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 retro-
active 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 2001 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 2005 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
Counsel.’’.
(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, 2003, 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, 2003, 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, 2003,
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 2003 shall
be the unrecovered basis amount as of the end of
December 31, 2002, 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, 2003, and
‘‘(B) inventory held as of the end of 2002
(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, 2003, 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, 2004, 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 2003 for said
18-month period. The baseline assumption for the 6
months in 2003 shall be 1⁄2 of the assumed increase for
the entire calendar year 2003.
(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.
Æ