I
107TH CONGRESS
1ST SESSION
H. R. 2525
To promote freedom, fairness, and economic opportunity by repealing the
income tax and other taxes, abolishing the Internal Revenue Service,
and enacting a national sales tax to be administered primarily by the
States.
IN THE HOUSE OF REPRESENTATIVES
JULY 17, 2001
Mr. LINDER (for himself, Mr. PETERSON of Minnesota, Mr. YOUNG of Alaska,
Mr. HALL of Texas, Mr. LEWIS of California, Mr. BARCIA, Mr. BONILLA,
and Mr. CONDIT) introduced the following bill; which was referred to the
Committee on Ways and Means
A BILL
To promote freedom, fairness, and economic opportunity by
repealing the income tax and other taxes, abolishing the
Internal Revenue Service, and enacting a national sales
tax to be administered primarily by the States.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Fair Tax Act of 2001’’.
(b) TABLE OF CONTENTS.—The table of contents for
this Act is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. Congressional findings.
TITLE I—REPEAL OF THE INCOME TAX, PAYROLL TAXES, AND
ESTATE AND GIFT TAXES
Sec. 101. Income taxes repealed.
Sec. 102. Payroll taxes repealed.
Sec. 103. Estate and gift taxes repealed.
Sec. 104. Conforming amendments; effective date.
TITLE II—SALES TAX ENACTED
Sec. 201. Sales tax.
Sec. 202. Conforming and technical amendments.
TITLE III—OTHER MATTERS
Sec. 301. Phase-out of administration of repealed Federal taxes.
Sec. 302. Administration of other Federal taxes.
Sec. 303. Sales tax inclusive social security benefits indexation.
SEC. 2. CONGRESSIONAL FINDINGS.
(a) FINDINGS
RELATING
TO
FEDERAL
INCOME
TAX.—Congress finds that the Federal income tax—
(1) retards economic growth and has reduced
the standard of living of the American public;
(2) impedes the international competitiveness of
United States industry;
(3) reduces savings and investment in the
United States by taxing income multiple times;
(4) slows the capital formation necessary for
real wages to steadily increase;
(5) lowers productivity;
(6) imposes unacceptable and unnecessary ad-
ministrative and compliance costs on individual and
business taxpayers;
(7) is unfair and inequitable;
(8) unnecessarily intrudes upon the privacy and
civil rights of United States citizens;
(9) hides the true cost of government by embed-
ding taxes in the costs of everything Americans buy;
(10) is not being complied with at satisfactory
levels and therefore raises the tax burden on law
abiding citizens; and
(11) impedes upward social mobility.
(b) FINDINGS RELATING
TO FEDERAL PAYROLL
TAXES.—Congress finds further that the social security
and medicare payroll taxes and self-employment taxes—
(1) raise the cost of employment;
(2) destroy jobs and cause unemployment; and
(3) have a disproportionately adverse impact on
lower income Americans.
(c) FINDINGS RELATING TO FEDERAL ESTATE AND
GIFT TAXES.—Congress finds further that the Federal es-
tate and gift taxes—
(1) force family businesses and farms to be sold
by the family to pay such taxes;
(2) discourages capital formation and entrepre-
neurship;
(3) fosters the continued dominance of large en-
terprises over small family-owned companies and
farms; and
(4) imposes unacceptably high tax planning
costs on small businesses and farms.
(d) FINDINGS
RELATING
TO
NATIONAL
SALES
TAX.—Congress finds further that a broad-based national
sales tax on goods and services purchased for final
consumption—
(1) is similar in many respects to the sales and
use taxes in place in 45 of the 50 States;
(2) will promote savings and investment;
(3) will promote fairness;
(4) will promote economic growth;
(5) will raise the standard of living;
(6) will increase investment;
(7) will enhance productivity and international
competitiveness;
(8) will reduce administrative burdens on the
American taxpayer;
(9) will improve upward social mobility; and
(10) will respect the privacy interests and civil
rights of taxpayers.
(e) FINDINGS RELATING TO ADMINISTRATION OF
NATIONAL SALES TAX.—Congress further finds that—
(1) most of the practical experience admin-
istering sales taxes is found at the State govern-
mental level;
(2) it is desirable to harmonize Federal and
State collection and enforcement efforts to the max-
imum extent possible;
(3) it is sound tax administration policy to fos-
ter administration and collection of the Federal sales
tax at the State level in return for a reasonable ad-
ministration fee to the States; and
(4) businesses that must collect and remit taxes
should receive reasonable compensation for the cost
of doing so.
(f) FINDINGS RELATING TO REPEAL OF PRESENT
FEDERAL TAX SYSTEM.—Congress further finds that the
16th amendment to the United States Constitution should
be repealed and that the repealing amendment should pro-
hibit Federal taxation of incomes, wages, estates, and
gifts.
TITLE I—REPEAL OF THE IN-
COME TAX, PAYROLL TAXES,
AND ESTATE AND GIFT TAXES
SEC. 101. INCOME TAXES REPEALED.
Subtitle A of title 26 of the Internal Revenue Code
of 1986 (relating to income taxes and self-employment
taxes) is repealed.
SEC. 102. PAYROLL TAXES REPEALED.
(a) IN GENERAL.—Subtitle C of title 26 of the Inter-
nal Revenue Code of 1986 (relating to payroll taxes and
withholding of income taxes) is repealed.
(b) FUNDING OF SOCIAL SECURITY.—For funding of
the Social Security Trust Funds from general revenue, see
section 201 of the Social Security Act (42 U.S.C. 401).
SEC. 103. ESTATE AND GIFT TAXES REPEALED.
Subtitle B of title 26 of the Internal Revenue Code
of 1986 (relating to estate and gift taxes) is repealed.
SEC. 104. CONFORMING AMENDMENTS; EFFECTIVE DATE.
(a) CONFORMING AMENDMENTS.—The Internal Rev-
enue Code of 1986 is amended—
(1) by striking subtitle H (relating to financing
of Presidential election campaigns), and
(2) by redesignating—
(A) subtitle D (relating to miscellaneous
excise taxes) as subtitle B,
(B) subtitle E (relating to alcohol, tobacco,
and certain other excise taxes) as subtitle C,
(C) subtitle F (relating to procedure and
administration) as subtitle D,
(D) subtitle G (relating to the Joint Com-
mittee on Taxation) as subtitle E,
(E) subtitle I (relating to the Trust Fund
Code) as subtitle F,
(F) subtitle J (relating to coal industry
health benefits) as subtitle G, and
(G) subtitle K (relating to group health
plan portability, access, and renewability re-
quirements) as subtitle H.
(b) REDESIGNATION OF 1986 CODE.—
(1) IN GENERAL.—The Internal Revenue Code
of 1986 enacted on October 22, 1986, as heretofore,
hereby, or hereafter amended, may be cited as the
‘‘Internal Revenue Code of 2001’’.
(2) REFERENCES IN LAWS, ETC.—Except when
inappropriate, any reference in any law, Executive
order, or other document—
(A) to the Internal Revenue Code of 1986
shall include a reference to the Internal Rev-
enue Code of 2001, and
(B) to the Internal Revenue Code of 2001
shall include a reference to the provisions of law
formerly known as the Internal Revenue Code
of 1986.
(c) ADDITIONAL AMENDMENTS.—For additional con-
forming amendments, see section 202 of this Act.
(d) EFFECTIVE DATE.—Except as otherwise pro-
vided in this Act, the amendments made by this Act shall
take effect on January 1, 2003.
TITLE II—SALES TAX ENACTED
SEC. 201. SALES TAX.
(a) IN GENERAL.—The Internal Revenue Code of
2001 is amended by inserting before subtitle B (as redes-
ignated by section 104(a)(2)(A)) the following new sub-
title:
‘‘Subtitle A—Sales Tax
‘‘Sec. 1. Principles of interpretation.
‘‘Sec. 2. Definitions.
‘‘CHAPTER 1. Interpretation; definitions; imposition of tax; etc.
‘‘CHAPTER 2. Credits; refunds.
‘‘CHAPTER 3. Family consumption allowance.
‘‘CHAPTER 4. State and Federal cooperative tax administration.
‘‘CHAPTER 5. Other administrative provisions.
‘‘CHAPTER 6. Collection; appeals; taxpayer rights.
‘‘CHAPTER 7. Special rules.
‘‘CHAPTER 8. Financial intermediation services.
‘‘CHAPTER 9. Additional matters.
‘‘SECTION 1. PRINCIPLES OF INTERPRETATION.
‘‘(a) IN GENERAL.—Any court, the Secretary, and
any sales tax administering authority shall consider the
purposes of this subtitle (as set forth in subsection (b))
as the primary aid in statutory construction.
‘‘(b) PURPOSES.—The purposes of this subtitle are
as follows:
‘‘(1) To raise revenue needed by the Federal
Government in a manner consistent with the other
purposes of this subtitle.
‘‘(2) To tax all consumption of goods and serv-
ices in the United States once, without exception,
but only once.
‘‘(3) To prevent double, multiple, or cascading
taxation.
‘‘(4) To simplify the tax law and reduce the ad-
ministration costs of, and the costs of compliance
with, the tax law.
‘‘(5) To provide for the administration of the
tax law in a manner that respects privacy, due proc-
ess, individual rights when interacting with the gov-
ernment, the presumption of innocence in criminal
proceedings, and the presumption of lawful behavior
in civil proceedings.
‘‘(6) To increase the role of State governments
in Federal tax administration because of State gov-
ernment expertise in sales tax administration.
‘‘(7) To enhance generally cooperation and co-
ordination among State tax administrators; and to
enhance cooperation and coordination among Fed-
eral and State tax administrators, consistent with
the principle of intergovernmental tax immunity.
‘‘(c) SECONDARY AIDS TO STATUTORY CONSTRUC-
TION.—As a secondary aid in statutory construction, any
court, the Secretary, and any sales tax administering au-
thority shall consider—
‘‘(1) the common law canons of statutory con-
struction;
‘‘(2) the meaning and construction of concepts
and terms used in the Internal Revenue Code of
1986 as in effect before the effective date of this
subtitle; and
‘‘(3) construe any ambiguities in this Act in
favor of reserving powers to the States respectively,
or to the people.
‘‘SEC. 2. DEFINITIONS AND SPECIAL RULES.
‘‘(a) IN GENERAL.—For purposes of this subtitle—
‘‘(1) AFFILIATED FIRMS.—A firm is affiliated
with another if 1 firm owns 50 percent or more of—
‘‘(A) the voting shares in a corporation, or
‘‘(B) the capital interests of a business
firm that is not a corporation.
‘‘(2) CONFORMING
STATE
SALES
TAX.—The
term ‘conforming State sales tax’ means a sales tax
imposed by a State that adopts the same definition
of taxable property and services as adopted by this
subtitle.
‘‘(3) DESIGNATED COMMERCIAL PRIVATE COU-
RIER
SERVICE.—The term ‘designated commercial
private courier service’ means a firm designated as
such by the Secretary or any sales tax administering
authority, upon application of the firm, if the firm—
‘‘(A) provides its services to the general
public,
‘‘(B) records electronically to its data base
kept in the regular course of its business the
date on which an item was given to such firm
for delivery, and
‘‘(C) has been operating for at least 1
year.
‘‘(4) EDUCATION
AND
TRAINING.—The term
‘education and training’ means tuition for primary,
secondary, or postsecondary level education, and job-
related training courses. Such term does not include
room, board, sports activities, recreational activities,
hobbies, games, arts or crafts or cultural activities.
‘‘(5) GROSS PAYMENTS.—The term ‘gross pay-
ments’ means payments for taxable property or serv-
ices, including Federal taxes imposed by this title.
‘‘(6) INTANGIBLE PROPERTY.—
‘‘(A) IN GENERAL.—The term ‘intangible
property’ includes copyrights, trademarks, pat-
ents, goodwill, financial instruments, securities,
commercial paper, debts, notes and bonds, and
other property deemed intangible at common
law. The Secretary shall, by regulation resolve
differences among the provisions of common
law of the several States.
‘‘(B) CERTAIN
TYPES
OF
PROPERTY.—
Such term does not include tangible personal
property (or rents or leaseholds of any term
thereon), real property (or rents or leaseholds
of any term thereon) and computer software.
‘‘(7) PERSON.—The term ‘person’ means any
natural person, and unless the context clearly does
not allow it, any corporation, partnership, limited li-
ability company, trust, estate, government, agency,
administration, organization, association, or other
legal entity (foreign or domestic).
‘‘(8) PRODUCE, PROVIDE, RENDER, OR
SELL
TAXABLE PROPERTY OR SERVICES.—
‘‘(A) IN GENERAL.—A taxable property or
service is used to produce, provide, render, or
sell a taxable property or service if such prop-
erty or service is purchased by a person en-
gaged in a trade or business for the purpose of
employing or using such taxable property or
service in the production, provision, rendering,
or sale of other taxable property or services in
the ordinary course of that trade or business.
‘‘(B) 
RESEARCH, 
EXPERIMENTATION,
TESTING, AND DEVELOPMENT.—Taxable prop-
erty or services used in a trade or business for
the purpose of research, experimentation, test-
ing, and development shall be treated as used to
produce, provide, render, or sell taxable prop-
erty or services.
‘‘(C) 
INSURANCE
PAYMENTS.—Taxable
property or services purchased by an insurer on
behalf of an insured shall be treated as used to
produce, provide, render, or sell taxable prop-
erty or services if the premium for the insur-
ance contract giving rise to the insurer’s obliga-
tion was subject to tax pursuant to section 801
(relating to financial intermediation services).
‘‘(D) EDUCATION
AND
TRAINING.—Edu-
cation and training shall be treated as services
used to produce, provide, render, or sell taxable
property or services.
‘‘(9) REGISTERED
SELLER.—The term ‘reg-
istered seller’ means a person registered pursuant to
section 502.
‘‘(10) SALES
TAX
ADMINISTERING
AUTHOR-
ITY.—The term ‘sales tax administering authority’
means—
‘‘(A) the State agency designated to collect
and administer the sales tax imposed by this
subtitle, in an administering State, or
‘‘(B) the Secretary, in a State that is
neither—
‘‘(i) an administering State, nor
‘‘(ii) a State that has elected to have
its sales tax administered by an admin-
istering State.
‘‘(11) 
SECRETARY.—The 
term 
‘Secretary’
means the Secretary of the Treasury.
‘‘(12) TAXABLE EMPLOYER.—
‘‘(A) IN GENERAL.—The term ‘taxable em-
ployer’ includes—
‘‘(i) any household employing domes-
tic servants, and
‘‘(ii) any government except for gov-
ernment enterprises (as defined in section
704).
‘‘(B) EXCEPTIONS.—The term ‘taxable
employer’ does not include any employer which
is—
‘‘(i) engaged in a trade or business,
‘‘(ii) a not-for-profit organization (as
defined in section 706), or
‘‘(iii) a government enterprise (as de-
fined in section 704).
‘‘(C) CROSS REFERENCE.—
‘‘For rules relating to collection and remittance of
tax on wages by taxable employers, see section
103(b)(2).
‘‘(13) TAX INCLUSIVE FAIR MARKET VALUE.—
The term ‘tax inclusive fair market value’ means the
fair market value of taxable property or services plus
the tax imposed by this subtitle.
‘‘(14) TAXABLE PROPERTY OR SERVICE.—
‘‘(A) GENERAL RULE.—The term ‘taxable
property or service’ means—
‘‘(i) any property (including leaseholds
of any term or rents with respect to such
property) but excluding—
‘‘(I) intangible property, and
‘‘(II) used property, and
‘‘(ii) any service (including any finan-
cial intermediation services as determined
by section 801).
‘‘(B) SERVICE.—For purposes of subpara-
graph (A), the term ‘service’—
‘‘(i) shall include any service per-
formed by an employee for which the em-
ployee is paid wages or a salary by a tax-
able employer, and
‘‘(ii) shall not include any service per-
formed by an employee for which the em-
ployee is paid wages or a salary—
‘‘(I) by an employer in the reg-
ular course of the employer’s trade or
business,
‘‘(II) by an employer that is a
not-for-profit organization (as defined
in section 706),
‘‘(III) by an employer that is a
government enterprise (as defined in
section 704), and
‘‘(IV) by taxable employers to
employees directly providing education
and training.
‘‘(15) UNITED
STATES.—The term ‘United
States’, when used in the geographical sense, means
each of the 50 States, the District of Columbia, and
any commonwealth, territory, or possession of the
United States.
‘‘(16) USED PROPERTY.—The term ‘used prop-
erty’ means—
‘‘(A) property on which the tax imposed by
section 101 has been collected and for which no
credit has been allowed under section 203, and
‘‘CHAPTER 1—INTERPRETATION;
DEFINITIONS; IMPOSITION OF TAX; ETC.
‘‘Sec. 101. Imposition of sales tax.
‘‘Sec. 102. Intermediate and export sales.
‘‘Sec. 103. Rules relating to collection and remittance of tax.
‘‘SEC. 101. IMPOSITION OF SALES TAX.
‘‘(a) IN GENERAL.—There is hereby imposed a tax
on the use or consumption in the United States of taxable
property or services.
‘‘(b) RATE.—
‘‘(1) FOR 2003.—In the calendar year 2003, the
rate of tax is 23 percent of the gross payments for
the taxable property or service.
‘‘(2) FOR YEARS AFTER 2003.—For years after
the calendar year 2003, the rate of tax is the com-
bined Federal tax rate percentage (as defined in
paragraph (3) of the gross payments for the taxable
property or service.
‘‘(3) COMBINED FEDERAL TAX RATE PERCENT-
AGE.—The combined Federal tax rate percentage is
the sum of—
‘‘(A) the general revenue rate (as defined
in paragraph (4), and
‘‘(B) the old-age, survivors and disability
insurance rate, and
‘‘(C) the hospital insurance rate.
‘‘(4) GENERAL REVENUE RATE.—The general
revenue rate shall be 14.91 percent.
‘‘(c) COORDINATION WITH IMPORT DUTIES.—The
tax imposed by this section is in addition to any import
duties imposed by chapter 4 of title 19. The Secretary
shall provide by regulation that, to the maximum extent
practicable, the tax imposed by this section on imported
taxable property and services is collected and administered
in conjunction with any applicable import duties imposed
by the United States.
‘‘(d) LIABILITY FOR TAX.—
‘‘(1) IN GENERAL.—The person using or con-
suming taxable property or services in the United
States is liable for the tax imposed by this section,
except as provided in paragraph (2) of this sub-
section.
‘‘(2) EXCEPTION WHERE TAX PAID TO SELL-
ER.—A person using or consuming a taxable prop-
erty or service in the United States is not liable for
the tax imposed by this section if the person pays
the tax to a person selling the taxable property or
service and receives from such person a purchaser’s
receipt within the meaning of section 510.
‘‘SEC. 102. INTERMEDIATE AND EXPORT SALES.
‘‘(a) IN GENERAL.—For purposes of this subtitle—
‘‘(1) BUSINESS AND EXPORT PURPOSES.—No
tax shall be imposed under section 101 on any tax-
able property or service purchased for—
‘‘(A) a business purpose in a trade or busi-
ness, or
‘‘(B) export from the United States for use
or consumption outside the United States, if,
the purchaser provided the seller with a reg-
istration certificate, and the seller was a whole-
sale seller.
‘‘(2) INVESTMENT PURPOSE.—No tax shall be
imposed under section 101 on any taxable property
or service purchased for an investment purpose and
held exclusively for an investment purpose.
‘‘(3) STATE GOVERNMENT FUNCTIONS.—No tax
shall be imposed under section 101 on State govern-
ment functions that do not constitute the final con-
sumption of property or services.
‘‘(b) BUSINESS PURPOSES.—For purposes of this
section, the term ‘purchased for a business purpose in a
trade or business’ means purchased by a person engaged
in a trade or business and used in that trade or business—
‘‘(1) for resale,
‘‘(2) to produce, provide, render, or sell taxable
property or services, or
‘‘(3) in furtherance of other bona fide business
purposes.
‘‘(c) INVESTMENT PURPOSES.—For purposes of this
section, the term ‘purchased for an investment purpose’
means property purchased exclusively for purposes of ap-
preciation or the production of income but not entailing
more than minor personal efforts.
‘‘SEC. 103. RULES RELATING TO COLLECTION AND REMIT-
TANCE OF TAX.
‘‘(a) LIABILITY FOR COLLECTION AND REMITTANCE
OF THE TAX.—Except as provided otherwise by this sec-
tion, any tax imposed by this subtitle shall be collected
and remitted by the seller of taxable property or services
(including financial intermediation services).
‘‘(b) TAX TO BE REMITTED BY PURCHASER IN CER-
TAIN CIRCUMSTANCES.—
‘‘(1) IN GENERAL.—In the case of taxable prop-
erty or services purchased outside of the United
States and imported into the United States for use
or consumption in the United States, the purchaser
shall remit the tax imposed by section 101.
‘‘(2) CERTAIN WAGES OR SALARY.—In the case
of wages or salary paid by a taxable employer which
are taxable services, the employer shall remit the tax
imposed by section 101.
‘‘(c) CONVERSION OF BUSINESS OR EXPORT PROP-
ERTY OR SERVICES.—Property or services purchased for
a business purpose in a trade or business or for export
(sold untaxed pursuant to section 102(a)) that is subse-
quently converted to personal use shall be deemed pur-
chased at the time of conversion and shall be subject to
the tax imposed by section 101 at the fair market value
of the converted property as of the date of conversion. The
tax shall be due as if the property had been sold at the
fair market value during the month of conversion. The
person using or consuming the converted property is liable
for and shall remit the tax.
‘‘(d) SELLER RELIEVED OF LIABILITY IN CERTAIN
CASES.—In the case of any taxable property or service
which is sold untaxed pursuant to section 102(a), the sell-
er shall be relieved of the duty to collect and remit the
tax imposed under section 101 on such purchase if the
seller—
‘‘(1) received in good faith, and retains on file
for the period set forth in section 509, a copy of a
registration certificate from the purchaser, and
‘‘(2) did not, at the time of sale, have reason-
able cause to believe that the buyer was not reg-
istered pursuant to section 502.
‘‘(e) PURCHASER LIABLE TO COLLECT AND REMIT
IN CERTAIN CASES.—In the case of any taxable property
or service which is sold untaxed pursuant to section 102,
if the seller is relieved by reason of subsection (d) of the
duty to collect and remit the tax imposed by section 101,
then the duty to pay any tax due shall rest with the pur-
chaser.
‘‘(f) BARTER TRANSACTIONS.—If gross payment for
taxable property or services is made in other than money,
then the person responsible for collecting and remitting
the tax shall remit the tax to the sales tax administering
authority in money as if gross payment had been made
in money at the tax inclusive fair market value of the tax-
able property or services purchased.
‘‘(g) INTERCOMPANY SALES.—Firms that make pur-
chases from affiliated firms that are untaxed pursuant to
section 102, or make sales to affiliated firms that are
untaxed pursuant to section 102, shall not need to comply
with the requirements of subsection (d) (relating to certifi-
cates) for said purchases or sales to remain untaxed.
‘‘CHAPTER 2—CREDITS; REFUNDS
‘‘Sec. 201. Credits and refunds.
‘‘Sec. 202. Business use conversion credit.
‘‘Sec. 203. Intermediate and export sales credit.
‘‘Sec. 204. Administration credit.
‘‘Sec. 205. Bad debt credit.
‘‘Sec. 206. Insurance proceeds credit.
‘‘Sec. 207. Refunds.
‘‘SEC. 201. CREDITS AND REFUNDS.
‘‘(a) IN GENERAL.—Each person shall be allowed a
credit with respect to the taxes imposed by section 101
for each month in an amount equal to the sum of—
‘‘(1) such person’s business use conversion
credit pursuant to section 202 for such month,
‘‘(2) such person’s intermediate and export
sales credit pursuant to section 203 for such month,
‘‘(3) the administration credit pursuant to sec-
tion 204 for such month,
‘‘(4) the bad debt credit pursuant to section
205 for such month,
‘‘(5) the insurance proceeds credit pursuant to
section 206 for such month,
‘‘(6) the transitional inventory credit pursuant
to section 902, and
‘‘(7) any amount paid in excess of the amount
due.
‘‘(b) CREDITS NOT ADDITIVE.—Only one credit al-
lowed by chapter 2 may be taken with respect to any par-
ticular gross payment.
‘‘SEC. 202. BUSINESS USE CONVERSION CREDIT.
‘‘(a) IN GENERAL.—For purposes of section 201, a
person’s business use conversion credit for any month is
the aggregate of the amounts determined under subsection
(b) with respect to taxable property and services—
‘‘(1) on which tax was imposed by section 101
(and actually paid), and
‘‘(2) which commenced to be 95 percent or
more used during such month for business purposes
(within the meaning of section 102(b)).
‘‘(b) AMOUNT OF CREDIT.—The amount determined
under this paragraph with respect to any taxable property
or service is the lesser of—
‘‘(1) the product of—
‘‘(A) the rate imposed by section 101, and
‘‘(B) the quotient that is—
‘‘(i) the fair market value of the prop-
erty or service when its use is converted,
divided by
‘‘(ii) the quantity that is 1 minus the
tax rate imposed by section 101, or
‘‘(2) the amount of tax paid with respect to
such taxable property or service, including the
amount, if any, determined in accordance with sec-
tion 705 (relating to mixed use property).
‘‘SEC. 203. INTERMEDIATE AND EXPORT SALES CREDIT.
‘‘For purposes of section 201, a person’s intermediate
and export sales credit is the amount of sales tax paid
on the purchase of any taxable property or service pur-
chased for—
‘‘(1) a business purpose in a trade or business
(as defined in section 102(b)), or
‘‘(2) export from the United States for use or
consumption outside the United States.
‘‘SEC. 204. ADMINISTRATION CREDIT.
‘‘(a) IN GENERAL.—Every person filing a timely
monthly report (with regard to extensions) in compliance
with section 501 shall be entitled to a taxpayer adminis-
trative credit equal to the greater of—
‘‘(1) $200, or
‘‘(2) one-quarter of 1 percent of the tax remit-
ted.
‘‘(b) LIMITATION.—The credit allowed under this sec-
tion shall not exceed 20 percent of the tax due to be remit-
ted prior to the application of any credit or credits per-
mitted by section 201.
‘‘SEC. 205. BAD DEBT CREDIT.
‘‘(a) FINANCIAL INTERMEDIATION SERVICES.—Any
person who has experienced a bad debt (other than unpaid
invoices within the meaning of subsection (b)) shall be en-
titled to a credit equal to the product of—
‘‘(1) the rate imposed by section 101, and
‘‘(2) the quotient that is—
‘‘(A) the amount of the bad debt (as de-
fined in section 802), divided by
‘‘(B) the quantity that is 1 minus the rate
imposed by section 101.
‘‘(b) UNPAID INVOICES.—Any person electing the ac-
crual method pursuant to section 503 that has with re-
spect to a transaction—
‘‘(1) invoiced the tax imposed by section 101,
‘‘(2) remitted the invoiced tax,
‘‘(3) actually delivered the taxable property or
performed the taxable services invoiced, and
‘‘(4) not been paid 180 days after date the in-
voice was due to be paid,
shall be entitled to a credit equal to the amount of tax
remitted and unpaid by the purchaser.
‘‘(c) SUBSEQUENT PAYMENT.—Any payment made
with respect to a transaction subsequent to a section 205
credit being taken with respect to that transaction shall
be subject to tax in the month the payment was received
as if a tax inclusive sale of taxable property and services
in the amount of the payment had been made.
‘‘(d) PARTIAL PAYMENTS.—Partial payments shall
be treated as pro rata payments of the underlying obliga-
tion and shall be allocated proportionately—
‘‘(1) for fully taxable payments, between pay-
ment for the taxable property and service and tax,
and
‘‘(2) for partially taxable payments, among pay-
ment for the taxable property and service, tax and
other payment.
‘‘(e) RELATED PARTIES.—The credit provided by this
section shall not be available with respect to sales made
to related parties. For purposes of this section, related
party means affiliated firms and family members (as de-
fined in section 302(b)).
‘‘SEC. 206. INSURANCE PROCEEDS CREDIT.
‘‘(a) IN GENERAL.—A person receiving a payment
from an insurer by virtue of an insurance contract shall
be entitled to a credit in an amount determined by sub-
section (b), less any amount paid to the insured by the
insurer pursuant to subsection (c), if the entire premium
(except that portion allocable to the investment account
of the underlying policy) for the insurance contract giving
rise to the insurer’s obligation to make a payment to the
insured was subject to the tax imposed by section 101 and
said tax was paid.
‘‘(b) CREDIT AMOUNT.—The amount of the credit
shall be the product of—
‘‘(1) the rate imposed by section 101, and
‘‘(2) the quotient that is—
‘‘(A) the amount of the payment made by
the insurer to the insured, divided by
‘‘(B) the quantity that is 1 minus the rate
imposed by section 101.
‘‘(c) ADMINISTRATIVE OPTION.—The credit deter-
mined in accordance with subsection (b) shall be paid by
the insurer to the insured and the insurer shall be entitled
to the credit in lieu of the insured, except that the insurer
may elect, in a form prescribed by the Secretary, to not
pay the credit and require the insured to make application
for the credit. In the event of such election, the insurer
shall provide to the Secretary and the insured the name
and tax identification number of the insurer and of the
insured and indicate the proper amount of the credit.
‘‘(d) COORDINATION WITH RESPECT
TO EXEMP-
TION.—If taxable property or services purchased by an in-
surer on behalf of an insured are purchased free of tax
by virtue of section 2(a)(8)(C), then the credit provided
by this section shall not be available with respect to that
purchase.
‘‘(e) INSURANCE CONTRACT.—For purposes of sub-
section (a), the term ‘insurance contract’ shall include a
life insurance contract, a health insurance contract, a
property and casualty loss insurance contract, a general
liability insurance contract, a marine insurance contract,
a fire insurance contract, an accident insurance contract,
a disability insurance contract, a long-term care insurance
‘‘SEC. 405. INTERSTATE ALLOCATION AND DESTINATION
DETERMINATION.
‘‘(a) DESTINATION GENERALLY.—The tax imposed
by this subtitle is a destination principle tax. This section
shall govern for purposes of determining—
‘‘(1) whether the destination of taxable property
and services is within or without the United States,
and
‘‘(2) which State or territory within the United
States is the destination of taxable property and
services.
‘‘(b) TANGIBLE PERSONAL PROPERTY.—Except as
provided in subsection (f) (relating to certain leases), the
destination of tangible personal property shall be the State
or territory in which the property was first delivered to
the purchaser (including agents and authorized represent-
atives).
‘‘(c) REAL PROPERTY.—The destination of real prop-
erty, or rents or leaseholds on real property, shall be the
State or territory in which the real property is located.
‘‘(d) OTHER PROPERTY.—The destination of any
other taxable property shall be the residence of the pur-
chaser.
‘‘(e) SERVICES.—
‘‘(1) GENERAL RULE.—The destination of serv-
ices shall be the State or territory in which the use
or consumption of the services occurred. Allocation
of service invoices relating to more than 1 jurisdic-
tion shall be on the basis of time or another method
determined by regulation.
‘‘(2) TELECOMMUNICATIONS
SERVICES.—The
destination of telecommunications services shall be
the residence of the purchaser. Telecommunications
services include telephone, telegraph, beeper, radio,
cable television, 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 each final destination).
‘‘(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.