTER 8. Financial intermediation services.
‘‘CHAPTER 9. Additional matters.
‘‘SECTION 1. PRINCIPLES OF INTERPRETATION.
‘‘(a) IN GENERAL.—Any court, the Secretary, and
any sales tax administering authority shall consider the
purposes of this subtitle (as set forth in subsection (b))
as the primary aid in statutory construction.
‘‘(b) PURPOSES.—The purposes of this subtitle are
as follows:
‘‘(1) To raise revenue needed by the Federal
Government in a manner consistent with the other
purposes of this subtitle.
‘‘(2) To tax all consumption of goods and serv-
ices in the United States once, without exception,
but only once.
‘‘(3) To prevent double, multiple, or cascading
taxation.
‘‘(4) To simplify the tax law and reduce the ad-
ministration costs of, and the costs of compliance
with, the tax law.
‘‘(5) To provide for the administration of the
tax law in a manner that respects privacy, due proc-
ess, individual rights when interacting with the gov-
ernment, the presumption of innocence in criminal
proceedings, and the presumption of lawful behavior
in civil proceedings.
‘‘(6) To increase the role of State governments
in Federal tax administration because of State gov-
ernment expertise in sales tax administration.
‘‘(7) To enhance generally cooperation and co-
ordination among State tax administrators; and to
enhance cooperation and coordination among Fed-
eral and State tax administrators, consistent with
the principle of intergovernmental tax immunity.
‘‘(c) SECONDARY AIDS TO STATUTORY CONSTRUC-
TION.—As a secondary aid in statutory construction, any
court, the Secretary, and any sales tax administering au-
thority shall consider—
‘‘(1) the common law canons of statutory con-
struction;
‘‘(2) the meaning and construction of concepts
and terms used in the Internal Revenue Code of
1986 as in effect before the effective date of this
subtitle; and
‘‘(3) construe any ambiguities in this Act in
favor of reserving powers to the States respectively,
or to the people.
‘‘SEC. 2. DEFINITIONS AND SPECIAL RULES.
‘‘(a) IN GENERAL.—For purposes of this subtitle—
‘‘(1) AFFILIATED FIRMS.—A firm is affiliated
with another if 1 firm owns 50 percent or more of—
‘‘(A) the voting shares in a corporation, or
‘‘(B) the capital interests of a business
firm that is not a corporation.
‘‘(2) CONFORMING
STATE
SALES
TAX.—The
term ‘conforming State sales tax’ means a sales tax
imposed by a State that adopts the same definition
of taxable property and services as adopted by this
subtitle.
‘‘(3) DESIGNATED COMMERCIAL PRIVATE COU-
RIER
SERVICE.—The term ‘designated commercial
private courier service’ means a firm designated as
such by the Secretary or any sales tax administering
authority, upon application of the firm, if the firm—
‘‘(A) provides its services to the general
public,
‘‘(B) records electronically to its data base
kept in the regular course of its business the
date on which an item was given to such firm
for delivery, and
‘‘(C) has been operating for at least 1
year.
‘‘(4) EDUCATION
AND
TRAINING.—The term
‘education and training’ means tuition for primary,
secondary, or postsecondary level education, and job-
related training courses. Such term does not include
room, board, sports activities, recreational activities,
hobbies, games, arts or crafts or cultural activities.
‘‘(5) GROSS PAYMENTS.—The term ‘gross pay-
ments’ means payments for taxable property or serv-
ices, including Federal taxes imposed by this title.
‘‘(6) INTANGIBLE PROPERTY.—
‘‘(A) IN GENERAL.—The term ‘intangible
property’ includes copyrights, trademarks, pat-
ents, goodwill, financial instruments, securities,
commercial paper, debts, notes and bonds, and
other property deemed intangible at common
law. The Secretary shall, by regulation resolve
differences among the provisions of common
law of the several States.
‘‘(B) CERTAIN
TYPES
OF
PROPERTY.—
Such term does not include tangible personal
property (or rents or leaseholds of any term
thereon), real property (or rents or leaseholds
of any term thereon) and computer software.
‘‘(7) PERSON.—The term ‘person’ means any
natural person, and unless the context clearly does
not allow it, any corporation, partnership, limited li-
ability company, trust, estate, government, agency,
administration, organization, association, or other
legal entity (foreign or domestic).
‘‘(8) PRODUCE, PROVIDE, RENDER, OR
SELL
TAXABLE PROPERTY OR SERVICES.—
‘‘(A) IN GENERAL.—A taxable property or
service is used to produce, provide, render, or
sell a taxable property or service if such prop-
erty or service is purchased by a person en-
gaged in a trade or business for the purpose of
employing or using such taxable property or
service in the production, provision, rendering,
or sale of other taxable property or services in
the ordinary course of that trade or business.
‘‘(B) 
RESEARCH, 
EXPERIMENTATION,
TESTING, AND DEVELOPMENT.—Taxable prop-
erty or services used in a trade or business for
the purpose of research, experimentation, test-
ing, and development shall be treated as used to
produce, provide, render, or sell taxable prop-
erty or services.
‘‘(C) 
INSURANCE
PAYMENTS.—Taxable
property or services purchased by an insurer on
behalf of an insured shall be treated as used to
produce, provide, render, or sell taxable prop-
erty or services if the premium for the insur-
ance contract giving rise to the insurer’s obliga-
tion was subject to tax pursuant to section 801
(relating to financial intermediation services).
‘‘(D) EDUCATION
AND
TRAINING.—Edu-
cation and training shall be treated as services
used to produce, provide, render, or sell taxable
property or services.
‘‘(9) REGISTERED
SELLER.—The term ‘reg-
istered seller’ means a person registered pursuant to
section 502.
‘‘(10) SALES
TAX
ADMINISTERING
AUTHOR-
ITY.—The term ‘sales tax administering authority’
means—
‘‘(A) the State agency designated to collect
and administer the sales tax imposed by this
subtitle, in an administering State, or
‘‘(B) the Secretary, in a State that is
neither—
‘‘(i) an administering State, nor
‘‘(ii) a State that has elected to have
its sales tax administered by an admin-
istering State.
‘‘(11) 
SECRETARY.—The 
term 
‘Secretary’
means the Secretary of the Treasury.
‘‘(12) TAXABLE EMPLOYER.—
‘‘(A) IN GENERAL.—The term ‘taxable em-
ployer’ includes—
‘‘(i) any household employing domes-
tic servants, and
‘‘(ii) any government except for gov-
ernment enterprises (as defined in section
704).
‘‘(B) EXCEPTIONS.—The term ‘taxable
employer’ does not include any employer which
is—
‘‘(i) engaged in a trade or business,
‘‘(ii) a not-for-profit organization (as
defined in section 706), or
‘‘(iii) a government enterprise (as de-
fined in section 704).
‘‘(C) CROSS REFERENCE.—
‘‘For rules relating to collection and remittance of
tax on wages by taxable employers, see section
103(b)(2).
‘‘(13) TAX INCLUSIVE FAIR MARKET VALUE.—
The term ‘tax inclusive fair market value’ means the
fair market value of taxable property or services plus
the tax imposed by this subtitle.
‘‘(14) TAXABLE PROPERTY OR SERVICE.—
‘‘(A) GENERAL RULE.—The term ‘taxable
property or service’ means—
‘‘(i) any property (including leaseholds
of any term or rents with respect to such
property) but excluding—
‘‘(I) intangible property, and
‘‘(II) used property, and
‘‘(ii) any service (including any finan-
cial intermediation services as determined
by section 801).
‘‘(B) SERVICE.—For purposes of subpara-
graph (A), the term ‘service’—
‘‘(i) shall include any service per-
formed by an employee for which the em-
ployee is paid wages or a salary by a tax-
able employer, and
‘‘CHAPTER 1—INTERPRETATION;
DEFINITIONS; IMPOSITION OF TAX; ETC.
‘‘Sec. 101. Imposition of sales tax.
‘‘Sec. 102. Intermediate and export sales.
‘‘Sec. 103. Rules relating to collection and remittance of tax.
‘‘SEC. 101. IMPOSITION OF SALES TAX.
‘‘(a) IN GENERAL.—There is hereby imposed a tax
on the use or consumption in the United States of taxable
property or services.
‘‘(b) RATE.—
‘‘(1) FOR 2001.—In the calendar year 2001, the
rate of tax is 23 percent of the gross payments for
the taxable property or service.
‘‘(2) FOR YEARS AFTER 2001.—For years after
the calendar year 2001, the rate of tax is the com-
bined Federal tax rate percentage (as defined in
paragraph 3) of the gross payments for the taxable
property or service.
‘‘(3) COMBINED FEDERAL TAX RATE PERCENT-
AGE.—The combined Federal tax rate percentage is
the sum of—
‘‘(A) the general revenue rate (as defined
in paragraph 4), and
‘‘(B) the old-age, survivors and disability
insurance rate, and
‘‘(C) the hospital insurance rate.
‘‘(4) GENERAL REVENUE RATE.—The general
revenue rate shall be 14.91 percent.
‘‘(c) COORDINATION WITH IMPORT DUTIES.—The
tax imposed by this section is in addition to any import
duties imposed by chapter 4 of title 19. The Secretary
shall provide by regulation that, to the maximum extent
practicable, the tax imposed by this section on imported
taxable property and services is collected and administered
in conjunction with any applicable import duties imposed
by the United States.
‘‘(d) LIABILITY FOR TAX.—
‘‘(1) IN GENERAL.—The person using or con-
suming taxable property or services in the United
States is liable for the tax imposed by this section,
and except as provided by subsection (e) of this sec-
tion.
‘‘(2) EXCEPTION WHERE TAX PAID TO SELL-
ER.—A person using or consuming a taxable prop-
erty or service in the United States is not liable for
the tax imposed by this section if the person pays
the tax to a person selling the taxable property or
service and receives from such person a purchaser’s
receipt within the meaning of section 510.
‘‘SEC. 102. INTERMEDIATE AND EXPORT SALES.
‘‘(a) IN GENERAL.—For purposes of this subtitle—
‘‘(1) BUSINESS AND EXPORT PURPOSES.—No
tax shall be imposed under section 101 on any tax-
able property or service purchased for—
‘‘(A) a business purpose in a trade or busi-
ness, or
‘‘(B) export from the United States for use
or consumption outside the United States, if,
the purchaser provided the seller with a reg-
istration certificate, and the seller was a whole-
sale seller.
‘‘(2) INVESTMENT PURPOSE.—No tax shall be
imposed under section 101 on any taxable property
or service purchased for an investment purpose and
held exclusively for an investment purpose.
‘‘(3) STATE GOVERNMENT FUNCTIONS.—No tax
shall be imposed under section 101 on State govern-
ment functions that do not constitute the final con-
sumption of property or services.
‘‘(b) BUSINESS PURPOSES.—For purposes of this
section, the term ‘purchased for a business purpose in a
trade or business’ means purchased by a person engaged
in a trade or business and used in that trade or business—
‘‘(1) for resale,
‘‘(2) to produce, provide, render, or sell taxable
property or services, or
‘‘(3) in furtherance of other bona fide business
purposes.
‘‘(c) INVESTMENT PURPOSES.—For purposes of this
section, the term ‘purchased for an investment purpose’
means property purchased exclusively for purposes of ap-
preciation or the production of income but not entailing
more than minor personal efforts.
‘‘SEC. 103. RULES RELATING TO COLLECTION AND REMIT-
TANCE OF TAX.
‘‘(a) LIABILITY FOR COLLECTION AND REMITTANCE
OF THE TAX.—Except as provided otherwise by this sec-
tion, any tax imposed by this subtitle shall be collected
and remitted by the seller of taxable property or services
(including financial intermediation services).
‘‘(b) TAX TO BE REMITTED BY PURCHASER IN CER-
TAIN CIRCUMSTANCES.—
‘‘(1) IN GENERAL.—In the case of taxable prop-
erty or services purchased outside of the United
States and imported into the United States for use
or consumption in the United States, the purchaser
shall remit the tax imposed by section 101.
‘‘(2) CERTAIN WAGES OR SALARY.—In the case
of wages or salary paid by a taxable employer which
are taxable services, the employer shall remit the tax
imposed by section 101.
‘‘(c) CONVERSION OF BUSINESS OR EXPORT PROP-
ERTY OR SERVICES.—Property or services purchased for
a business purpose in a trade or business or for export
(sold untaxed pursuant to section 102(a)) that is subse-
quently converted to personal use shall be deemed pur-
chased at the time of conversion and shall be subject to
the tax imposed by section 101 at the fair market value
of the converted property as of the date of conversion. The
tax shall be due as if the property had been sold at the
fair market value during the month of conversion. The
person using or consuming the converted property is liable
for and shall remit the tax.
‘‘(d) SELLER RELIEVED OF LIABILITY IN CERTAIN
CASES.—In the case of any taxable property or service
which is sold untaxed pursuant to section 102(a), the sell-
er shall be relieved of the duty to collect and remit the
tax imposed under section 101 on such purchase if the
seller—
‘‘(1) received in good faith, and retains on file
for the period set forth in section 509, a copy of a
registration certificate from the purchaser, and
‘‘(2) did not, at the time of sale, have reason-
able cause to believe that the buyer was not reg-
istered pursuant to section 502.