Individual Tax Freedom Act of 2004 - Amends the Internal Revenue Code to repeal the income tax, estate and gift taxes, certain excise taxes, and certain tax administration provisions of the Internal Revenue Code of 1986 (effective in 2006).
Imposes a national sales tax (effective in 2006) equal to 15 percent of the gross payments for the use, consumption or enjoyment in the United States of any taxable property or service, whether produced or rendered within or without the United States. Allows certain exemptions from such tax, including exemptions for property or services purchased for a business purpose in an active trade or business or for export for use or consumption outside the United States. Sets forth provisions for the administration and collection of the tax and for credits and refunds.
Allows for: (1) installment payments of tax resulting from the purchase of a principal residence; (2) a sales tax rebate for certain low-income families; and (3) compensating payments to certain persons on fixed incomes.
Grants States the authority to administer and collect the sales tax and to remit tax proceeds to the Treasury.
Prohibits the funding of the Internal Revenue Service after FY 2007. Establishes in the Department of Treasury: (1) an Excise Tax Bureau to administer any excise taxes not repealed by this Act; and (2) a Sales Tax Bureau to administer the national sales tax established by this Act.
Directs the Social Security Administration to collect and administer employment and self-employment payroll taxes.
Requires a two-thirds vote of the Members of the House of Representatives or the Senate to consider any legislation that raises any Federal sales tax rate or results in a reduction in Federal revenues.
[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4168 Introduced in House (IH)]
108th CONGRESS
2d Session
H. R. 4168
To promote freedom, fairness, and economic opportunity for families by
repealing the income tax, abolishing the Internal Revenue Service, and
enacting a national retail sales tax to be administered primarily by
the States.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
April 2, 2004
Mr. Tauzin (for himself, Mr. Burton of Indiana, Mr. DeMint, and Mr.
Norwood) introduced the following bill; which was referred to the
Committee on Ways and Means, and in addition to the Committee on Rules,
for a period to be subsequently determined by the Speaker, in each case
for consideration of such provisions as fall within the jurisdiction of
the committee concerned
_______________________________________________________________________
A BILL
To promote freedom, fairness, and economic opportunity for families by
repealing the income tax, abolishing the Internal Revenue Service, and
enacting a national retail sales tax to be administered primarily by
the States.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Individual Tax
Freedom Act of 2004''.
(b) Table of Contents.--The table of contents of this Act is as
follows:
Sec. 1. Short title; table of contents.
Sec. 2. Congressional findings.
Sec. 3. Repeal of the income tax, estate and gift taxes, and certain
excise taxes.
Sec. 4. Sales tax.
``subchapter a--imposition of tax
``Sec. 1. Imposition of tax.
``Sec. 2. Exemptions.
``subchapter b--credits; refunds; installment payments of tax on .
purchases of residences
``Sec. 11. Credits and refunds.
``Sec. 12. Installment payments of tax on purchase of principal
residences.
``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.
````subchapter d--authority for states to collect tax
``Sec. 31. Authority for States to collect tax.
``Sec. 32. Federal administrative support for States.
``Sec. 33. Federal administration option for multistate
vendors.
``Se``subchapter e--other administrative provisions
``Sec. 41. Monthly reports and payments.
``Sec. 42. Records.
``Sec. 43. Registration.
``Sec. 44. Certificate.
``Sec. 45. Penalties.
``Sec. 46. Burden of persuasion and burden of production.
``Sec. 47. Attorneys and accountancy fees.
``Sec. 48. Appeals.
``Sec. 49. Taxpayer subject to subpoena on production.
``Sec. 50. Tax Court jurisdiction.
``Sec. 51. Power to levy.
``Sec. 52. Problem resolution officers.
``Sec. 53. Jurisdiction and interstate allocation.
``Sec. 54. Tax to be stated and charged separately.
``Sec. 55. Installment agreements; compromises.
``Sec. 56. Accounting.
``Sec. 57. Hobby activities.
Sec. 5. Phase-out of the Internal Revenue Service.
Sec. 6. Social Security Administration to collect payroll taxes.
Sec. 7. Self-employment tax.
Sec. 8. Social Security benefits indexed on sales tax inclusive basis.
Sec. 9. Compensating payments to certain persons on fixed income.
Sec. 10. Interest.
Sec. 11. Supermajority required to raise rate.
SEC. 2. CONGRESSIONAL FINDINGS.
(a) The Congress finds that the income tax--
(1) retards economic growth and has reduced the standard of
living of the American public;
(2) impedes the international competitiveness of United
States industry;
(3) reduces savings and investment in the United States;
(4) lowers productivity;
(5) imposes unacceptable administrative costs on taxpayers,
individuals and businesses alike;
(6) is unfair and inequitable; and
(7) unnecessarily intrudes upon the privacy and civil
rights of United States citizens.
(b) The Congress finds further that national sales, services and
use tax on final consumption of goods and services--
(1) is similar in many respects to those in place in 45 of
the 50 States;
(2) will promote savings;
(3) will promote fairness;
(4) will promote economic growth;
(5) will raise the standard of living;
(6) will increase savings and investment;
(7) will enhance productivity and international
competitiveness;
(8) will reduce administrative burdens on the taxpayer; and
(9) will respect the privacy interests and civil rights of
taxpayers.
(c) The Congress further finds that--
(1) most of the practical experience administering sales
taxes is found at the State Governmental level;
(2) it is desirable to harmonize Federal and State
collection and enforcement efforts to the maximum extent
possible;
(3) it is sound tax administration policy to administer and
collect the Federal sales and service tax at the State level in
return for a reasonable administration fee to the States;
(4) businesses that must collect and remit taxes should
receive reasonable compensation for the cost of doing so; and
(5) the sixteenth amendment to the Constitution should be
repealed.
SEC. 3. REPEAL OF THE INCOME TAX, ESTATE AND GIFT TAXES, AND CERTAIN
EXCISE TAXES.
(a) In General.--The following provisions of the Internal Revenue
Code of 1986 are hereby repealed:
(1) Chapter 1 (relating to income tax).
(2) Chapter 5 (relating to tax on transfers to avoid income
tax).
(3) Chapter 6 (relating to consolidated returns).
(4) Chapter 24 (relating to collection of income tax at
source).
(5) Subtitle B (relating to estate and gift taxes).
(6) Chapter 31 (relating to retail excise taxes).
(7) Chapter 32 (relating to manufacturers excise taxes).
(8) Subtitle E (relating to alcohol, tobacco, and certain
other excise taxes).
(9) Subtitle F (relating to procedure and administration of
the income tax and certain other taxes) except for section 6103
(relating to confidentiality), chapter 66 (relating to
limitations), chapter 67 (relating to interest), section 6656
(relating to failure to make deposit of taxes), section 6657
(relating to bad checks), section 6658 (relating to
coordination with title 11), chapter 75 (relating to crimes),
chapter 76 (relating to Judicial Proceedings), section 7431
(relating to damages for unauthorized disclosure), section 7432
(relating to damages for failure to release lien), section 7433
(relating to damages for unauthorized collection data) and
chapter 77 (relating to miscellaneous provisions). References
to provisions repealed by the preceding sentence shall be
treated as references to such provisions as in effect on the
day before the date of the enactment of this Act.
(b) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by subsection (a) shall take effect on July 1,
2006.
(2) Income tax.--The amendment made by subsection (a)(1)
shall apply to taxable years beginning after June 30, 2006.
(3) Sales tax.--The amendment made by section 4 shall take
effect on July 1, 2006.
(4) Social security benefits.--The amendment made by
section 9 shall take effect on January 1, 2006.
(5) Supermajority required.--The amendment made by section
11 shall take effect on January 1, 2006.
SEC. 4. SALES TAX.
Subtitle A of the Internal Revenue Code of 1986 is amended by
inserting at the beginning the following new chapter:
``CHAPTER 1--SALES TAX
``Subchapter A. Imposition of tax.
``Subchapter B. Credits; refunds;
installment payments of tax on
purchases of residences.
``Subchapter C. Definitions and special
rules; financial intermediation
services.
``Subchapter D. Authority for States to
collect tax.
``Subchapter E. Other administrative
provisions.
``Subchapter A--Imposition of Tax
``Sec. 1. Imposition of tax.
``Sec. 2. Exemptions.
``Sec. 3. Special rules relating to
collection and remittance of
tax.
``SECTION 1. IMPOSITION OF TAX.
``(a) In General.--There is hereby imposed a tax of 15 percent on
the gross payments for the use, consumption or enjoyment in the United
States of any taxable property or service, whether produced or rendered
within or without the United States.
``(b) Coordination With Import Duties.--The taxes imposed by this
section are in addition to any import duties imposed by law. The
Secretary shall provide by regulation that, to the maximum extent
practicable, the taxes imposed by this section on imported property and
services are collected and administered in conjunction with any
applicable import duties.
``(c) Liability for Collection and Remittance of the Tax.--
``(1) General rule.--The tax imposed by subsection (a)
shall be collected and remitted by the seller, except as
provided in subsection (2).
``(2) Tax to be paid by purchaser in certain
circumstances.--
``(A) General rule.--In the case of taxable
property or services purchased outside of the United
States for use, consumption or enjoyment in the United
States, the purchaser shall remit the tax imposed by
subsection (a).
``(B) In the case of a purchaser electing to pay
tax in installments pursuant to section 12, the
purchaser shall remit the tax imposed by subsection
(a).
``(C) Employers that pay wages that are taxable
services within the meaning of section 21(n) shall be
responsible for paying and remitting the tax.
``(D) The Secretary may provide by regulation that
the tax imposed by subsection (a) is to be collected
and remitted by the purchaser rather than the seller.
``SEC. 2. EXEMPTIONS.
``(a) In General.--Except as provided in section 3(b)(2), no tax
shall be imposed under section 1 on any taxable property or service
purchased for--
``(1) a business purpose in an active trade or business, or
``(2) export from the United States for use or consumption
outside the United States, provided that the purchaser provided
the seller with--
``(A) an intermediate sales certificate, or
``(B) an export sales certificate.
``(b) Business Purposes.--For purposes of this section, the term
`purchased for a business purpose in an active trade or business' means
purchased by a person engaged in an active trade or business and used
in that active trade or business--
``(1) for resale,
``(2) to produce taxable property or services (as defined
in section 21(e)), or
``(3) in furtherance of other bona fide business purposes.
``(c) De Minimis Payments.--Up to $400 of gross payments per
calendar year--
``(1) made by a person not engaged in an active trade or
business at any time during such calendar year prior to making
such gross payments, and
``(2) made to purchase any taxable property or service
which is imported into the United States by such person for use
or consumption by such person in the United States,
shall be exempt from the tax imposed by section 1.
``(d) De Minimis Sales.--Up to $2,500 per calendar year of gross
payments received--
``(1) by a person not engaged in an active trade or
business during such calendar year prior to the receipt of such
gross payments, and
``(2) in connection with a casual or isolated sale,
shall be exempt from the tax imposed by section 1.
``(e) Affiliated Firms.--Firms that make purchases from or sell to
affiliated firms which are exempt pursuant to subsection (a) shall not
need to comply with the requirements of subsection (g) for such
purchases to remain exempt. For purposes of this section, a firm is
affiliated with another if 1 firm owns 50 percent of the voting shares
or interest in the other.
``(f) De Minimis Sale of Financial Intermediation Services.--The
first $10,000 per calendar year of gross payments received by a person
from the sale of financial intermediation services shall be exempt from
the tax imposed by section 1. The exemption provided by this subsection
is in addition to other exemptions afforded by this chapter.
``(g) Seller Relieved of Liability in Certain Cases.--In the case
of any property or service which is sold exempt from tax pursuant to
subsection (a), if the seller--
``(1) has on file a copy of an exemption certificate
(whether an intermediate sale or export sale certificate) from
the purchaser, and
``(2) did not have reasonable cause to believe that an
exemption from the tax imposed by section 1 was unavailable to
the purchaser with respect to such purchase, then the seller
shall be relieved of liability to collect and remit the tax
imposed by section 1 on such purchase.
``SEC. 3. RULES RELATING TO COLLECTION AND REMITTANCE OF TAX.
``(a) Obligation of Governmental Units and Not-for-Profit
Organizations To Collect, Remit and Pay Taxes.--
``(1) Governmental units.--Nothing in this subtitle shall
be construed to exempt any Federal, State, or local
governmental unit or political subdivision from paying any tax
imposed by this subtitle on any sale, purchase, use,
consumption or enjoyment by such a unit.
``(2) Not-for-profit organizations.--
``(A) In general.--Dues, contributions and payments
to qualified not-for-profit organizations shall not be
considered gross payments for taxable property or
services for purposes of this subtitle.
``(B) Exception.--Notwithstanding subparagraph
(2)(A), payments of any form to a qualified not-for-
profit organization shall be considered gross payments
for taxable property or services unless said
organization establishes that the property or service
provided in exchange is--
``(i) substantially related to the purposes
of the qualified not-for-profit organization,
or
``(ii) is not commercially available.
``(C) For purposes of this section, qualified not-
for-profit organization means a not-for-profit
organization organized and operated exclusively--
``(i) for religious, charitable,
scientific, testing for public safety, literary
or educational purposes;
``(ii) as civic leagues or social welfare
organizations;
``(iii) as labor, agricultural or
horticultural organizations;
``(iv) as chambers of commerce, business
leagues or trade associations; or
``(v) as fraternal beneficiary societies,
orders or associations;
no part of the net earnings of which inures to the
benefit of any private shareholder or individual.
``(D) Upon application in a form prescribed by the
State Administrator, the State Administrator shall
provide qualification certificates to qualified not-
for-profit organizations.
``(E) If a not-for-profit organization provides
taxable property or services in connection with
contributions or dues to the organizations, then it
shall be required to treat the provision of said
taxable property or services as a purchase taxable
pursuant to this subtitle at the fair market value of
said property or personal services.
``(F) Taxable property and services purchased by
not-for-profit organizations for resale or for use in
the production of taxable property or services shall be
eligible for the exemptions provided in section 2.
``(b) Tax Collected on Certain Exempt Purchases.--
``(1) In general.--In the case of a purchase which would
(but for this subsection (b)) be exempt from the tax imposed by
section 1 by reason of section 2(a), such subsection shall not
apply to such purchase if the seller--
``(A) elects the application of this subsection,
and
``(B) immediately provides the purchaser with a
receipt reflecting the information required by section
54. Seller may elect to exercise the application of
this section with respect to some or all purchases or
purchasers.
``(2) The Secretary may by regulation provide that certain
industries or specific products are such that the vendor must
collect the tax on otherwise exempt purchases if, in the
Secretary's judgment, said industry or products are such that
consumers buy 25 percent or more of the product sold by the industry or
the product. A registered vendor may by application for good cause
shown elect to opt out of the application of this paragraph.
``(3) Cross reference.--
``For credit to purchaser where seller
collects tax on exempt purchase, see section 11(a)(3).
``For tax to be separately stated and
charged, see section 54.
``(c) Government Enterprises.--
``(1) Government enterprises to collect and remit taxes on
sales.--Nothing in this subtitle shall be construed to exempt
any Federal, State, or local governmental unit or political
subdivision (whether or not the State is a conforming State)
operating a government enterprise from collecting and remitting
tax imposed by this subtitle on any sale of taxable property or
services. Government enterprises shall comply with all duties
imposed on private enterprises by this subtitle and shall be
liable for penalties and subject to enforcement action in the
same manner as private enterprises.
``(2) Government enterprise.--Any entity owned or operated
by a Federal, State, or local governmental unit or political
subdivision that receives gross payments from selling taxable
property or services to private persons is a government
enterprise, provided, however, that a government-owned entity
shall not become a government enterprise for purposes of this
section unless in any quarter it has revenues from the sale of
taxable property or services that exceed $2,500.
``(3) Government enterprises' intermediate and export
sales.--
``(A) Government enterprises shall not be subject
to tax on purchases that would not be subject to tax
pursuant to section 2 if the government enterprise were
a private enterprise.
``(B) Government enterprises may not use the
exemption afforded by section 2 to serve as a conduit
for tax-free purchases by government units that would
otherwise be subject to taxation on purchases pursuant
to section 1. Transfers of taxable property or services
purchased exempt from tax by a government enterprise to
such government unit shall be taxable.
``(4) Separate books of account.--Any government enterprise
must maintain books of account, separate from the nonenterprise
government accounts, maintained in accordance with generally
accepted accounting principles.
``(5) Active trade or business.--A government enterprise
shall be treated as an active trade or business.
``(6) Cross reference.--
``For obligation of government units,
see section 3(a)(1).
``Subchapter B--Credits; Refunds; Installment Payments of Tax on
Purchases of Residences
``Sec. 11. Credits and refunds.
``Sec. 12. Installment payments of tax on
purchases of principal
residences.
``Sec. 13. Family Consumption Refund.
``SEC. 11. CREDITS AND REFUNDS.
``(a) General Credits.--Each person shall be allowed a credit
against the taxes imposed by section 1 for any month in an amount equal
to the sum of--
``(1) such person's used property credit under subsection
(c) for such month,
``(2) such person's business use conversion credit under
subsection (d) for such month,
``(3) the amount paid by such person with respect to a
purchase during such month by reason of a tax collected on an
exempt purchase pursuant to section 3(b) (relating to election
to collect tax on certain nontaxable purchases),
``(4) the administration credit under section (e),
``(5) the compliance equipment cost credit under section
(f),
``(6) the bad debt credit under subsection (g),
``(7) the insurance proceeds credit under subsection (h),
``(8) the transition inventory credit under subsection (i),
and
``(9) any amount paid in excess of amount due.
``(b) Refunds.--
``(1) Filers.--If a person files two consecutive monthly
tax reports with a credit balance, then, upon application in a
form prescribed by the State Administrator, then the credit
balance shown on the second monthly report shall be refunded to
the taxpayer within 60 days of said application.
``(2) Nonfilers.--If a person other than a monthly filer
has an excess credit for any month, then, upon application in a
form prescribed by the State Administrator, then the credit
balance due shall be refunded to the taxpayer within 60 days of
said application.
``(3) Interest.--No interest shall be required to be paid
on any overpayment under this subsection for any month if such
overpayment is paid within 60 days after the close of such
month.
``(4) Suspension of period to pay refund only if federal
court ruling.--The 60-day periods under paragraphs (1) and (2)
shall be suspended with respect to a purported credit balance
(or portion thereof) only during any period that there is in
effect a preliminary ruling from a Federal court that there is
reasonable cause to believe that such credit balance is not
actually the amount due.
``(5) Filer.--For purposes of this subsection, the term
`filer' means, with respect to any month, any person required
to register under section 43 for such month.
``(c) Used Property Credit.--
``(1) In general.--For purposes of subsection (a), a seller
shall receive credit for previous sales tax paid on the resale
of taxable property or services, as provided in this subsection
(c).
``(2) Determination of used property credit amount.--The
used property credit amount determined under this paragraph
with respect to any property is the lesser of--
``(A) the amount of tax due and paid by virtue of
the present transaction (without regard to any
credits), or
``(B) the most recent prior tax imposed by section
1 with respect to such property transaction (without
regard to any credits).
``(3) Transitional deemed paid rule for property owned on
effective date of act.--In the case of property which was
acquired by the seller before July 1, 2006, the amount under
paragraph (2)(B) shall be the amount which is the product of--
``(A) that which would be determined under
paragraph (2)(B) as if this subtitle had been in effect
at the time of such acquisition, and
``(B) the equity ratio (as defined in paragraph
(4)).
``(4) The equity ratio is the quotient of--
``(A) the income tax basis in the property at the
end of the taxable year 2006, less the mortgage or debt
secured by said property at the end of said taxable
year, divided by
``(B) the income tax basis in the property at the
end of the taxable year 2006,
provided, however, that the quantity defined in subparagraph
(1) cannot be less than zero and further providing that the
equity ratio so calculated cannot be less than zero or greater
than one.
``(d) Business Use Conversion Credit.--
``(1) In general.--For purposes of subsection (a), a
person's business use conversion credit for any month is the
aggregate of the amounts determined under paragraph (2) with
respect to property--
``(A) on which a prior tax was imposed by section 1
on the purchase by such person, and
``(B) which commences to be exclusively used during
such month in the production by such person of other
taxable property or services.
``(2) Amount of credit.--The amount determined under this
paragraph with respect to any property is lesser of--
``(A) the product of the rate imposed by section 1
and the fair market value of the property when its use
is converted, and
``(B) the prior tax referred to in paragraph
(1)(A).
``(3) Property converted from business use to personal use
shall be subject to tax pursuant to section 1 on the book value
of the converted property as of the date of conversion,
provided that the books are kept in accordance with generally
accepted accounting principles.
``(e) Administration Credit.--Every taxpayer filing a timely
monthly report in compliance with section 41 shall be entitled to a
taxpayer administrative credit equal to the greater of--
``(1) $200, or
``(2) one-half of 1 percent of the tax remitted, provided,
however, that in no event will the credit afforded by this
section exceed 20 percent of the tax due to be remitted prior
to the application of this credit.
``(f) Compliance Equipment Cost Credit.--Vendors required to
purchase new equipment to comply with the provisions of section 54
shall be entitled to a credit in the amount of 50 percent of the cost
of such equipment.
``(g) Bad Debt Credit.--
``(1) Financial intermediation services.--Any person
registered pursuant to section 43 who has experienced a bad
debt (other than unpaid invoices within the meaning of
paragraph (2)) shall be entitled to a credit equal to the
product of--
``(A) the rate imposed by section 1, and
``(B) the quotient that is--
``(i) the amount of the bad debt (as
defined in section 24), divided by
``(ii) the quantity that is 1 minus the
rate imposed by section 1.
``(2) Unpaid invoices.--Any person electing the accrual
method pursuant to section 56 that has with respect to a
transaction--
``(A) invoiced the tax imposed by section 1,
``(B) remitted the invoiced tax,
``(C) actually delivered the taxable property or
performed the taxable services invoiced, and
``(D) not been paid 90 days after the date the
invoice was due to be paid,
shall be entitled to a credit equal to the amount of tax
remitted and unpaid by the purchaser.
``(3) Subsequent payment.--Any payment made with respect to
a transaction subsequent to a subsection (g) credit being taken
with respect to that transaction shall be subject to tax in the
month the payment was received as if a tax inclusive sale of
taxable property and services in the amount of the payment had
been made.
``(4) Partial payments.--Partial payments shall be treated
as pro rata payments of the underlying obligation and shall be
allocated proportionately among payment for the taxable
property and service, tax and otherwise (in the case of
partially nontaxable payments).
``(5) Related parties.--The credit provided by this section
shall not be available with respect to sales made to affiliated
firms (within the meaning of section 2(e)).
``(h) Insurance Proceeds Credit.--
``(1) 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 paragraph (2), less any
amount paid to the insured by the insurer pursuant to paragraph
(3), 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 1 and such tax was paid.
``(2) Credit amount.--The amount of the credit shall be the
product of--
``(A) the rate imposed by section 1, and
``(B) the quotient that is--
``(i) the amount of the payment made by the
insurer to the insured, divided by
``(ii) the quantity that is 1 minus the
rate imposed by section 1.
``(3) Administrative option.--The credit determined in
accordance with paragraph (2) shall be paid by the insurer to
the insured and the insurer shall be entitled to the credit in
lieu of the insured provided, however, 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.
``(4) Coordination with respect to exemption.--If taxable
property or services purchased by an insurer on behalf of an
insured are purchased free of tax by virtue of section
21(e)(3), then the credit provided by this section shall not be
available with respect to that purchase.
``(5) Insurance contract.--For purposes of paragraph (1),
the term `insurance contract' includes 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 contract, and an
insurance contract that provides a combination of these types
of insurance.
``(i) Transitional Inventory Credit.--
``(1) Transition inventory credit.--A credit shall be
allowed equal to the product of the rate of tax imposed by
section 1 and the cost of qualified inventory.
``(2) Inventory.--
``(A) Qualified inventory.--Inventory held by an
active trade or business on the close of business June
30, 2006, that is subsequently sold subject to the tax
imposed by section 1 shall be qualified inventory.
``(B) Cost.--For purposes of this section,
qualified inventory shall have the cost that it had on
the income tax return of the active trade or business
filed for the period ending June 30, 2006 (including
any amounts capitalized by virtue of section 263A as in
effect on June 30, 2006).
``(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 inventory 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 property, 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 annual installments over the
30-year period beginning on the date of such sale together with
simple interest at the rate imposed by section 6621.
``(b) Termination of Installments if Property Is Sold or Otherwise
Ceases To Be Principal Residence.--
``(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 cessation. 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 paragraph (1)(B)
applies with respect to any purchaser--
``(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 installments shall be due at the time
of such purchase,
``(B) if subparagraph (A) does not apply to such
purchaser, the remaining unpaid installments 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 property as his principal
residence.
``(3) If any purchaser exercises the right to installment
payments under this section, then the responsibility 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 product of--
``(1) the rate of tax imposed by section 1, and
``(2) the lesser of--
``(A) the poverty level (as defined in subsection
(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 purposes 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 required by sections 652 and
673(2) of the Omnibus Reconciliation Act of 1981 (all States
and the District 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 tables for use by employers.
``(4) Coordination.--The family member receiving the family
consumption rebate shall set forth, in a form prescribed by the
Social Security Administration, the names and Social Security
numbers of all members of the family unit for which a rebate is
claimed. Employers shall provide this information 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, children, grandchildren, parents and grandparents.
``(f) Disqualified Family Members.--In order for a family member to
be counted for purposes of determining 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 student 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 purposes
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
Administration and shall when making said election disclose the name
and Social Security number of the other family members. Creditable
wages for families making this election shall not exceed one half of
the poverty level for that family unit.
``(j) Employers To Adjust Remittances.--Employers 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 Social Security
Administration shall provide to multiple wage-earner family units who
received a lower rebate amount than that to which they were entitled
under subsection (a) due to the application of the limitations in
subsection (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 section 23.
``(b) Gross Payments.--For purposes of this subtitle, the term
`gross payments' shall mean gross payments inclusive of Federal tax
imposed by, and State taxes imposed in conformity with, this chapter
but exclusive of customs 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 subtitle. 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 resale 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 employing or using such property or service in the
production or sale of other taxable property or services in the
ordinary course of that active trade or business.
``(2) Research experimentation and development.--Taxable
property or services used in an active trade or business for
the purpose of research, 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) (relating 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
attributable to room or board for the student.
``(f) Qualified fixtures shall include only those fixtures that are
a permanent, integral, incorporated and irremovable part of the
structure and shall exclude furniture, furnishings, appliances or
similar tangible personal property.
``(g) Real Property.--For purposes of this chapter, 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 administering 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
undetermined, 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, including
structures, land, and qualified fixtures and appurtenances 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
Administrator' 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 purposes 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 extent
that jurisdictions within the United States may provide 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 property) 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 government employers) not engaged in an active trade
or business unless those wages are paid by a qualified 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 copyrights,
trademarks, patents, goodwill, financial instruments,
and other property deemed intangible 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.--Notwithstanding
subparagraph (A), the sale of a copyright or trademark
shall be treated as the sale of taxable services
(within the meaning of section 1) if the substance of
the transaction selling said copyright or trademark
constituted the sale of the services that produced the
copyrighted 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 Services.--
``(1) Special rules relating to international 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 intermediation
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 Secretary
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 interest 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 contemporaneous sales
price or prices of the same or similar 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 available, the principle and
interest components of a financing lease shall be
disaggregating using the applicable 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 component 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, Returns.--
``(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 purposes 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 installment 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 services 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 defined.--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
enjoyment.
``(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 exemption 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 property 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 vehicles
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 payoffs. This tax shall be paid and remitted
by the person offering the gaming services.
``SEC. 23. DETERMINATION OF FINANCIAL INTERMEDIATION SERVICES AMOUNT.
``(a) Financial Intermediation Services.--For purposes of this
subtitle--
``(1) In general.--The term `financial intermediation
services' means the sum of--
``(A) explicitly charged financial intermediation
services, and
``(B) implicitly charged financial intermediation
services.
``(2) Explicitly charged financial intermediation
services.--The term `explicitly charged financial
intermediation services' includes--
``(A) brokerage fees,
``(B) explicitly stated banking, loan origination,
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 investment account of
the underlying insurance policy,
``(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 intermediation
services.--
``(A) In general.--The term `implicitly charged
financial intermediation services' includes the gross
imputed amount in relation to any underlying interest
bearing investment, account, or debt.
``(B) Gross imputed amount.--For purposes of
subparagraph (A), the term `gross imputed amount'
means--
``(i) with respect to any underlying
interest bearing investment or account, the
product of--
``(I) the excess (if any) of the
basic interest rate (as defined in
section 27) over the rate paid on such
investment, 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 financial
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 intermediation
services (as defined in subsection (a)(3)) with respect to any
underlying interest bearing investment or account, the person
making the interest payments on the interest bearing investment
or account, and
``(3) in the case of implicit financial intermediation
services (as defined in subsection (a)(2)) with respect to any
interest bearing debt, the person receiving 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 discharged 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 provided 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 provider of financial
intermediation services need not calculate its liability on a
transaction-by-transaction or account-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 substantially
similar to that projected under ordinary sales tax principles.
The provider of financial intermediation 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 Secretary.
``(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 substantially
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 become permissible by
virtue of the Secretary's failure to rule).
``(c) Effective Dates of Alternative Method.--An alternative method
ruled permissible or permissible 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 judgment 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 review in any court of competent
jurisdiction, provided, however, that the standard of review shall be
whether the petitioner 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 revenue and expense.
``SEC. 27. BASIC INTEREST RATE.
``For purposes of this subchapter, the basic interest rate with
respect to a debt instrument, investment, financing lease, or account
shall be the applicable interest rate (as determined in section 28).
For debt instruments, investments, 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 interest rate, the
applicable interest rate shall be the Federal short-term interest rate
for each month. For debt instruments, 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, investment,
financing lease, or account with a term of not over 3 years,
the applicable interest rate is the Federal short-term rate.
``(2) In the case of a debt instrument, investment,
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, investment,
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 Secretary 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 average market yield (during any 1 month)
on outstanding marketable obligations of the United States with
remaining 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 Secretary 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 calendar month, the
Secretary shall determine the Federal short-term rate, the Federal mid-
term rate, and the Federal 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 administration 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
chapter.
``(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 services,
``(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 exchange, 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 chapter on behalf of the United
States (less the administration 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 remitted 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 Conforming 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 facilitate
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 promulgate
regulations and guidelines to assist States in administering the
national sales tax, to provide for uniformity 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 establishments 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 vendor 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 revenue.
``(c) Federal Administration.--The Federal Government 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 conforming 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, investigators, assistants, and clerks for
the administration of this subtitle and may delegate to employees the
authority to conduct interviews, hearings, prescribe rules, promulgate
regulations, and perform such other duties as are required 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 Secretary 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 regulation issued or
promulgated by the Secretary relating to any internal revenue
law or by a State Administrator 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 clarifies 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, regulations, rules,
rulings, and court decisions.
``(4) A rule, ruling, or regulation issued in contravention
to paragraph (1) shall be void as to taxable 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
administration.--After publication of any proposed or
temporary regulation by the Secretary relating to
internal revenue laws, the Secretary shall submit such
regulation to the Chief Counsel for Advocacy of the
Small Business Administration for comment on the impact
of such regulation on small businesses. Not later than
the date 4 weeks after the date of such submission, 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 supersedes a proposed or
temporary regulation which had been submitted under
this subsection to the Chief Counsel for Advocacy of
the Small Business 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 regulation.
``(C) Submission of certain final regulations.--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 subparagraphs (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 discussion
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 section (1) (hereafter in this section referred to as the
`taxpayer'), 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 connection
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 enjoyment during any month shall be
paid on or before the 20th of the succeeding month. One payment shall
pay both Federal 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 fraction
thereof) thereafter.
``(2) Amounts paid after collection action.--
``(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 action' includes
administrative levies or garnishments 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 referred to
in section 1 required to be shown on the report.
``(2) Increased penalty on returns filed after written
inquiry.--The amount of the penalty under paragraph (1) shall
be doubled with respect 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 respect to any failure
if it is shown that such failure is due to reasonable
cause.
``(B) Other waiver authority.--In addition 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 period. 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. Extensions 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 Accepting a False
Exemption Certificate.--A person who willingly or recklessly accepts a
false exemption certificate 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 investigation through the use of a toll-free
telephone number and otherwise.
``SEC. 42. RECORDS.
``Any person liable to collect and remit taxes pursuant 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 exempt 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 imposed 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 certificates 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 recklessly or
willfully fails to collect or remit taxes imposed 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 willfully 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 PRODUCTION.
``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 documents 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, establishes that his position was substantially justified.
``SEC. 48. APPEALS.
``The State Administrator and the Secretary shall establish an
administrative appeals process wherein the taxpayer 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 PRODUCTION.
``Taxpayers are subject to subpoena for records and documents
required by the State Administrator or the Secretary, as the case may
be, to accurately determine liability 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 rendered 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 enjoin 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
administrative 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 activity is justified by
clear and convincing evidence. The authority to reverse this
administrative injunction may not be delegated. Problem Resolution
Officers shall not be disciplined or adversely affected for the
issuance of administrative injunctions unless a pattern or issuing
injunctions that are manifestly unreasonable is proven in an
administrative hearing. Nothing in this section shall limit the
authority of the State Administrators or the taxpayer to pursue 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 allocating 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 purchase 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 Allocation to arbitrate any claims or
disputes among administering 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 Revenue Allocation shall be
subject to judicial review in any federal court with competent
jurisdiction provided, however, that the standard of review shall be
abuse of discretion.
``(c) Tangible Personal Property.--The destination of tangible
personal property shall be the state or territory in which the property
was first delivered to the purchaser. 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
subsection upon shipment by mail or common carrier.
``(d) Real Property.--The destination of real property 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 services shall be
state or territory in which the use, consumption or enjoyment
of the services occurred. Allocation 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 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 destination of transportation services shall
be the final destination of the trip (in the case of round or
multiple trip fares, the services amount shall be equally
allocated among the final destinations).
``(4) International transportation services.--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
destination 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 jurisdiction over any
gross payments made which have a destination (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
purchaser a receipt that sets forth at least the following information:
``(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 requirements of subsection
(a) shall be inapplicable in the case of sales by vending machines.
Vending machines for purposes 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 dollars 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 agreements 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
facilitate 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 incomplete. 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 person 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 electing 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 engaged in for profit.
``(b) If the trade or business has received gross payments for the
sale of taxable property or services that exceed 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 conclusively 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 income tax returns for years prior
to the repeal of the income tax, revenue accounting, management,
transfer of payroll tax data to the Social Security Administration and
otherwise for years after fiscal year 2007 are not authorized.
(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 administer those excise taxes not
repealed by this Act.
``(e) Sales Tax Bureau.--There shall be in the Department 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 (including 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 regard 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 figures in
section 1 and section 11 shall be reduced by dividing by 2 all
dollar figures that would be applicable 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 applicable 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 denominator 12.
(4) The Secretary shall publish tax rate schedules 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 administer the taxes imposed pursuant
to chapter 2 of subtitle A (relating to self employment income taxes)
and subtitle C (relating to employment taxes) of the Internal Revenue
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 section
13.
SEC. 7. SELF-EMPLOYMENT TAX.
(a) In General.--Subsection 1402(a) of the Internal 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 exemption) 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-employed person
or others) in furtherance of a business purpose,
``(3) unused transition amounts, and
``(4) undeducted negative self employment income 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 unrecovered 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 accordance 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 benefits) is amended to read as follows:
``(D)(i) 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 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 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); 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 section 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 qualified fixed income payment
amount (as defined in subsection (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 Defined.--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 Government employer; or
(2) by an annuitant pursuant to an annuity contract between
the annuitant and a bona fide insurance 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 Internal 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
subsequent 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 projected for the consumer price index (all urban) in the
Office 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
compensating 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 annuitants 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 report 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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Introduced in House
Introduced in House
Referred to the Committee on Ways and Means, and in addition to the Committee on Rules, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
Referred to the Committee on Ways and Means, and in addition to the Committee on Rules, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
Referred to the Committee on Ways and Means, and in addition to the Committee on Rules, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
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