‘‘(3) TIMING OF CREDIT.—The credit provided 
under paragraph (1) shall be allowed on the sales 
tax return where the taxable sale of the qualified in-
ventory is reported. The person claiming such credit 
shall attach supporting schedules in the form that 
the Secretary may prescribe. 
‘‘SEC. 12. INSTALLMENT PAYMENTS OF TAX ON PURCHASE 
OF PRINCIPAL RESIDENCES. 
‘‘(a) IN GENERAL.—If— 
‘‘(1) property is purchased and used as the 
principal residence of any purchaser of such prop-
erty, and 
‘‘(2) such purchaser elects the application of 
this section, then the tax imposed by section 1 with 
respect to such purchase shall be paid in equal an-
nual installments over the 30-year period beginning 
on the date of such sale together with simple inter-
est at the rate imposed by section 6621. 
‘‘(b) TERMINATION OF INSTALLMENTS IF PROPERTY 
IS SOLD OR OTHERWISE CEASES TO BE PRINCIPAL RESI-
DENCE.— 
‘‘(1) IN GENERAL.—If, before the close of the 
30-year period referred to in subsection (a), any 
property to which an election under subsection (a) 
applies—
‘‘(A) is sold, or 
‘‘(B) otherwise ceases to be used as the 
principal residence of any purchaser making 
such election, 
then the unpaid installments shall be due no later 
than two years after the time of such sale or ces-
sation. To the extent that such sale or cessation is 
only of a portion of such residential property, the 
preceding sentence shall apply only to a like portion 
(based on value) of such unpaid installments. 
‘‘(2) SPECIAL RULE.—In a case to which para-
graph (1)(B) applies with respect to any pur-
chaser— 
‘‘(A) if such purchaser purchases within 
two years another property which property is 
purchased and used as the principal residence 
of such purchaser, the remaining unpaid install-
ments shall be due at the time of such pur-
chase, 
‘‘(B) if subparagraph (A) does not apply to 
such purchaser, the remaining unpaid install-
ments shall be due at the close of the two-year 
period beginning on the date of the cessation 
referred to in paragraph (1); and
‘‘(C) the two-year period referred to in 
subparagraph (B) shall be suspended during 
any period that such purchaser uses such prop-
erty as his principal residence. 
‘‘(3) If any purchaser exercises the right to in-
stallment payments under this section, then the re-
sponsibility to remit the tax due is the purchaser’s 
rather than the seller’s provided that the seller has 
on file a copy of the election form prescribed by the 
Secretary. 
‘‘SEC. 13. FAMILY CONSUMPTION REFUND. 
‘‘(a) GENERAL RULE.—Each qualified family unit 
(as defined in subsection (b)) shall be eligible to receive 
a sales tax rebate in an amount no greater than the prod-
uct of— 
‘‘(1) the rate of tax imposed by section 1, and 
‘‘(2) the lesser of— 
‘‘(A) the poverty level (as defined in sub-
section (c)), or 
‘‘(B) the wage income of the family unit, 
in the manner prescribed and subject to the 
limitations set forth by this section. 
‘‘(b) QUALIFIED FAMILY UNIT DEFINED.—For pur-
poses of this section, the term qualified family unit shall 
mean any family sharing a common residence. Any family
members (as defined in subsection (e)) sharing a common 
residence shall be considered part of one integrated family 
unit. 
‘‘(c) POVERTY LEVEL DEFINED.—The poverty level 
shall be the quotient that is— 
‘‘(1) the level determined by the Department of 
Health and Human Services poverty guidelines re-
quired by sections 652 and 673(2) of the Omnibus 
Reconciliation Act of 1981 (all States and the Dis-
trict of Columbia) for family units of a particular 
size, divided by 
‘‘(2) the quantity that is one minus the tax rate 
imposed by section 1. 
‘‘(d) REBATE MECHANISM.— 
‘‘(1) GENERAL RULE.—The rebate provided by 
section (a) shall be provided to each qualified family 
unit by including the pay period rebate amount in 
each paycheck. 
‘‘(2) PAY PERIOD REBATE AMOUNT.—The pay 
period rebate amount shall be the lesser of product 
of the rate of tax imposed by the section 1 and— 
‘‘(A) the wages paid during the pay period, 
or 
‘‘(B) the quotient that is the poverty level 
for the family unit (determined in accordance
with subsection (c)) divided by the number of 
pay periods in a year. 
‘‘(3) ADJUSTED WITHHOLDING TABLES TO BE 
PROVIDED
TO
EMPLOYERS.—The Social Security 
Administration shall publish revised withholding ta-
bles for use by employers. 
‘‘(4) COORDINATION.—The family member re-
ceiving the family consumption rebate shall set 
forth, in a form prescribed by the Social Security 
Administration, the names and Social Security num-
bers of all members of the family unit for which a 
rebate is claimed. Employers shall provide this infor-
mation in the form prescribed to the Social Security 
Administration. 
‘‘(e) FAMILY MEMBERS DEFINED.—For purposes of 
determining the size of the family unit, family members 
shall include each spouse or the head of household, chil-
dren, grandchildren, parents and grandparents. 
‘‘(f) DISQUALIFIED FAMILY MEMBERS.—In order for 
a family member to be counted for purposes of deter-
mining family unit size, said family member must— 
‘‘(1) if over the age of two years, have a bona 
fide Social Security number; and 
‘‘(2) be a lawful resident of the United States.
‘‘(g) STUDENTS LIVING AWAY FROM HOME.—A stu-
dent during each of five months in a calendar year living 
away from the common residence of a family unit but who 
receives over 50 percent of his support from the family 
unit shall be included as part of that family unit for pur-
poses of this section. 
‘‘(h) CHANGE
IN FAMILY CIRCUMSTANCES.—The 
residence of family members, marital status and number 
of persons in a family unit on the first day of the calendar 
year shall govern determinations required to be made 
under this section for purposes of said calendar year. 
‘‘(i) TWO OR MORE FAMILY MEMBERS WORKING.— 
The family unit may elect to divide the rebate between 
two family members. Family members shall make this 
election in a form prescribed by the Social Security Ad-
ministration and shall when making said election disclose 
the name and Social Security number of the other family 
members. Creditable wages for families making this elec-
tion shall not exceed one half of the poverty level for that 
family unit. 
‘‘(j) EMPLOYERS TO ADJUST REMITTANCES.—Em-
ployers shall reduce their payroll tax remittances to the 
Social Security Administration by the amount of Family 
Consumption Rebate provided in employee paychecks.
‘‘(k) NO DOUBLE COUNTING.—In no event shall any 
person be considered part of more than one family unit. 
‘‘(l) SOCIAL SECURITY ADMINISTRATION.—The So-
cial Security Administration shall provide to multiple 
wage-earner family units who received a lower rebate 
amount than that to which they were entitled under sub-
section (a) due to the application of the limitations in sub-
section (d)(2) and subsection (i) any payment due within 
30 days of the close of the calendar year. 
‘‘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. 
‘‘SEC. 21. DEFINITIONS. 
‘‘(a) FINANCIAL INTERMEDIATION SERVICES.—The 
term ‘financial intermediation services’ means financial 
intermediation services determined in accordance with sec-
tion 23. 
‘‘(b) GROSS PAYMENTS.—For purposes of this sub-
title, the term ‘gross payments’ shall mean gross payments 
inclusive of Federal tax imposed by, and State taxes im-
posed in conformity with, this chapter but exclusive of cus-
toms duties. Gross payment shall be the product of the
pre-tax factor and the payments for the taxable property 
or service exclusive of State and Federal taxes imposed 
by, and State taxes imposed in conformity with, this sub-
title. For purposes of this section, the pre-tax factor shall 
be one divided by the quantity that is one minus the sum 
of— 
‘‘(1) the Federal tax rate imposed by section 1, 
and 
‘‘(2) the State tax rate imposed in conformity 
with this subtitle. 
‘‘(c) Primary residence shall mean residential real 
property used predominantly as the place of abode for a 
person or persons. A person shall have only one primary 
residence for purposes of this section. A married couple 
shall have only one primary residence. 
‘‘(d) PURCHASED FOR RESALE.—For purposes of 
section 2(b)(1), a property or service is purchased for re-
sale if such property or service is purchased by a person 
in an active trade or business for the purpose of reselling 
the taxable property or service in the ordinary course of 
that active trade or business. 
‘‘(e) PURCHASED TO PRODUCE TAXABLE PROPERTY 
OR SERVICES.—For purposes of section 2(b)(2)— 
‘‘(1) IN
GENERAL.—A property or service is 
purchased to produce a taxable property or service
if such property or service is purchased by a person 
in an active trade or business for the purpose of em-
ploying or using such property or service in the pro-
duction or sale of other taxable property or services 
in the ordinary course of that active trade or busi-
ness. 
‘‘(2) RESEARCH
EXPERIMENTATION
AND
DE-
VELOPMENT.—Taxable property or services used in 
an active trade or business for the purpose of re-
search, experimentation and development shall be 
treated as purchased to produce taxable property or 
services. 
‘‘(3) INSURANCE PAYMENTS.—Taxable property 
or services purchased by an insurance company on 
behalf of an insured shall be treated as a property 
or service purchased to produce a taxable property 
or service if the entire premium for the insurance 
contract giving rise to the insurer’s obligation was 
subject to tax in accordance with subsection (a) (re-
lating to financial intermediation services). 
‘‘(4) EDUCATION
AND
TRAINING.—Education 
and training shall be treated as purchased to 
produce taxable property or services. For purposes 
of this section, education and training shall mean 
tuition for general primary, secondary, or university
level education, and tuition for job-related training 
courses. Tuition shall not include amounts attrib-
utable to room or board for the student. 
‘‘(f) Qualified fixtures shall include only those fix-
tures that are a permanent, integral, incorporated and 
irremovable part of the structure and shall exclude fur-
niture, furnishings, appliances or similar tangible personal 
property. 
‘‘(g) REAL PROPERTY.—For purposes of this chap-
ter, the term real property shall have the meaning ascribed 
to it at common law. The Secretary shall by regulation 
establish uniform national rules for purposes of admin-
istering this chapter to the extent that jurisdictions within 
the United States may provide different holdings as to the 
scope of the term real property. 
‘‘(h) RESIDENCE.—Whenever this chapter requires 
that the State of ‘residence’ need be determined, it shall 
be determined in descending order of priority as the State 
of permanent abode, the center of vital interests, or the 
habitual abode. If the State of residence is still undeter-
mined, if the person is a resident of the United States, 
the determination will be made by the Federal Office of 
Revenue Allocation.
‘‘(i) Residential real property is real property, includ-
ing structures, land, and qualified fixtures and appur-
tenances thereto that— 
‘‘(1) is held in fee simple and 
‘‘(2) is predominantly used as a residence or 
dwelling. 
‘‘(j) SECRETARY.—For purposes of this chapter, the 
term ‘Secretary’ means the United States Secretary of 
Treasury. 
‘‘(k) STATE ADMINISTRATOR.—For purposes of this 
chapter, the term ‘State Administrator’ shall mean the 
highest State official responsible for administering the 
taxes imposed by this subtitle in the conforming State. In 
States that are not conforming States, the ‘State Adminis-
trator’ shall mean the person designated by the Secretary 
as the Federal official responsible for administering the 
taxes imposed by this chapter in a non-conforming State. 
State Administrator shall also mean, when the context so 
requires, the Federal official responsible for administering 
the multi-State vendor program. 
‘‘(l) Structures, for purposes of subsection (i) shall 
include homes that are manufactured housing but not self- 
propelled and not on wheels. 
‘‘(m) TANGIBLE PERSONAL PROPERTY.—For pur-
poses of this chapter, the term tangible personal property
shall have the meaning ascribed to it at common law. The 
Secretary shall by regulation establish uniform national 
rules for purposes of administering this chapter to the ex-
tent that jurisdictions within the United States may pro-
vide different holdings as to the scope of the term tangible 
personal property. 
‘‘(n) TAXABLE PROPERTY OR SERVICES.— 
‘‘(1) GENERAL
RULE.—For purposes of this 
chapter, the term ‘taxable property or service’ 
means— 
‘‘(A) any property (including leaseholds of 
any term or rents with respect to such prop-
erty) other than intangible property, and 
‘‘(B) any service (including any financial 
intermediation services). 
‘‘(2) WAGES.—For purposes of the preceding 
sentence, services shall not include wages paid by an 
employer engaged in an active trade or business that 
is registered pursuant to section 43. Services shall 
include wages paid by an employer (including gov-
ernment employers) not engaged in an active trade 
or business unless those wages are paid by a quali-
fied not-for-profit organization (as defined in section 
3(a)(2)(C). 
‘‘(3) INTANGIBLE PROPERTY.—
‘‘(A) IN GENERAL.—For purposes of this 
subtitle, intangible property shall include copy-
rights, trademarks, patents, goodwill, financial 
instruments, and other property deemed intan-
gible at common law. 
‘‘(B) CERTAIN TYPES OF PROPERTY.—For 
purposes of this subtitle, intangible property 
shall 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. 
‘‘(C) ANTI-AVOIDANCE
RULE.—Notwith-
standing subparagraph (A), the sale of a copy-
right or trademark shall be treated as the sale 
of taxable services (within the meaning of sec-
tion 1) if the substance of the transaction sell-
ing said copyright or trademark constituted the 
sale of the services that produced the copy-
righted material or the trademark. 
‘‘(o) UNITED STATES.—For purposes of this chapter, 
the term ‘United States’, when used in the geographical 
sense, means the 50 States, the District of Columbia, and 
any commonwealth, territory or possession of the United 
States.
‘‘SEC. 22. SPECIAL RULES. 
‘‘(a) FOREIGN FINANCIAL INTERMEDIATION SERV-
ICES.— 
‘‘(1) SPECIAL
RULES
RELATING
TO
INTER-
NATIONAL FINANCIAL INTERMEDIATION SERVICES.— 
Financial intermediation services shall be deemed as 
used or consumed within the United States if the 
person (or any related party within the meaning of 
section 2(e)) purchasing the services is a resident of 
the United States. 
‘‘(2) Any person that provides financial inter-
mediation services to United States residents must, 
as a condition of lawfully providing such services, 
designate, in a form prescribed by the Secretary, a 
United States tax representative. This United States 
tax representative shall be responsible for ensuring 
that the taxes imposed by this chapter are collected 
and remitted and shall be jointly and severally liable 
for collecting and remitting these taxes. The Sec-
retary may require reasonable bond of the United 
States tax representative. 
‘‘(b) FINANCING LEASES.— 
‘‘(1) DEFINED.—For purposes of this section, a 
financing lease shall be any lease under which the 
lessee shall have the right to acquire the property
for 50 percent or less of its fair market value at the 
end of the lease term. 
‘‘(2) TAX.—Financing leases shall be taxed in 
the method set forth in this section. 
‘‘(3) DETERMINATION OF PRINCIPLE AND IN-
TEREST COMPONENTS OF FINANCING LEASE.—The 
Secretary shall promulgate rules for disaggregating 
the principle and interest components of a financing 
lease. The principle amount shall be determined to 
the extent possible by examination of the contem-
poraneous sales price or prices of the same or simi-
lar property as the leased property. 
‘‘(4) ALTERNATIVE
METHOD.—In the event 
that contemporaneous sales prices of the same or 
similar property as the lease property are not avail-
able, the principle and interest components of a fi-
nancing lease shall be disaggregating using the ap-
plicable interest rate (as defined in section 28), plus 
4 percent. 
‘‘(5) PRINCIPAL
COMPONENT.—The principal 
component 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 the lease was 
entered into.
‘‘(6) INTEREST
COMPONENT.—The financial 
intermediation services amount with respect to the 
interest component of the financing lease shall be 
subject to tax. 
‘‘(7) COORDINATION.—If the principal compo-
nent and financial intermediation services amount 
with respect to the interest component of a lease 
have been taxed pursuant to this section, then the 
gross lease or rental payments shall not be subject 
to additional tax. 
‘‘(c) 
INSTALLMENT
SALES, 
ACCOUNTING, 
RE-
TURNS.— 
‘‘(1) GENERAL RULE.—Tax will be due when 
payment for the taxable property and services sold, 
consumed, used or enjoyed is actually received. 
‘‘(2) ALTERNATIVE RULE.—A vendor may elect 
to adopt the accrual method of accounting for pur-
poses of determining when the tax will be due. Said 
election must apply to all sales made by vendor in 
a particular calendar year. 
‘‘(3) INSTALLMENT SALES.—Tax will be due on 
taxable property and services sold under the install-
ment method when payment for the taxable property 
and services sold is actually received.
‘‘(4) RETURNS.—A credit shall be provided to 
the vendor for returned taxable property and serv-
ices when actual payment for the returned taxable 
property and services is made by the vendor to the 
person returning the taxable property and services. 
‘‘(d) MIXED USE PROPERTY OR SERVICES.— 
‘‘(1) MIXED USE PROPERTY OR SERVICE DE-
FINED.—Mixed Use Property or Service is taxable 
property or services purchased both for a purpose 
that would give rise to an exemption pursuant to 
section 2 and for taxable use, consumption or enjoy-
ment. 
‘‘(2) EXEMPTION
THRESHOLD.—Mixed Use 
Property or Service shall not be exempt pursuant to 
section 2 unless said property is used more than 95 
percent for purposes that would give rise to an ex-
emption pursuant to section 2. 
‘‘(3) MIXED
USE
PROPERTY
OR
SERVICES 
CREDIT.—A business registered pursuant to section 
43 is entitled to a business use conversion credit 
(pursuant to section 11(d)) equal to product of— 
‘‘(A) the mixed use property amount, 
‘‘(B) the business use ratio, and 
‘‘(C) the rate of tax imposed by section 1.
‘‘(4) MIXED
USE
PROPERTY
AMOUNT.—The 
mixed use property amount for each year shall be— 
‘‘(A) one-thirtieth of the purchase price for 
real property for thirty years or until the prop-
erty is sold, 
‘‘(B) one-seventh of the purchase price for 
tangible personal property for seven years or 
until the property is sold, 
‘‘(C) one-fifth of the purchase price for ve-
hicles for five years or until the property is 
sold, and 
‘‘(D) a reasonable amount for other types 
of taxable property or services or in accordance 
with regulations. 
‘‘(5) BUSINESS USE RATIO.—The business use 
ratio is the ratio of business use to total use for a 
particular year. For vehicles, the business use ratio 
will be the ratio of business purpose miles to total 
miles. For real property, the business use ratio is 
the ratio of floor space used for business purposes 
to total floor space. For tangible personal property 
(except for vehicles), the business use ratio is the 
ratio of total time used for business purposes to 
total time used. For other property or services, the 
business ratio shall be calculated using a reasonable
method. Reasonable records must be maintained to 
support a taxpayer’s business use of the mixed use 
property or service. 
‘‘(e) GAMING.—There is hereby imposed a 15-percent 
tax on taxable gaming services. Taxable gaming services 
shall be the gross gaming receipts less total gaming pay-
offs. This tax shall be paid and remitted by the person 
offering the gaming services. 
‘‘SEC. 23. 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 financial intermedi-
ation services, and 
‘‘(B) implicitly charged financial intermedi-
ation services. 
‘‘(2) EXPLICITLY CHARGED FINANCIAL INTER-
MEDIATION SERVICES.—The term ‘explicitly charged 
financial intermediation services’ 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 service fees (including, 
but not limited to, mutual fund management, 
sales, and exit fees). 
‘‘(3) IMPLICITLY CHARGED FINANCIAL INTER-
MEDIATION SERVICES.— 
‘‘(A) IN GENERAL.—The term ‘implicitly 
charged financial intermediation services’ in-
cludes the gross imputed amount in relation to 
any underlying interest bearing investment, ac-
count, 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 27) over the rate paid on such in-
vestment, and 
‘‘(II) such account balance, 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 
27), and 
‘‘(II) such debt balance. 
‘‘(b) For purposes of section 1(c), the seller of finan-
cial intermediation services shall be— 
‘‘(1) in the case of explicitly charged financial 
intermediation services (as defined in subsection 
(a)(2)), the person who receives the gross payments 
for the charged financial intermediation services, 
‘‘(2) in the case of implicit financial intermedi-
ation services (as defined in subsection (a)(3)) with 
respect to any underlying interest bearing invest-
ment or account, the person making the interest 
payments on the interest bearing investment or ac-
count, and 
‘‘(3) in the case of implicit financial intermedi-
ation services (as defined in subsection (a)(2)) with 
respect to any interest bearing debt, the person re-
ceiving the interest payments on the interest bearing 
debt. 
‘‘SEC. 24. BAD DEBTS. 
‘‘(a) For purposes of section 11, a bad debt shall be 
a business loan or debt that becomes wholly or partially 
worthless. 
‘‘(b) 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) No loan or debt shall be considered wholly or 
partially worthless unless it has been in arrears for 90 
days or more, provided, however, that if a debt is dis-
charged wholly or partially in bankruptcy before 90 days 
has elapsed, then it shall be deemed wholly or partially 
worthless on the date of discharge. 
‘‘(d) A loan or debt that has been in arrears for 90 
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. 
‘‘(e) CROSS REFERENCE.— 
‘‘For tax on subsequent payments, see section 
11(g)(3). 
‘‘SEC. 25. TIMING OF TAX ON FINANCIAL INTERMEDIATION 
SERVICES. 
‘‘The tax on financial intermediation services pro-
vided in connection to an underlying investment account
or debt shall be calculated and collected with the same 
frequency that statements are rendered by the financial 
institution in connection with the investment account or 
debt but not less frequently than quarterly. 
‘‘SEC. 26. ALTERNATIVE METHOD FOR CALCULATING TAX 
DUE. 
‘‘(a) ALTERNATIVE METHOD PERMISSIBLE.—A pro-
vider of financial intermediation services need not cal-
culate its liability on a transaction-by-transaction or ac-
count-by-account basis provided that the method used by 
the financial intermediation services provider— 
‘‘(1) is reasonable, and 
‘‘(2) will lead to a tax liability that is substan-
tially similar to that projected under ordinary sales 
tax principles. The provider of financial intermedi-
ation services shall set forth his proposed method 
and the reasons why it meets the criteria set forth 
in the preceding sentence in a petition to the Sec-
retary. 
‘‘(b) SECRETARY TO RULE.—An alternative method 
proposed in a petition pursuant to subsection (a) shall be 
accepted by the Secretary unless the Secretary rules that 
the proposed alternative method— 
‘‘(1) is unreasonable, or
‘‘(2) will lead to a tax liability that is substan-
tially different from that projected under ordinary 
sales tax principles. 
The Secretary shall set forth the reasons for his ruling 
in a finding. The Secretary must make his ruling within 
120 days of receiving the petition and notify the petitioner 
of his decision. In the event the Secretary fails to render 
a ruling within 120 days, then the proposed method shall 
be permissible. He must provide the petitioner with a copy 
of the finding within 30 days of a ruling. He must publish 
the permissible method (including those methods that be-
come permissible by virtue of the Secretary’s failure to 
rule). 
‘‘(c) EFFECTIVE DATES OF ALTERNATIVE METH-
OD.—An alternative method ruled permissible or permis-
sible by virtue of the Secretary’s failure to rule shall be 
effective indefinitely and may take effect as early as the 
month after the alternative method becomes permissible. 
The Secretary may, however, after an investigation, audit, 
or otherwise, subsequently rule on his own initiative that 
the method is not permissible. Such subsequent ruling 
shall be prospective in effect and not take effect until the 
latter of— 
‘‘(1) the first day of the calendar year following 
the ruling, or
‘‘(2) 120 days after the ruling. 
If judicial review is sought pursuant to subsection (d), said 
subsequent ruling shall not take effect until a final judg-
ment is rendered by the court. 
‘‘(d) JUDICIAL REVIEW.—A ruling by the Secretary 
with respect to a petition for use of an alternative method 
pursuant to subsection (a) shall be subject to judicial re-
view in any court of competent jurisdiction, provided, how-
ever, that the standard of review shall be whether the peti-
tioner establishes by clear and convincing evidence that 
the decision of the Secretary should be reversed. 
‘‘(e) REGULATIONS.—The Secretary may provide by 
regulation permissible alternative methods for calculating 
tax due including methods based on annual flows of rev-
enue and expense. 
‘‘SEC. 27. BASIC INTEREST RATE. 
‘‘For purposes of this subchapter, the basic interest 
rate with respect to a debt instrument, investment, financ-
ing lease, or account shall be the applicable interest rate 
(as determined in section 28). For debt instruments, in-
vestments, or accounts of contractually fixed interest, the 
applicable interest rate of the month of issuance shall 
apply. For debt instruments, investments, or accounts of 
variable interest rates and which have no reference inter-
est rate, the applicable interest rate shall be the Federal
short-term interest rate for each month. For debt instru-
ments, investments or accounts of variable interest rates 
and which have a reference interest rate, the applicable 
interest rate shall be the applicable interest rate for the 
reference interest rate for each month. 
‘‘SEC. 28. APPLICABLE INTEREST RATE. 
‘‘(a) IN GENERAL.— 
‘‘(1) In the case of a debt instrument, invest-
ment, financing lease, or account with a term of not 
over 3 years, the applicable interest rate is the Fed-
eral short-term rate. 
‘‘(2) In the case of a debt instrument, invest-
ment, financing lease, or account with a term of over 
3 years but not over 9 years, the applicable interest 
rate is the Federal mid-term rate. 
‘‘(3) In the case of a debt instrument, invest-
ment, financing lease, or account with a term of over 
9 years, the applicable interest rate is the Federal 
long-term rate. 
‘‘(b) FEDERAL SHORT-TERM RATE.—The Federal 
short-term rate shall be the rate determined by the Sec-
retary based on the average market yield (during any 1 
month) on outstanding marketable obligations of the 
United States with remaining periods to maturity of 3 
years or less.
‘‘(c) FEDERAL MID-TERM RATE.—The Federal mid- 
term rate determined by the Secretary based on the aver-
age market yield (during any 1 month) on outstanding 
marketable obligations of the United States with remain-
ing periods to maturity of more than 3 years and not over 
9 years. 
‘‘(d) FEDERAL LONG-TERM RATE.—The Federal 
long-term rate shall be the rate determined by the Sec-
retary based on the average market yield (during any 1 
month) on outstanding marketable obligations of the 
United States with remaining periods to maturity of over 
9 years. 
‘‘(e) DETERMINATION OF RATES.—During each cal-
endar month, the Secretary shall determine the Federal 
short-term rate, the Federal mid-term rate, and the Fed-
eral long-term rate which shall apply during the following 
calendar month. 
‘‘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 multi-State vendors. 
‘‘Sec. 34. General administrative matters. 
‘‘SEC. 31. AUTHORITY FOR STATES TO COLLECT TAX. 
‘‘(a) IN GENERAL.—The tax imposed by this chapter 
on gross payments for the use, consumption or enjoyment 
of taxable property or services within a State which is an
administering State shall be administered, collected, and 
remitted to the United States Treasury by such State. 
‘‘(b) ADMINISTERING STATE.—For purposes of this 
section, the term ‘administering State’ means any State— 
‘‘(1) which maintains a conforming sales tax, 
and 
‘‘(2) which enters into a cooperative agreement 
with the Secretary containing reasonable provisions, 
limited in scope and detail, governing the adminis-
tration by such State of the taxes imposed by this 
chapter and the remittance to the United States in 
a timely manner of taxes collected under this chap-
ter. 
‘‘(c) CONFORMING SALES TAX.—For purposes of 
subsection (b), a State maintains a conforming sales tax 
if such State imposes, administers, and collects a sales 
tax— 
‘‘(1) which conforms to the tax imposed by this 
chapter in all significant respects (other than the 
rate of tax), including— 
‘‘(A) the same taxable property and serv-
ices, 
‘‘(B) the same exemptions, and 
‘‘(C) the same credits and refunds (other 
than section 11(a)(4) (relating to the taxpayer
administrative credit) and section 13 (relating to 
the family consumption refund)), and 
‘‘(2) which is imposed at a rate of no less than 
1 percent. 
‘‘(d) COOPERATIVE AGREEMENTS.—The agreement 
under subsection (b)(2) shall be limited in scope and detail 
but include provisions for the expeditious transfer of 
funds, contact officers, dispute resolution, information ex-
change, confidentiality, taxpayer rights, and other matters 
of importance. 
‘‘(e) TIMELY REMITTANCE OF TAX.— 
‘‘(1) IN GENERAL.—Administering States shall 
remit and pay over taxes collected under this chap-
ter on behalf of the United States (less the adminis-
tration fee allowable under paragraph (2)) no later 
than 15 days after receipt. 
‘‘(2) 
ADMINISTRATION
FEE.—Administering 
States may retain an administration fee equal to one 
percent of the amounts otherwise required to be re-
mitted to the United States under this chapter by 
the State. 
‘‘(f) LIMITATION ON ADMINISTRATION OF TAX BY 
UNITED STATES.—The Secretary may administer the tax 
imposed by this chapter in an administering State only 
if—
‘‘(1)(A) such State has failed on a regular and 
sustained basis to timely remit to the United States 
taxes collected under this chapter on behalf of the 
United States, or 
‘‘(B) such State has on a regular and sustained 
basis otherwise materially breached the agreement 
referred to in subsection (b)(2), 
‘‘(2) the State has failed to cure such failures 
and alleged breaches within a reasonable time, 
‘‘(3) the Secretary provides such State with 
written notice of such failures and alleged breaches, 
and 
‘‘(4) a district court of the United States within 
such State has rendered a decision permitting such 
administration. 
‘‘(g) The Secretary shall administer the tax imposed 
by this chapter in any State or other jurisdiction that is 
not an administering State. 
‘‘(h) It shall be permissible for a conforming State 
to contract with another conforming State to administer 
its sales tax for an agreed fee. In this case, the agreement 
contemplated by subsection (d) shall have both States and 
the Federal Government as parties. 
‘‘(i) COORDINATION AMONG CONFORMING STATES.—
‘‘(1) EXEMPTION
CERTIFICATES.—Conforming 
States shall honor exemption certificates issued by 
other conforming States. 
‘‘(2) AUDITS.—Conforming States shall not 
conduct audits at facilities in other Conforming 
States but shall instead cooperate with other Con-
forming States using the mechanisms established by 
section 32 of this subchapter or by other agreement 
or Compact. 
‘‘SEC. 
32. 
FEDERAL 
ADMINISTRATIVE 
SUPPORT 
FOR 
STATES. 
‘‘(a) The Secretary shall administer a program to fa-
cilitate information sharing among States. 
‘‘(b) The Secretary shall facilitate and may be a party 
to a Compact Among Conforming States for purposes of 
facilitating the taxation of interstate purchases and for 
other purposes that may facilitate implementation of this 
chapter. 
‘‘(c) The Secretary shall have the authority to pro-
mulgate regulations and guidelines to assist States in ad-
ministering the national sales tax, to provide for uni-
formity in the administration of the tax and to provide 
guidance to taxpayers and administrators.
‘‘SEC. 
33. 
FEDERAL 
ADMINISTRATION 
OPTION 
FOR 
MULTISTATE VENDORS. 
‘‘(a) IN GENERAL.—Vendors that maintain retail es-
tablishments in five or more conforming States may elect, 
in a form prescribed by the Secretary, to have their sales 
tax obligations administered by the Federal Government 
under the multistate vendor program. 
‘‘(b) FEDERAL GOVERNMENT TO COLLECT
AND 
REMIT STATE SALES TAXES.—Under the multistate ven-
dor program, the Federal Government will collect Federal 
and conforming State sales taxes and remit the State sales 
taxes to the States within 10 days of receiving said rev-
enue. 
‘‘(c) FEDERAL ADMINISTRATION.—The Federal Gov-
ernment will serve in the place of the State Administrator 
with respect to multi-State vendors exercising the election 
under this section. With respect to electing multi-State 
vendors, the Federal Government exclusively will— 
‘‘(1) audit; 
‘‘(2) provide certificates; and 
‘‘(3) otherwise administer the Federal and con-
forming State sales tax in place of the administering 
State. 
‘‘SEC. 34. GENERAL ADMINISTRATIVE MATTERS. 
‘‘(a) IN GENERAL.—The Secretary and each State 
Administrator may employ accountants, auditors, inves-
tigators, assistants, and clerks for the administration of 
this subtitle and may delegate to employees the authority 
to conduct interviews, hearings, prescribe rules, promul-
gate regulations, and perform such other duties as are re-
quired by this subtitle. 
‘‘(b) RESOLUTION OF ANY INCONSISTENT RULES 
AND REGULATIONS.—In the event that the Secretary and 
any State Administrator have issued inconsistent rules or 
regulations, the rule or regulation issued by the Secretary 
shall govern provided that the Secretary possessed the 
statutory authority to issue the rule or regulation. 
‘‘(c) ADEQUATE NOTICE TO BE PROVIDED.—Except 
in the case of an emergency declared by the Secretary (and 
not his designee), no rule or regulation issued by the Sec-
retary with respect to any internal revenue law shall take 
effect before 90 days have elapsed after its publication in 
the Federal Register. Upon issuance, the Secretary shall 
provide copies of all rules or regulations issued under this 
title to each sales tax administering authority. 
‘‘(d) NO RULES, RULINGS, OR REGULATIONS WITH 
RETROACTIVE EFFECT.— 
‘‘(1) IN GENERAL.—No rule, ruling, or regula-
tion issued or promulgated by the Secretary relating 
to any internal revenue law or by a State Adminis-
trator that constitutes a change in law (including a
reversal of prior law and new law) shall be retroactive 
in effect. 
‘‘(2) Notwithstanding paragraph (1), a rule, 
ruling, or regulation that provides guidance or clari-
fies existing law may lawfully apply to cases prior to 
its issuance. 
‘‘(3) For purposes of this subsection, the term 
‘law’ includes State and Federal statutes, regula-
tions, rules, rulings, and court decisions. 
‘‘(4) A rule, ruling, or regulation issued in con-
travention to paragraph (1) shall be void as to tax-
able events arising prior to the issuance of such rule, 
ruling, or regulation. 
‘‘(5) REVIEW OF IMPACT OF RULES, RULINGS, 
AND REGULATIONS ON SMALL BUSINESS.— 
‘‘(A) SUBMISSION TO SMALL BUSINESS AD-
MINISTRATION.—After publication of any pro-
posed or temporary regulation by the Secretary 
relating to internal revenue laws, the Secretary 
shall submit such regulation to the Chief Coun-
sel for Advocacy of the Small Business Admin-
istration for comment on the impact of such 
regulation on small businesses. Not later than 
the date 4 weeks after the date of such submis-
sion, the Chief Counsel for Advocacy of the
Small Business Administration shall submit 
comments on such regulation to the Secretary. 
‘‘(B) CONSIDERATION OF COMMENTS.—In 
prescribing any final regulation which super-
sedes a proposed or temporary regulation which 
had been submitted under this subsection to the 
Chief Counsel for Advocacy of the Small Busi-
ness Administration, the Secretary shall— 
‘‘(i) consider the comments of the 
Chief Counsel for Advocacy of the Small 
Business Administration on such proposed 
or temporary regulation, and 
‘‘(ii) discuss any response to such 
comments in the preamble to the regula-
tion. 
‘‘(C) SUBMISSION OF CERTAIN FINAL REG-
ULATIONS.—In the case of promulgation by the 
Secretary of any final regulations (other than a 
temporary regulation) which do not supersede a 
proposed regulation, the requirements of sub-
paragraphs (A) and (B) shall apply, except that 
the submission under subparagraph (A) shall be 
made at least 4 weeks before the date of such 
promulgation, and the consideration and discus-
sion required under subparagraph (B) shall be
made in connection with the promulgation of 
such final regulation. 
‘‘Subchapter E—Other Administrative 
Provisions 
‘‘Sec. 41. Monthly reports and payments. 
‘‘Sec. 42. Records. 
‘‘Sec. 43. Registration. 
‘‘Sec. 44. Certificates. 
‘‘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 separately stated and charged. 
‘‘Sec. 55. Installment agreements; compromises. 
‘‘Sec. 56. Accounting. 
‘‘Sec. 57. Hobby activities. 
‘‘SEC. 41. MONTHLY REPORTS AND PAYMENTS. 
‘‘(a) REPORTS.—On or before the 20th of each 
month, every person who is liable to collect and remit the 
tax imposed by this chapter, or pay the tax imposed by 
this chapter by reason of gross payments described in sec-
tion (1) (hereafter in this section referred to as the ‘tax-
payer’), shall submit to the appropriate tax authority (in 
a form satisfactory to the Secretary) a report relating to 
the previous month that sets forth— 
‘‘(1) the gross payments referred to in section 
1, 
‘‘(2) the tax collected under this chapter in con-
nection with such payments, and
‘‘(3) the amount and type of any credit claimed. 
‘‘(b) PAYMENTS OF TAX.—The tax imposed by this 
chapter with respect to any use, consumption or enjoy-
ment during any month shall be paid on or before the 20th 
of the succeeding month. One payment shall pay both Fed-
eral and conforming State tax liability. 
‘‘(c) INTEREST ON AMOUNTS REMITTED LATE.— 
‘‘(1) IN GENERAL.—If any amount required to 
be paid on or before the 20th of any month is paid 
after such 20th day, the taxpayer shall pay simple 
interest from such 20th day at the rate of— 
‘‘(A) 1 percent per month (or any fraction 
thereof) for the first month, and 
‘‘(B) 1.5 percent per month (or any frac-
tion thereof) thereafter. 
‘‘(2) AMOUNTS PAID AFTER COLLECTION AC-
TION.— 
‘‘(A) IN GENERAL.—The rate of interest 
under paragraph (1) shall be 2 percent per 
month (or any fraction thereof) with respect to 
amounts paid only after the commencement of 
a collection action with respect to such 
amounts. 
‘‘(B) COLLECTION ACTION.—For purposes 
of subparagraph (A), the term ‘collection ac-
tion’ includes administrative levies or garnish-
ments and the commencement of legal action in 
any court. 
‘‘(d) PENALTY FOR LATE FILING.— 
‘‘(1) IN GENERAL.—In the case of a failure by 
any person to file a report required by subsection (a) 
on or before due date (determined with regard to 
any extension) for such report, such person shall pay 
a penalty equal to the greater of— 
‘‘(A) $50, or 
‘‘(B) 0.5 percent of the gross payments re-
ferred to in section 1 required to be shown on 
the report. 
‘‘(2) INCREASED PENALTY ON RETURNS FILED 
AFTER WRITTEN INQUIRY.—The amount of the pen-
alty under paragraph (1) shall be doubled with re-
spect to any report filed after a written inquiry with 
respect to such report is received by the taxpayer 
from the State Administrator. 
‘‘(3) EXCEPTIONS.— 
‘‘(A) REASONABLE
CAUSE.—No penalty 
shall be imposed under paragraph (1) with re-
spect to any failure if it is shown that such fail-
ure is due to reasonable cause.
‘‘(B) OTHER WAIVER AUTHORITY.—In ad-
dition to penalties not imposed by reason of 
subparagraph (A), the State Administrator, on 
application, shall waive the penalty imposed by 
paragraph (1) once per taxpayer per 2-year pe-
riod. The preceding sentence shall not apply to 
a penalty determined under paragraph (2). 
‘‘(e) EXTENSIONS FOR FILING REPORTS.— 
‘‘(1) AUTOMATIC EXTENSIONS FOR LESS THAN 
30 DAYS.—On application, extensions of less than 30 
days to file reports under subsection (a) shall be 
automatically granted. 
‘‘(2) OTHER EXTENSIONS.—Extensions of 30 to 
90 days to file such reports shall be liberally granted 
by the State Administrator for reasonable cause. Ex-
tensions greater than 90 days may be granted by the 
State Administrator to avoid hardship. 
‘‘(3) 
NO
EXTENSION
FOR
PAYMENT
OF 
TAXES.—Notwithstanding paragraphs (1) and (2), 
no extension shall be granted with respect to the 
time for paying the taxes under this chapter. 
‘‘(f) PENALTY FOR WILLFULLY OR RECKLESSLY AC-
CEPTING A FALSE EXEMPTION CERTIFICATE.—A person 
who willingly or recklessly accepts a false exemption cer-
tificate shall pay a penalty equal to 20 percent of the tax
not collected on gross payments for taxable property and 
services by virtue of said acceptance. 
‘‘(g) The Secretary shall establish a system whereby 
violation of the Individual Tax Freedom Act of 2004 can 
be brought to the attention of the Secretary for investiga-
tion through the use of a toll-free telephone number and 
otherwise. 
‘‘SEC. 42. RECORDS. 
‘‘Any person liable to collect and remit taxes pursu-
ant to this chapter or pay the tax imposed by this chapter 
by reason of gross payments described in section 1, shall 
keep records (including, but not limited to, copies of all 
section 54 receipts provided and complete records of ex-
empt purchases including exempt purchaser’s exemption 
certificates and tax number and the net of tax amount 
of purchase) sufficient to provide a reasonable basis for 
determining the amounts reported, collected, and remitted 
for a period of 3 years after the filing of the report for 
which the records formed the basis. Any purchaser who 
purchased taxable property or services but did not pay tax 
by reason of asserting an exemption shall keep records 
sufficient to provide a reasonable basis for determining 
whether the exemption was valid for a period of 3 years 
after the purchase of taxable property or services.
‘‘SEC. 43. REGISTRATION. 
‘‘(a) IN GENERAL.—Any person liable to collect and 
remit taxes pursuant to section 1 who is engaged in an 
active trade or business shall register with the State or 
Federal taxing authorities administering the taxes im-
posed by this chapter. 
‘‘(b) DESIGNATION OF TAX MATTERS PERSON.— 
Every person registered pursuant to subsection (a) shall 
designate a tax matters person. Each person registered 
must provide notice of a change in the identity of the tax 
matters person within 30 days of said change. 
‘‘SEC. 44. CERTIFICATE. 
‘‘The State Administrator shall issue certificates of 
registration and qualification certificates to qualified not- 
for-profit organizations and may issue such other certifi-
cates as may prove useful in the administration of the 
taxes imposed by this chapter. 
‘‘SEC. 45. PENALTIES. 
‘‘(a) FAILURE TO REGISTER.—Each person who is 
required to register pursuant to section 43 but fails to do 
so prior to notification by the State Administrator shall 
be liable for a penalty of $500. 
‘‘(b) FAILURE TO COLLECT OR REMIT TAX.— 
‘‘(1) CIVIL PENALTY.—Each person who reck-
lessly or willfully fails to collect or remit taxes im-
posed by section 1 shall be liable for a penalty equal
to the greater of $500 or 20 percent of the tax not 
collected or remitted. 
‘‘(2) CRIMINAL
PENALTY.—Each person who 
willfully fails as part of an active trade or business 
to collect or remit taxes imposed by this chapter 
may be imprisoned for a period of up to one year. 
‘‘(c) FAILURE TO PAY TAX.— 
‘‘(1) CIVIL PENALTY.—Each person who will-
fully fails to pay taxes imposed by section 1 shall be 
liable for a penalty equal to the greater of $500 or 
20 percent of the tax not paid. 
‘‘(2) CRIMINAL
PENALTY.—Each person who 
willfully fails to pay taxes imposed by this chapter 
may be imprisoned for a period of up to six months. 
‘‘SEC. 46. BURDEN OF PERSUASION AND BURDEN OF PRO-
DUCTION. 
‘‘In all disputes concerning taxes imposed by this 
chapter, the person engaged in a dispute with the State 
Administrator shall have the burden of production of doc-
uments and records but the State Administrator shall 
have the burden of persuasion. In all disputes concerning 
the legitimacy of an exemption claimed by a purchaser, 
if the seller has on file a copy of a bona fide exemption 
certificate and did not have reasonable cause to believe 
that an exemption from the tax was unavailable to the
purchaser with respect to such purchase, then the burden 
of production of documents and records relating to that 
exemption shall rest with the purchaser and not with the 
seller. 
‘‘SEC. 47. ATTORNEYS AND ACCOUNTANCY FEES. 
‘‘In all disputes concerning taxes imposed by this 
chapter, the person engaged in a dispute with the State 
Administrator or the Secretary, as the case may be, shall 
be entitled to reasonable attorneys and accountancy fees 
incurred in direct relation to the dispute unless the State 
Administrator or the Secretary, as the case may be, estab-
lishes that his position was substantially justified. 
‘‘SEC. 48. APPEALS. 
‘‘The State Administrator and the Secretary shall es-
tablish an administrative appeals process wherein the tax-
payer is provided a full and fair hearing in connection with 
any disputes he has with the State Administrator or the 
Secretary. 
‘‘SEC. 49. TAXPAYER SUBJECT TO SUBPOENA ON PRODUC-
TION. 
‘‘Taxpayers are subject to subpoena for records and 
documents required by the State Administrator or the Sec-
retary, as the case may be, to accurately determine liabil-
ity for tax under this chapter.
‘‘SEC. 50. TAX COURT JURISDICTION. 
‘‘The United States Tax Court shall have jurisdiction 
pursuant to section 7442 in connection with all disputes 
with taxpayers arising under this chapter. 
‘‘SEC. 51. POWER TO LEVY. 
‘‘Pursuant to enforcement of a judgment duly ren-
dered by a court of law, the State Administrator or the 
Secretary, as the case may be, shall have the right to levy 
and seize property and garnish wages to collect amounts 
due under this chapter. 
‘‘SEC. 52. PROBLEM RESOLUTION OFFICERS. 
‘‘The State Administrator shall establish a Problem 
Resolution Office. Problem Resolution Officers shall have 
the authority to investigate taxpayer complaints and en-
join collection activity if, in the opinion of the Problem 
Resolution Officer, said collection activity is reasonably 
likely to not be in compliance with law. Said administra-
tive injunction may only be reversed by the highest official 
in the relevant State or Federal taxing authority or by 
its General Counsel upon a finding that the collection ac-
tivity is justified by clear and convincing evidence. The 
authority to reverse this administrative injunction may not 
be delegated. Problem Resolution Officers shall not be dis-
ciplined or adversely affected for the issuance of adminis-
trative injunctions unless a pattern or issuing injunctions 
that are manifestly unreasonable is proven in an adminis-
trative hearing. Nothing in this section shall limit the au-
thority of the State Administrators or the taxpayer to pur-
sue any legal remedy in any court with jurisdiction over 
the dispute at issue. 
‘‘SEC. 53. JURISDICTION AND INTERSTATE ALLOCATION. 
‘‘(a) ALLOCATION RULES.—For purposes of allo-
cating revenue between or among administering states 
from taxes imposed by this subtitle, the revenue shall be 
allocated to those states that are the destination of the 
taxable property or services. The destination of the pur-
chase of taxable property and services shall be determined 
in accordance with this section. 
‘‘(b) FEDERAL OFFICE OF REVENUE ALLOCATION.— 
The Secretary shall establish an Office of Revenue Alloca-
tion to arbitrate any claims or disputes among admin-
istering states as to the destination of taxable property 
and services for purposes of allocating revenue between or 
among the states from taxes imposed by this subtitle. The 
determination of the Administrator of the Office of Rev-
enue Allocation shall be subject to judicial review in any 
federal court with competent jurisdiction provided, how-
ever, that the standard of review shall be abuse of discre-
tion. 
‘‘(c) TANGIBLE PERSONAL PROPERTY.—The destina-
tion of tangible personal property shall be the state or ter-
ritory in which the property was first delivered to the pur-
chaser. Tangible personal property shipped by means of 
the mail or common carrier shall be deemed delivered to 
the location of the purchaser for purposes of this sub-
section upon shipment by mail or common carrier. 
‘‘(d) REAL PROPERTY.—The destination of real prop-
erty or rents or leaseholds on real property shall be state 
or territory in which the real property is located. 
‘‘(e) OTHER PROPERTY.—The destination of other 
property shall be residence of the purchaser. 
‘‘(f) SERVICES.— 
‘‘(1) GENERAL RULE.—The destination of serv-
ices shall be state or territory in which the use, con-
sumption or enjoyment of the services occurred. Al-
location of service invoices relating to more than one 
jurisdiction shall be on the basis of time. 
‘‘(2) TELECOMMUNICATIONS
SERVICES.—The 
destination of telecommunications services shall be 
the residence of the purchaser. Telecommunications 
services shall include telephone, telegraph, cable tele-
vision, satellite and computer on-line or network 
services. 
‘‘(3) DOMESTIC TRANSPORTATION SERVICES.— 
For transportation services where all of the final 
destinations are within the United States, the des-
tination of transportation services shall be the final 
destination of the trip (in the case of round or mul-
tiple trip fares, the services amount shall be equally 
allocated among the final destinations). 
‘‘(4) INTERNATIONAL TRANSPORTATION SERV-
ICES.—For transportation services where the final 
destination or origin of the trip is without the 
United States, the service amount shall be deemed 
50 percent attributable to the United States destina-
tion or origin. 
‘‘(g) FINANCIAL INTERMEDIATION SERVICES.—The 
destination of financial intermediation services shall be the 
residence of the purchase. 
‘‘(h) A State Tax Administrator shall have jurisdic-
tion over any gross payments made which have a destina-
tion (as determined in accordance with this section) within 
the state of said State Tax Administrator. This grant of 
jurisdiction is not exclusive of other jurisdiction that said 
State Tax Administrator may have. 
‘‘(i) RENTS AND ROYALTIES PAID FOR THE LEASE 
OF TANGIBLE PROPERTY.— 
‘‘(1) GENERAL RULE.—The destination of rents 
and royalties paid for the lease of tangible property 
shall be where the property is located.
‘‘(2) VEHICLES.—The destination of rent and 
lease payments on vehicles shall be— 
‘‘(A) in the case of rentals and leases of a 
term one month or less, the location where the 
vehicle was originally delivered to the lessee; 
and 
‘‘(B) in the case of rentals and leases of a 
term greater than one month, the residence of 
the lessee. 
‘‘SEC. 54. TAX TO BE STATED AND CHARGED SEPARATELY. 
‘‘(a) IN GENERAL.—For each purchase of taxable 
property or services for which a tax is imposed pursuant 
to section 1, the sales tax shall be charged separately from 
the purchase price by the vendor or seller. For purchase 
of taxable property or services for which a tax is imposed 
pursuant to section 1, the vendor shall provide to the pur-
chaser a receipt that sets forth at least the following infor-
mation: 
‘‘(1) The property or services price exclusive of 
tax. 
‘‘(2) The amount of tax paid. 
‘‘(3) The property or service price inclusive of 
tax.
‘‘(4) The tax rate (the amount of tax paid (per 
subparagraph 2) divided by the property or service 
price inclusive of tax (per subparagraph 3)). 
‘‘(5) The date that the good or service was sold. 
‘‘(6) The name of the vendor. 
‘‘(7) The vendor registration number. 
‘‘(b) VENDING MACHINE EXCEPTION.—The require-
ments of subsection (a) shall be inapplicable in the case 
of sales by vending machines. Vending machines for pur-
poses of this subsection shall mean machines— 
‘‘(1) that dispense taxable property in exchange 
for coins, one, five, ten or twenty dollar bills, and 
‘‘(2) that sell no single item exceeding ten dol-
lars per unit in price. 
‘‘SEC. 55. INSTALLMENT AGREEMENTS; COMPROMISES. 
‘‘The State Administrator or the Secretary, as the 
case may be, is authorized to enter into written agree-
ments with any person under which the person is allowed 
to satisfy liability for payment of any tax in installment 
payments if he determines that such agreement will facili-
tate the collection of such liability. The agreement shall 
remain in effect for the term of the agreement unless the 
information that the person provided to the Secretary or 
the State Administrator was materially inaccurate or in-
complete. The Secretary and the State Administrator may 
compromise any amounts alleged to be due. 
‘‘SEC. 56. ACCOUNTING. 
‘‘(a) CASH METHOD TO BE USED GENERALLY.— 
Vendors and other persons shall remit taxes and report 
transactions with respect to the month for which payment 
was received or the tax imposed by this chapter otherwise 
becomes due. 
‘‘(b) ELECTION TO USE ACCRUAL METHOD.—A per-
son may elect with respect to a calendar year, in a form 
prescribed by the Secretary, to remit taxes and report 
transactions with respect to the month where a sale was 
invoiced and accrued. 
‘‘(c) CROSS REFERENCE.— 
‘‘For rules relating to bad debts for vendors elect-
ing the accrual method, see section 11(g). 
‘‘SEC. 57. HOBBY ACTIVITIES. 
‘‘(a) The exemption afforded by section 2(a)(1) shall 
not be available for any taxable property or service used 
by a trade or business if that trade or business is not en-
gaged in for profit. 
‘‘(b) If the trade or business has received gross pay-
ments for the sale of taxable property or services that ex-
ceed the sum of— 
‘‘(1) taxable property and services purchased, 
‘‘(2) wages paid, and
‘‘(3) taxes paid, 
in 2 or more of the most recent 4 calendar years during 
which it operated, then the business activity shall be con-
clusively deemed to be engaged in for profit.’’. 
SEC. 5. PHASE-OUT OF THE INTERNAL REVENUE SERVICE. 
(a) IN GENERAL.—Appropriations for any expenses 
of the Internal Revenue Service including processing in-
come tax returns for years prior to the repeal of the in-
come tax, revenue accounting, management, transfer of 
payroll tax data to the Social Security Administration and 
otherwise for years after fiscal year 2007 are not author-
ized. 
(b) EXCISE
AND SALES TAX BUREAUS.—Section 
7801 is amended by adding the following new subsections: 
‘‘(d) EXCISE TAX BUREAU.—There shall be in the 
Department of Treasury an Excise Tax Bureau to admin-
ister those excise taxes not repealed by this Act. 
‘‘(e) SALES TAX BUREAU.—There shall be in the De-
partment of Treasury a Sales Tax Bureau to administer 
the national sales tax in those States where it is required 
pursuant to section 31(g), and to discharge other Federal 
duties and powers relating to the national sales tax (in-
cluding those required by sections 32, 33, and 53(b)). The 
Office of Revenue Allocation shall be within the Sales Tax 
Bureau.’’.
(c) 
ASSISTANT
GENERAL
COUNSELS.—Section 
7801(b)(2) is amended to read as follows: 
‘‘(2) ASSISTANT
GENERAL
COUNSELS.—The 
Secretary of the Treasury may appoint, without re-
gard to the provisions of the civil service laws, and 
fix the duties of not more than 5 Assistant General 
Counsels.’’. 
(d) SHORT YEAR.— 
(1) For purposes of the Federal income tax, the 
tax imposed by section 1 and section 11 for taxable 
years ending June 30, 2006, shall be modified as set 
forth in this subsection. 
(2) For calendar year taxpayers, the dollar fig-
ures in section 1 and section 11 shall be reduced by 
dividing by 2 all dollar figures that would be applica-
ble but for this subsection. 
(3) For fiscal year taxpayers, the dollar figures 
in section 1 and section 11 shall be equal to the 
product of— 
(A) the dollar amount that would be appli-
cable but for this subsection, and 
(B) the ratio that has as its numerator the 
number of months in the taxpayer’s taxable 
year ending June 30, 2006, and as its denomi-
nator 12.
(4) The Secretary shall publish tax rate sched-
ules in accordance with this subsection. 
SEC. 6. SOCIAL SECURITY ADMINISTRATION TO COLLECT 
PAYROLL TAXES. 
(a) IN GENERAL.—Commencing January 1, 2006, 
the Social Security Administration shall collect and ad-
minister the taxes imposed pursuant to chapter 2 of sub-
title A (relating to self employment income taxes) and sub-
title C (relating to employment taxes) of the Internal Rev-
enue Code of 1986. 
(b) CROSS REFERENCES.— 
For revised rules relating to the self-employment 
tax, see section 7 of this Act. 
For rules relating to revised withholding tax 
schedules and family consumption refund, see sec-
tion 13. 
SEC. 7. SELF-EMPLOYMENT TAX. 
(a) IN GENERAL.—Subsection 1402(a) of the Inter-
nal Revenue Code of 1986 is amended to read as follows: 
‘‘(a) IN GENERAL.—‘Self employment income’ shall 
mean gross payments received in a calendar year from the 
sale of taxable property or services (without regard to ex-
emption) less the sum in a calendar year of— 
‘‘(1) purchases of taxable property or services 
(without regard to exemption) in furtherance of a 
business purpose,
‘‘(2) any wages paid (whether to the self-em-
ployed person or others) in furtherance of a business 
purpose, 
‘‘(3) unused transition amounts, and 
‘‘(4) undeducted negative self employment in-
come amounts from prior periods. 
‘‘(b) TRANSITION AMOUNTS.— 
‘‘(1) GENERAL RULE.—The transition amount 
for the ten calendar years commencing in 2006 shall 
be the unrecovered basis amount as of the end of 
December 31, 2005, divided by ten. 
‘‘(2) UNRECOVERED BASIS AMOUNT.—The un-
recovered basis amount shall be remaining income 
tax basis relating to— 
‘‘(A) prior law section 167 property placed 
in service prior to January 1, 2006, and 
‘‘(B) inventory held as of the end of 2005 
(including any amounts capitalized in accord-
ance with prior law section 263A).’’. 
(b) 
CONFORMING
AMENDMENTS.—Subsections 
1402(b) and 1402(c) are hereby repealed. Subsections 
1402(d) et seq. are hereby renumbered as subsections 
1402(b) et seq.
SEC. 8. SOCIAL SECURITY BENEFITS INDEXED ON SALES 
TAX INCLUSIVE BASIS. 
Subparagraph (D) of paragraph (1) of subsection (i) 
of section 215 of the Social Security Act (42 U.S.C. 415) 
(relating to cost-of-living increases in Social Security bene-
fits) is amended to read as follows: 
‘‘(D)(i) the term ‘CPI increase percentage’, 
with respect to a base quarter or cost-of-living quar-
ter in any calendar year, means the percentage 
(rounded to the nearest one-tenth of 1 percent) by 
which the Consumer Price Index for that quarter (as 
prepared by the Department of Labor) exceeds such 
index for the most recent prior calendar quarter 
which was a base quarter under subparagraph 
(A)(ii) or, if later, the most recent cost-of-living 
computation quarter under subparagraph (B); 
‘‘(ii) if the Consumer Price Index (as prepared 
by the Department of Labor) does not include the 
national sales tax paid, then the term ‘CPI increase 
percentage’ with respect to a base quarter or cost- 
of-living quarter in any calendar year, means the 
percentage (rounded to the nearest one-tenth of 1 
percent) by which the product of— 
‘‘(I) the Consumer Price Index for that 
quarter (as prepared by the Department of 
Labor); and
‘‘(II) the national sales tax factor, 
exceeds such index for the most recent prior cal-
endar quarter which was a base quarter under sub-
paragraph (A)(ii) or, if later, the most recent cost- 
of-living computation quarter under subparagraph 
(B); and 
‘‘(iii) for purposes of clause (ii), the ‘national 
sales tax factor’ is equal to one plus the quotient 
that is— 
‘‘(I) the sales tax rate (as defined in sec-
tion 1 of title 26), divided by 
‘‘(II) the quantity that is one minus the 
sales tax rate.’’. 
SEC. 9. COMPENSATING PAYMENTS TO CERTAIN PERSONS 
ON FIXED INCOME. 
(a) COMPENSATING PAYMENT.—Eligible persons (as 
defined in subsection (c)) shall receive a compensating 
payment (as defined in subsection (b)) provided that they 
comply with subsection (g) (relating to applications). 
(b) COMPENSATING PAYMENT DEFINED.—The term 
‘‘compensating payment’’ means the product of the quali-
fied fixed income payment amount (as defined in sub-
section (e)) and the excess inflation rate (as defined in 
subsection (f)).
(c) ELIGIBLE PERSON DEFINED.—An eligible person 
is any person with respect to any calendar year who is 
entitled to— 
(1) Social Security benefits; and 
(2) qualified fixed income payments (as defined 
in subsection (d)). 
(d) QUALIFIED
FIXED
INCOME
PAYMENT
DE-
FINED.—A qualified fixed income payment is a payment 
received by— 
(1) a beneficiary under a defined benefit plan 
(within the meaning of section 414(j) of the Internal 
Revenue Code as in effect prior to the enactment of 
this Act) whether sponsored by a private or Govern-
ment employer; or 
(2) by an annuitant pursuant to an annuity 
contract between the annuitant and a bona fide in-
surance company. 
A payment pursuant to a plan or annuity contract is not 
a qualified fixed income payment if the payment varies 
with investment performance, interest rates, or inflation. 
Payments pursuant to an annuity contract entered into 
after June 30, 2006, shall not be qualified fixed income 
payments. Payments pursuant to a defined benefit plan 
to a beneficiary that had been a participant in said defined 
benefit plan (within the meaning of section 410 of the In-
ternal Revenue Code as in effect prior to the enactment 
of this Act) for less than 5 years shall not be qualified 
fixed income payments. 
(e) 
QUALIFIED
FIXED
INCOME
PAYMENT 
AMOUNT.—The qualified fixed income payment amount is 
1⁄12 of qualified fixed income payments that an eligible 
person is entitled to receive during the calendar year sub-
sequent to the year for which the compensating payment 
is calculated, provided, however, that the qualified fixed 
income payment amount shall not exceed $5,000. 
(f) EXCESS INFLATION RATE DEFINED.—The term 
‘‘excess inflation rate’’ shall mean the excess, if any, of 
the consumer price index (all urban) during the 18-month 
period ending December 31, 2006, over the increase pro-
jected for the consumer price index (all urban) in the Of-
fice of Management and Budget baseline reported in the 
Budget of the United States for Fiscal Year 2006 for said 
18-month period. The baseline assumption for the 6 
months in 2006 shall be 1⁄2 of the assumed increase for 
the entire calendar year 2006. 
(g) APPLICATION REQUIRED.—In order to receive 
compensating payments, each eligible person must apply 
in a form prescribed by the Secretary of Health and 
Human Services and provide such documentation as the 
Secretary may reasonably require.
(h) MEANS OF PAYMENT.—Each person entitled to 
a compensating payment shall receive the compensating 
payment with their Social Security benefit payment. The 
compensating payment shall be separately indicated but 
may be included in one check. The funds to make compen-
sating payments shall come from the general fund. 
(i) The Secretary of Health and Human Services may 
require insurers that are parties to annuity contracts and 
defined benefit plan sponsors to issue a statement to an-
nuitants or plan participants including such information 
as the Secretary may require to determine the qualified 
fixed income payment amount. 
SEC. 10. INTEREST. 
Section 6621 of the Internal Revenue Code of 1986 
is amended by striking the last sentence in section 
6621(a)(1) and by striking ‘‘3’’ in section 6621(a)(2)(B) 
and substituting in its stead ‘‘2’’. 
SEC. 11. SUPERMAJORITY REQUIRED TO RAISE RATE. 
(a) IN GENERAL.—It shall not be in order in the 
House of Representatives or the Senate to consider any 
bill, joint resolution, amendment thereto, or conference re-
port thereon that includes any provision that— 
(1) increases any federal sales tax rate, and
(2) provides any exemption, deduction, credit or 
other benefit which results in a reduction in federal 
revenues. 
(b) WAIVER OR SUSPENSION.—This section may be 
waived or suspended in the House of Representatives or 
the Senate only by the affirmative vote of two-thirds of 
the Members, duly chosen and sworn. 
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