[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[S. 237 Introduced in Senate (IS)]







104th CONGRESS
  1st Session
                                 S. 237

To amend the Internal Revenue Code of 1986 to impose a value added tax 
   and to use the receipts from the tax to reduce the Federal budget 
      deficit and Federal debt and to finance health care reform.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

             January 18 (legislative day, January 10), 1995

 Mr. Hollings introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to impose a value added tax 
   and to use the receipts from the tax to reduce the Federal budget 
      deficit and Federal debt and to finance health care reform.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Deficit and Debt Reduction and 
Health Care Financing Act of 1995''.

SEC. 2. AMENDMENT OF 1986 CODE.

    Except as otherwise expressly provided, whenever in this Act an 
amendment or repeal is expressed in terms of an amendment to, or repeal 
of, a section or other provision, the reference shall be considered to 
be made to a section or other provision of the Internal Revenue Code of 
1986.

                        TITLE I--VALUE ADDED TAX

SEC. 101. IMPOSITION OF TAX.

    (a) In General.--Subtitle D (relating to miscellaneous excise 
taxes) is amended by inserting before chapter 31 the following new 
chapter:

                     ``CHAPTER 30--VALUE ADDED TAX

                              ``Subchapter A. Imposition of tax.
                              ``Subchapter B. Taxable transaction.
                              ``Subchapter C. Taxable amount, rate of 
                                        tax and exemption from tax for 
                                        certain transactions and 
                                        certain entities; credit 
                                        against tax.
                              ``Subchapter D. Administration.
                              ``Subchapter E. Definitions and special 
                                        rules; treatment of certain 
                                        transactions.

                   ``Subchapter A--Imposition of Tax

                              ``Sec. 3901. Imposition of tax.

``SEC. 3901. IMPOSITION OF TAX.

    ``(a) General Rule.--A tax is hereby imposed on each taxable 
transaction.
    ``(b) Amount of Tax.--Except as otherwise provided in this chapter, 
the amount of the tax shall be 5 percent of the taxable amount.

                  ``Subchapter B--Taxable Transaction

                              ``Sec. 3903. Taxable transactions.
                              ``Sec. 3904. Nontaxable transaction.
                              ``Sec. 3905. Taxable person.
                              ``Sec. 3906. Transactions in the United 
                                        States.
                              ``Sec. 3907. Rules pertaining to sales of 
                                        property and performance of 
                                        services.

``SEC. 3903. TAXABLE TRANSACTIONS.

    ``(a) General Rule.--Except as otherwise provided in this chapter 
or in regulations, the term ``taxable transaction'' means--
            ``(1) the sale of property or services in the United States 
        by a taxable person in connection with a business,
            ``(2) the import of property or services for use or 
        consumption in the United States,
            ``(3) the--
                    ``(A) sale of property or services (not included in 
                subparagraph (B)) in the United States other than in 
                connection with business for a consideration that 
                exceeds $1,000, or
                    ``(B) lease of property in the United States other 
                than in connection with a business, if the fair market 
                value of the leased property exceeds $1,000, and
            ``(4) the sale of property or services exported from the 
        United States for use or consumption outside the United States.
    ``(b) Cross References.--For other transactions specifically 
treated as taxable transactions, see sections 3933, 3936, and 3937.

``SEC. 3904. NONTAXABLE TRANSACTION.

    ``(a) General Rule.--The term `nontaxable transaction' includes--
            ``(1) any transfer of possession of, or transfer of a 
        security interest in, property or services by a debtor to a 
        creditor or a representative of creditors, or
            ``(2) any transfer of possession, or incidents of 
        ownership, of property or services to a fiduciary who 
        represents the interests of an owner under a legal disability,
            ``(3) any transfer of ownership of property or services by 
        a debtor to a trustee in bankruptcy, receiver, or other 
        fiduciary appointed to marshall, manage, or liquidate a 
        debtor's property for the benefit of creditors,
            ``(4) any import of an article that is free of duty under 
        parts 1 and 2 of schedule 8 of the Harmonized Tariff Schedule 
        of the United States, or
            ``(5) any sale of property located, or services performed, 
        outside the United States, unless such sale constitutes an 
        export to which section 3903(a)(4) applies.
    ``(b) Authorization To Treat Transaction as Nontaxable.--The 
Secretary may, by regulations, treat any transaction as a nontaxable 
transaction if such classification--
            ``(1) is provided to reduce the cash flow costs of the tax 
        on the transactions, and
            ``(2) does not reduce net tax revenue.

``SEC. 3905. TAXABLE PERSON.

    ``(a) General Rule.--Except as otherwise provided in this chapter, 
the term `taxable person' means--
            ``(1) a person who engages in a taxable or nontaxable 
        transaction in connection with a business, and
            ``(2) a person who engages in a transaction described in 
        section 3903(a)(3), but only with respect to such transaction.
    ``(b) Treatment of Employees.--For purposes of this chapter, an 
employee shall not be treated as a taxable person with respect to 
activities engaged in as an employee.

``SEC. 3906. TRANSACTIONS IN THE UNITED STATES.

    ``(a) Sales of Property.--For purposes of this chapter, a sale of 
property shall be treated as occurring in the United States if the 
property is located in the United States at the time of the sale.
    ``(b) Sales of Services.--For purposes of this chapter, a sale of 
services shall be treated as occurring in the United States to the 
extent that the services are provided from a place of business in the 
United States.

``SEC. 3907. RULES PERTAINING TO SALES OF PROPERTY AND PERFORMANCE OF 
              SERVICES.

    ``(a) Exchanges Classified by Consideration Given.--For purposes of 
this chapter--
            ``(1) an exchange of property for property or services 
        shall be treated as a sale of property, and
            ``(2) an exchange of services for property or services 
        shall be treated as a sale of services,
regardless, in either case, of whether other consideration is received.
    ``(b) Certain Transfers of Property to Employees Treated as 
Sales.--For purposes of this chapter, the transfer of property to an 
employee as compensation (other than a transfer that is excludable from 
the employee's gross income for purposes of chapter 1) shall be treated 
as the sale of property.
    ``(c) Sale of Services.--For purposes of this chapter--
            ``(1) Certain activities treated as sales of services.--
        Activities treated as the sale of services shall include (but 
        shall not be limited to)--
                    ``(A) the granting of the right to use property,
                    ``(B) the granting of a right to the performance of 
                services or to reimbursement (including the granting of 
                warranties, insurance, and similar items),
                    ``(C) the making of a covenant not to compete (or 
                similar agreement to refrain from doing something),
                    ``(D) the supply of electricity, gas, water, and 
                other utilities, and
                    ``(E) the licensing of patents, copyrights, 
                trademarks, software, and other proprietary 
                information.
            ``(2) Employers and employees.--
                    ``(A) Services for employer.--The performance of 
                services by an employee for an employer shall not be 
                treated as the sale of services.
                    ``(B) Services for employee.--The performance of 
                services by an employer for an employee as compensation 
                (other than a transfer of services that is excludable 
                from the employee's gross income for purposes of 
                chapter 1) shall be treated as the sale of services.

``Subchapter C--Taxable Amount; Rate of Tax and Exemption From Tax for 
     Certain Transactions and Certain Entities; Credit Against Tax

                              ``Sec. 3911. Taxable amount.
                              ``Sec. 3912. Zero rated exports.
                              ``Sec. 3913. Government entities and 
                                        exempt organizations.
                              ``Sec. 3914. Credit against tax.
                              ``Sec. 3915. Constructive credit for 
                                        certain purchases from a 
                                        consumer.
                              ``Sec. 3916. Credit for post-sale price 
                                        adjustments and refunds.
                              ``Sec. 3917. Deferred credit attributable 
                                        to taxable casual sales.

``SEC. 3911. TAXABLE AMOUNT.

    ``(a) Amount Charged Customer.--Except as otherwise provided in 
this chapter, if money is the only consideration for any transaction, 
the taxable amount shall be the price the seller charged the purchaser 
of the property or services--
            ``(1) including all invoiced charges for transportation and 
        other items payable to the seller with respect to the 
        transaction,
            ``(2) excluding--
                    ``(A) the tax imposed by section 3901, and
                    ``(B) any separately stated State and local sales 
                and use taxes with respect to the transaction, and
            ``(3) reduced by any--
                    ``(A) discount offered for prompt payment,
                    ``(B) trade or quantity discount or other price 
                allowance granted at the time of sale, and
                    ``(C) cash rebate granted at the time of the sale.
    ``(b) Exchanges.--Except as otherwise provided in this chapter, the 
taxable amount for any exchange of property or services--
            ``(1) for other property or services, or
            ``(2) for a combination of money and
                    ``(A) property or services, or
                    ``(B) property and services,
shall be the fair market value of the property or services sold, 
adjusted by the items described in subsection (a).
    ``(c) Imports.--
            ``(1) In general.--For purposes of this chapter, the 
        taxable amount in the case of any import shall be--
                    ``(A) the customs value plus customs duties and any 
                other duties that may be imposed, or
                    ``(B) if there is no such customs value, the fair 
                market value (determined as if the importer had sold 
                the property or rendered the services).
If the value in paragraph (1)(A) does not include the cost to the 
importer of transporting and insuring the property or services to the 
point of import, the taxable amount shall include such costs.
            ``(2) Imports of previously exported articles.--For 
        purposes of this chapter, the taxable amount for any import of 
        an article that is returned to the United States--
                    ``(A) after export for repairs or alterations 
                abroad, or
                    ``(B) after export to undergo assembly, processing, 
                manufacture, or other changes in condition abroad,
        shall be the net cost to the importer of such repairs, 
        alterations, assembly, processing, manufacture, or other change 
        in condition.
            ``(3) Limitation for previously exported articles.--
        Paragraph (2) shall apply only to an article--
                    ``(A) that the importer acquired before export, and
                    ``(B) as to which there has been no transfer of 
                ownership between the time of export and import.
    ``(d) Certain Related Party Transactions.--For purposes of this 
chapter, the taxable amount for a transaction conducted for no 
consideration or for a consideration that is less than fair market 
value shall be the fair market value of the property or services sold, 
if--
            ``(1) the seller and the recipient--
                    ``(A) are related persons, or
                    ``(B) are employer and employee, and
            ``(2) the recipient is not eligible for a section 3914 
        input tax credit with respect to such purchase.
    ``(e) Gambling, Lotteries, and Other Games of Chance.--For purposes 
of this chapter, the taxable amount of proceeds from gambling, 
lotteries, and similar games of chance shall be the gross receipts from 
these activities, reduced by the amount paid to the winners.

``SEC. 3912. ZERO RATED EXPORTS.

    ``The rate of tax imposed by section 3901 shall be zero with 
respect to sales of property and services exported from the United 
States for use or consumption outside the United States.

``SEC. 3913. GOVERNMENT ENTITIES AND EXEMPT ORGANIZATIONS.

    ``(a) General Rule.--The sale of property and services by a 
government entity or exempt organization shall be a taxable transaction 
only if a charge or fee is imposed.
    ``(b) Exempt Transactions.--For purposes of this chapter, the 
supply of property or services by a government entity or exempt 
organization without consideration shall be exempt from the tax imposed 
by section 3901.
    ``(c) Authority To Treat Sales for Nominal Consideration as Exempt 
Transactions.--To the extent provided in regulations, a sale of 
property or services under subsection (a) shall be treated as an exempt 
transaction under subsection (b) if a government entity or exempt 
organization imposes a nominal charge or fee for such property or 
services.
    ``(d) Definitions.--For purposes of this chapter--
            ``(1) Government entity.--The term `government entity' 
        means the United States, any State or political subdivision 
        thereof, the District of Columbia, a Commonwealth or possession 
        of the United States, or any agency or instrumentality of any 
        of the foregoing.
            ``(2) Exempt organization.--The term `exempt organization' 
        means any organization which is exempt from tax under chapter 
        1.

``SEC. 3914. CREDIT AGAINST TAX.

    ``(a) General Rule.--There shall be allowed to a taxable person as 
a credit against the tax imposed by section 3901 the aggregate amount 
of tax imposed by section 3901 which--
            ``(1) is payable by sellers to the taxable person of 
        property or services that the taxable person uses in the 
        business to which the transaction relates, or
            ``(2) has been reported by the taxable person as importer 
        of property or services that the taxable person uses in the 
        business to which the transaction relates.
    ``(b) Exempt Transactions, Etc.--If property or services are used 
partly in the business and partly for other purposes, the credit shall 
not be allowable with respect to the property or services used for 
other purposes. If property or services are used in the business partly 
for taxable and nontaxable transactions and partly for exempt 
transactions, the credit shall not be allowable with respect to the 
property and services used for exempt transactions.
    ``(c) Bad Debts.--
            ``(1) General rule.--If--
                    ``(A) a taxable person issues a tax invoice and 
                reports tax under section 3901 on a sale of property or 
                services,
                    ``(B) the purchaser fails to pay all or a portion 
                of the taxable amount of the sale plus tax imposed 
                under section 3901, and
                    ``(C) the debt becomes deductible as a wholly or 
                partially worthless debt under section 166(a),
        there shall be allowed as a credit under subsection (a) the 
        portion of the tax imposed by section 3901 that is attributable 
        to the deductible worthless debt.
            ``(2) Amount of credit.--For purposes of this subsection, 
        the tax attributable to the worthless debt shall be an amount 
        equal to the deductible worthless debt described in paragraph 
        (1), multiplied by a fraction, the numerator of which is the 
        tax rate provided in section 3901(b) at the time of sale and 
        the denominator of which is 100 plus the tax rate provided in 
        section 3901(b) at the time of the sale.
            ``(3) Substantiation required.--For purposes of this 
        chapter, the credit authorized under subsection (a) shall be 
        allowable only if supported by a statement by the purchaser 
        that any credit allowable to the purchaser under subsection (a) 
        will be reduced by the amount specified in paragraph (2).
    ``(d) Excess Credit Treated as Overpayment.--
            ``(1) In general.--If for any taxable period the aggregate 
        amount of the credits allowable by subsection (a) exceeds the 
        aggregate amount of the tax imposed by section 3901 for such 
        period, such excess shall be treated as an overpayment of the 
        tax imposed by section 3901.
            ``(2) Time when overpayment arises.--Any overpayment under 
        paragraph (1) for any taxable period shall be treated as 
        arising on the later of--
                    ``(A) the due date for the return for such period, 
                or
                    ``(B) the date on which the return is filed.

``SEC. 3915. CONSTRUCTIVE CREDIT FOR CERTAIN PURCHASES FROM A CONSUMER.

    ``(a) General Rule.--For purposes of this chapter, if a taxable 
person acquires property from a consumer in a sale that is not subject 
to the tax imposed by section 3901, the purchaser shall be allowed as a 
credit under section 3914(a) the amount of tax deemed charged under 
subsection (b). This section applies only to property that was subject 
to the tax imposed by section 3901 when it was acquired by such 
consumer.
    ``(b) Amount of Tax Included in Purchase Price.--For purposes of 
this section, the seller to the taxable person shall be deemed to have 
charged as tax an amount equal to the selling price of the property 
multiplied by a fraction--
            ``(1) the numerator of which is the tax rate provided in 
        section 3901(b) at the time of sale, and
            ``(2) the denominator of which is 100 plus the tax rate 
        provided in section 3901(b) at the time of the sale.
    ``(c) Time When Credit Is Available.--For purposes of this chapter, 
the credit authorized under subsection (a) shall be allowed for the tax 
period in which the taxable person purchased the property.

``SEC. 3916. CREDIT FOR POST-SALE PRICE ADJUSTMENTS AND REFUNDS.

    ``(a) General Rule.--For purposes of this chapter, if a taxable 
person issues a sales refund, rebate, or price allowance attributable 
to a sale taxable under section 3901 and previously reported under 
section 3924, the taxable person shall be allowed as a credit under 
section 3914(a) the amount of the tax deemed allocable to the refund, 
rebate, or price allowance under subsection (b).
    ``(b) Amount of Credit.--For purposes of this section, the amount 
of tax deemed allocable to the refund, rebate, or price allowance 
described in subsection (a) shall be an amount equal to the refund, 
rebate, or price allowance multiplied by a fraction--
            ``(1) the numerator of which is the tax rate provided in 
        section 3901(b) at the time of the sale, and
            ``(2) the denominator of which is 100 plus the tax rate 
        provided in section 3901(b) at the time of the sale.
    ``(c) Time When Credit Is Available.--For purposes of this chapter, 
the credit authorized under subsection (a) shall be allowed for the 
taxable period in which the taxable person issues the refund, rebate, 
or price allowance and is in possession of the documents required under 
subsection (d).
    ``(d) Substantiation Required.--For purposes of this chapter, the 
credit authorized under subsection (a) shall be allowable only if 
supported by--
            ``(1) proof of the refund, rebate, or price allowance 
        issued by the taxable person, and
            ``(2) a statement by the buyer receiving the refund, 
        rebate, or price allowance that any credit otherwise allowable 
        to the buyer under section 3914(a) will be reduced by the 
        amount specified in subsection (b).

``SEC. 3917. DEFERRED CREDIT ATTRIBUTABLE TO TAXABLE CASUAL SALES.

    ``(a) General Rule.--For purposes of this chapter, if a person 
sells property or services in a taxable transaction under section 
3903(a)(3), the seller shall be allowed as a credit under section 3914, 
whichever of the following is smallest:
            ``(1) the amount of tax imposed by section 3901 that--
                    ``(A) is payable by suppliers to the seller of 
                property or services that the seller uses in the 
                section 3903(a)(3) transaction, or
                    ``(B) has been reported by the seller as importer 
                of property or services that the importer uses in the 
                section 3903(a)(3) transaction;
            ``(2) the tax imposed by section 3901 on the sale; or
            ``(3) the amount of tax referred to in paragraph (1) 
        multiplied by a fraction--
                    ``(A) the numerator of which is the taxable amount 
                of the sale, and
                    ``(B) the denominator of which is the tax-exclusive 
                cost of the property and services described in 
                subparagraphs (A) and (B) of paragraph (1).
In no case can the credit exceed the total amount of the taxes referred 
to in paragraph (1) not previously claimed as credits under this 
section.
    ``(b) Time When Credit Is Available.--For purposes of this chapter, 
the credit authorized under subsection (a) shall be allowed for the 
taxable period in which the sale giving rise to the credit is 
reportable.
    ``(c) Substantiation Required.--For purposes of this chapter, the 
credit authorized under subsection (a) shall be allowable only if 
supported by a tax invoice listing the tax described in subparagraph 
(A) of paragraph (1) or a document acceptable to the Secretary listing 
the tax described in subparagraph (B) of paragraph (1).

                     ``Subchapter D--Administration

                              ``Sec. 3921. Seller liable for tax.
                              ``Sec. 3922. Tax invoices.
                              ``Sec. 3923. De minimis exception.
                              ``Sec. 3924. Time for filing return and 
                                        claiming credit; taxable 
                                        period; tax point; deposits of 
                                        tax.
                              ``Sec. 3925. Treatment of related 
                                        businesses.
                              ``Sec. 3926. Secretary to be notified of 
                                        certain events.
                              ``Sec. 3927. Regulations.

``SEC. 3921. SELLER LIABLE FOR TAX.

    ``(a) General Rule.--The person selling or importing property or 
services shall be liable for the tax imposed by section 3901.
    ``(b) Joint Liability on Non-Owner Seller.--To the extent provided 
in regulations, any person making a sale of property or services on 
behalf of the owner (other than as an employee), and having control of 
the proceeds of the sale, shall be jointly and severally liable with 
the owner for any tax on the sale, and shall be allowed as a credit 
against such liability any amount creditable to the owner under section 
3917.

``SEC. 3922. TAX INVOICES.

    ``(a) Seller Must Give Purchaser Tax Invoice.--Any taxable person 
engaging in a taxable transaction shall give the purchaser a tax 
invoice with respect to such transaction if--
            ``(1) the seller has reason to believe that the purchaser 
        is a taxable person, or
            ``(2) the purchaser requests a tax invoice.
    ``(b) Content of Invoice.--The tax invoice required by subsection 
(a) with respect to any transaction shall set forth--
            ``(1) the name and identification number of the seller,
            ``(2) the name of the purchaser,
            ``(3) the amount of the tax imposed by section 3901, and
            ``(4) such other information as may be prescribed by 
        regulations.
    ``(c) No Credit Without Invoice--
            ``(1) In general.--Except as provided in paragraphs (2) and 
        (3), a purchaser may claim a credit with respect to a 
        transaction only if the purchaser--
                    ``(A) has received from the seller and has in his 
                possession a tax invoice that meets the requirements of 
                subsection (b), and
                    ``(B) is named as the purchaser in such invoice.
            ``(2) Employees or other agents named in invoices.--To the 
        extent provided in regulations, the naming of an employee or 
        other agent of the purchaser shall be treated as the naming of 
        the purchaser.
            ``(3) Waiver of invoice requirement in certain cases.--To 
        the extent provided in regulations, paragraph (1) shall not 
        apply--
                    ``(A) where the purchaser without fault on his part 
                fails to receive or fails to have in his possession a 
                tax invoice, or
                    ``(B) to a taxable transaction (or category of 
                transactions) where--
                            ``(i) the amount involved is de minimis, or
                            ``(ii) the information required by 
                        subsection (b) can be reliably established by 
                        sampling or by another method and can be 
                        adequately documented.
    ``(d) Time for Furnishing Invoice.--Any invoice required to be 
furnished by subsection (a) with respect to any transaction shall be 
furnished not later than the earlier of--
            ``(1) the date the taxable person bills the purchaser with 
        respect to such transaction, or
            ``(2) the date that is 15 business days after the tax point 
        for such transaction (as defined in section 3924(d)).
    ``(e) Waiver of Tax Invoice.--The Secretary may by regulations 
waive the requirement in subsection (a) to issue a tax invoice.

``SEC. 5923. DE MINIMIS EXEMPTION.

    ``(a) In General.--A person whose aggregate taxable transactions--
            ``(1) do not exceed $5,000 for the calendar year, and
            ``(2) can reasonably be expected not to exceed such amount 
        for the next calendar year,
may elect to be treated as a person who is not a taxable person for the 
next calendar year,
    ``(b) Exceptions.--Subsection (a) does not apply--
            ``(1) to taxable transactions described in section 
        5903(a)(3), or
            ``(2) to any import of property or services.
    ``(c) Termination of Election.--An election under subsection (a) 
shall be terminated on the last day of--
            ``(1) the first calendar quarter of any year for which such 
        election is made if the aggregate taxable transactions for such 
        quarter exceed $2,500,
            ``(2) the second of any 2 consecutive calendar quarters of 
        any such year if the aggregate taxable transactions for such 
        quarters exceed $3,000, or
            ``(3) the third of any 3 consecutive calendar quarters of 
        any such year if the aggregate taxable transactions for such 
        quarters exceed $4,000.
    ``(d) Calculation of Taxable Transactions.--For purposes of this 
section--
            ``(1) the taxable amount of any zero-rated transaction 
        shall be treated as zero, and
            ``(2) the term `taxable transaction' does not include a 
        transaction which is treated as a taxable transaction solely by 
        reason of paragraph (3) of section 5903(a).
    ``(e) Inflation Adjustment.--
            ``(1) In general.--For calendar years beginning after 1995, 
        the dollar amounts set forth in subsections (a) and (b) shall 
        be increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment for the 
                calendar year.
            ``(2) Computational rules.--The cost-of-living adjustment 
        is the percentage (if any) by which the consumer price index 
        determined under section 1(f)(5) for the preceding calendar 
        year exceeds the Consumer Price Index for the second preceding 
        calendar year. If the amount determined under paragraph (1) is 
        not a multiple of $100, then such increase shall be rounded to 
        the nearest multiple of $100.

``SEC. 3924. TIME FOR FILING RETURN AND CLAIMING CREDIT; TAXABLE 
              PERIOD; TAX POINT; DEPOSITS OF TAX.

    ``(a) Filing Return.--Before the first day of the second calendar 
month beginning after the close of each taxable period, each taxable 
person shall file a return of the tax imposed by section 3901 on 
taxable transactions having a tax point within such taxable period.
    ``(b) Credit Allowed for Taxable Period in Which Purchaser Receives 
Invoice.--
            ``(1) In general.--Except as provided in paragraph (2), a 
        credit allowable by section 3914 with respect to a transaction 
        may be allowed only for the first taxable period by the close 
        of which the taxable person--
                    ``(A) has paid or accrued amounts properly 
                allocable to the tax imposed by section 3901 with 
                respect to such transaction, and
                    ``(B) has a tax invoice (or equivalent) with 
                respect to such transaction.
            ``(2) Use for later period.--To the extent provided in 
        regulations, at the taxable person's election, a credit 
        allowable by section 3914 may be allowed for a period after the 
        period set forth in paragraph (1).
    ``(c) Taxable Period.--For purposes of this chapter--
            ``(1) In general.--The term ``taxable period'' means each 
        calendar quarter.
            ``(2) Exceptions.--
                    ``(A) Election of monthly taxable period.--If the 
                taxable person so elects, the term `taxable period' 
                means each month.
                    ``(B) Other periods.--To the extent provided in 
                regulations, the term ``taxable period'' includes a 
                period selected by the taxable person, other than the 
                period provided in paragraph (1) or subparagraph (A).
            ``(3) Authority to alter length of tax period.--The 
        Secretary, to the extent the Secretary deems such action 
necessary to protect the revenue, may shorten the length of a taxable 
person's tax period under this subsection.
    ``(d) Tax Point.--For purposes of this chapter--
            ``(1) Chapter 1 rules with respect to seller govern.--
        Except as provided in paragraphs (2) and (3), the tax point for 
        any sale of property or services occurs at the earliest of--
                    ``(A) the time (or times) when any income from the 
                sale should be treated by the seller as received or 
                accrued (or any loss should be taken into account by 
                the seller) for purposes of chapter 1,
                    ``(B) the time (or times) when the seller receives 
                payment for the sale, or
                    ``(C) the time when the seller issues a tax invoice 
                covering the sale.
            ``(2) Exception to chapter 1 rules.--To the extent 
        permitted by regulations, if the taxable person so elects, the 
        tax point for any sale of property or services occurs when the 
        taxable person receives payment for the sale.
            ``(3) Imports.--The tax point for imports of property 
        occurs when property is entered, or withdrawn from warehouse 
        for consumption, in the United States, as determined under the 
        Harmonized Tariff Schedule of the United States. The tax point 
        for imports of services occurs when services are entered or 
        transferred for use in the United States.
    ``(e) Periodic Deposits Required.--
            ``(1) In general.--To the extent provided in regulations, a 
        taxable person shall make periodic deposits of estimated 
        liability for the tax imposed by section 3901.
            ``(2) Estimated liability.--For purposes of paragraph (1), 
        the estimated liability shall equal--
                    ``(A) the tax imposed by section 3901 for the 
                period, and
                    ``(B) reduced by the credit allowable under section 
                3914 on tax invoices received during the period.

``SEC. 3925. TREATMENT OF RELATED BUSINESSES.

    ``For purposes of this chapter, to the extent provided in 
regulations, a taxable person may elect--
            ``(1) to treat as one taxable person--
                    ``(A) a controlled group of corporations under 
                section 52(a), or
                    ``(B) two or more businesses (whether or not 
                incorporated) under common control under section 52(b), 
                and
            ``(2) to treat as separate taxable persons separate 
        divisions of the same business.

``SEC. 3926. SECRETARY TO BE NOTIFIED OF CERTAIN EVENTS.

    ``To the extent provided in regulations, each person engaged in a 
business shall notify the Secretary (at such time or times as may be 
prescribed by such regulations) of--
            ``(1) any change in the form in which the business is 
        conducted, and
            ``(2) any other change that might affect--
                    ``(A) the liability for the tax imposed by section 
                3901,
                    ``(B) the amount of such tax or any credit against 
                such tax, or
                    ``(C) the administration of such tax in the case of 
                such person.

``SEC. 3927. REGULATIONS.

    ``The Secretary shall prescribe such regulations as may be 
necessary to carry out the purposes of this chapter.

  ``Subchapter E--Definitions and Special Rules; Treatment of Certain 
                              Transactions

                              ``Sec. 3931. Definitions.
                              ``Sec. 3932. Special rules.
                              ``Sec. 3933. Personal use by owner of 
                                        business property or services.
                              ``Sec. 3934. Financial services.
                              ``Sec. 3935. Special rule for insurance 
                                        contracts.
                              ``Sec. 3936. Self-consumption of property 
                                        or services in connection with 
                                        exempt transactions.
                              ``Sec. 3937. Cessation of taxable person 
                                        status.
                              ``Sec. 3938. Transfer in satisfaction of 
                                        debt.

``SEC. 3931. DEFINITIONS.

    ``(a) Property.--For purposes of this chapter, the term `property' 
means any tangible property.
    ``(b) Sale of Services.--For purposes of this chapter, the term 
`sale of services' means the performance of services for a 
consideration.
    ``(c) Sale of Property.--For purposes of this chapter, the term 
`sale of property' means the transfer of ownership of property from a 
seller to a purchaser for a consideration.
    ``(d) Business.--For purposes of this chapter, the term `business' 
includes any activity carried on continuously or regularly, whether or 
not for profit, that involves or is intended to involve the sale of 
property or services.
    ``(e) Employee.--For purposes of this chapter, the term `employee' 
has the meaning such term has for purposes of chapter 24 (relating to 
withholding).
    ``(f) Person.--For purposes of this chapter, the term `person' has 
the meaning such term has under section 7701(a)(1), and it also 
includes any government entity.
    ``(g) Business Day.--For purposes of this chapter, the term 
`business day' means any day other than Saturday, Sunday, or a legal 
holiday within the meaning of section 7503.
    ``(h) United States.--For purposes of this chapter, the term 
`United States', when used in a geographic sense, includes the customs 
territory (as defined in General Headnote 2 of the Harmonized Tariff 
Schedule of the United States) and any area seaward of the States lying 
above the outer boundaries of the outer continental shelf (as defined 
in section 1331 of title 43, United States Code).

``SEC. 3932. SPECIAL RULES.

    ``(a) Coordination With Subtitle A.--For purposes of subtitle A--
            ``(1) Treatment of credit.--Any credit allowable to a 
        taxable person under section 3914 that is attributable to any 
        property or services shall be treated as a reduction in the 
        amount paid or incurred by the taxable person for such property 
        or services.
            ``(2) Amount of deduction for tax.--The amount allowable as 
        a deduction for the tax imposed by section 3901 shall be 
        determined without regard to any credit allowable under section 
        3914.
    ``(b) Special Rule Where Sale of Property Includes Incidental Sale 
of Services.--For purposes of this chapter, if in connection with the 
sale of any property there is an incidental sale of services, such sale 
of services shall be treated as part of the sale of such property.
    ``(c) Special Rule Where Sale of Services Includes Incidental Sale 
of Property.--For purposes of this chapter, if in connection with the 
sale of any services there is an incidental sale of property, such sale 
of property shall be treated as part of the sale of such services.
    ``(d) Use Includes Held for Use.--For purposes of this chapter, 
property or services held for use by any person shall be treated as 
used by the person.

``SEC. 3933. PERSONAL USE BY OWNER OF BUSINESS PROPERTY OR SERVICES.

    ``(a) General Rule.--For purposes of this chapter, if any business 
property or services are distributed to or used by an owner of the 
taxable person for personal purposes, and part or all of the tax 
imposed on the acquisition of such property or services was subject to 
the credit available under section 3914, such distribution or use shall 
be treated as a taxable transaction.
    ``(b) Taxable Amount.--In the case of a distribution or use 
described in subsection (a), for purposes of this chapter, the taxable 
amount shall be--
            ``(1) except as provided in paragraph (2), the fair market 
        value of the property or the services, or
            ``(2) if such distribution or use is only temporary, the 
        fair rental value.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Business property or services.--The term `business 
        property or services' means any property or services if a sale 
        of such property or services by the taxable person would be a 
        taxable transaction.
            ``(2) Owner.--The term `owner' means--
                    ``(A) in the case of a sole proprietorship, the 
                proprietor,
                    ``(B) in the case of any other business enterprise, 
                any holder of a beneficial interest in the corporation, 
                partnership, or other entity, and
                    ``(C) any member of the family (within the meaning 
                of section 267(c)(4)) of an individual described in 
                subparagraph (A) or (B).
    ``(d) Section 3911(d) Has Priority.--For purposes of this chapter, 
section 3911(d) (and not subsection (a)) shall apply to a transaction 
that is described in both such provisions.

``SEC. 3934. FINANCIAL SERVICES.

    ``For purposes of this chapter, the taxable amount of any financial 
service shall be the amount determined under section 3911.

``SEC. 3935. SPECIAL RULE FOR INSURANCE CONTRACTS.

    ``For purposes of this chapter, the taxable amount of any insurance 
services involving intermediation shall be the excess of--
            ``(1) the portion of the premium attributable to insurance 
        coverage, over
            ``(2) the actuarial cost to the insurer of providing such 
        insurance coverage.

``SEC. 3936. SELF-CONSUMPTION OF PROPERTY OR SERVICES IN CONNECTION 
              WITH EXEMPT TRANSACTIONS.

    ``For purposes of this chapter, to the extent provided in 
regulations, if any property is produced or services are rendered by a 
government entity or exempt organization for use by itself in providing 
property or services exempt from tax under section 3913(b)--
            ``(1) the property or services supplied to itself shall be 
        deemed sold in the course of business in a taxable transaction, 
        and
            ``(2) the taxable amount shall be the fair market value of 
        such property or services.

``SEC. 3937. CESSATION OF TAXABLE PERSON STATUS.

    ``(a) General Rule.--For purposes of this chapter, if a person 
ceases to be a taxable person--
            ``(1) any property and services then forming part of the 
        assets of the business shall be deemed to be sold in a taxable 
        transaction immediately before such cessation, and
            ``(2) the taxable amount shall be the lesser of the cost of 
        the property and services to the taxable person or their fair 
        market value when they are treated as sold.
    ``(b) Exceptions.--Except as provided by regulations, subsection 
(a) shall not apply--
            ``(1) with respect to any property or services described in 
        subsection (a), to the extent that such property or services 
        are transferred to a taxable person as part of a transfer of a 
        going concern, or
            ``(2) with respect to any property or services described in 
        subsection (a) for which the taxable person was not allowed a 
        credit under section 3916(a).

``SEC. 3938. TRANSFER IN SATISFACTION OF DEBT.

    ``For purposes of this chapter, the transfer of property or 
services by a debtor to a creditor in payment of reduction of debt is a 
sale of such property or services.''
    (b) Conforming Amendments.--
            (1) Time and place for paying tax.--Section 6151 (relating 
        to time and place for paying tax shown on returns) is amended 
        by adding at the end the following new subsection:
    ``(d) Payment of Business Activities Tax by Certificate of Waiver 
of Credit.--
            ``(1) General rule.--A certificate of waiver of credit 
        issued in the form and containing the information required by 
        regulations shall be treated as payment by the seller of the 
        tax imposed by section 3901 to the extent of the qualified face 
        amount of the certificate.
            ``(2) Conditions for issuance.--A certificate of waiver of 
        credit may be issued by a taxable person with respect to 
        business property or services if--
                    ``(A) the amount of the tax imposed by section 3901 
                and charged on a single tax invoice covering a 
                transaction between the seller and another taxable 
                person exceeds $750,000,
                    ``(B) the purchaser is entitled under section 
                3914(a) to a credit for the amount of tax payable by 
                the seller with respect to the transaction in 
                subparagraph (A),
                    ``(C) the purchaser waives the right to claim the 
                credit described in subparagraph (B) in an amount equal 
                to the qualified face amount of the certificate, and
                    ``(D) the seller and the purchaser agree that the 
                certificate, to the extent of its qualified face 
                amount, will be accepted by the seller in partial 
                payment of the consideration (including the tax) for 
                the transaction described in subparagraph (A).
            ``(3) Qualified face amount.--The qualified face amount of 
        a certificate of waiver shall be the excess of the tax imposed 
        by section 3901 on the transaction described in paragraph 
        (2)(A) over $750,000.
            ``(4) Authority to issue regulations.--The Secretary shall 
        prescribe by regulation the form of and information required to 
        be included in a certificate of waiver of credit under this 
        section.''
            (2) Collection.--
                    (A) In general.--Subchapter B of chapter 64 
                (relating to receipt of payment) is amended by adding 
                at the end the following new section:

``SEC. 6318. PAYMENT OF BUSINESS ACTIVITIES TAX.

    ``Periodic deposits of estimated tax liability under section 
3924(e) shall be considered payment on account of the business 
activities tax imposed by chapter 30.''
                    (B) Clerical amendment.--The table of sections for 
                subchapter B of chapter 64 is amended by adding at the 
                end thereof the following new item:

``Sec. 6318. Payment of business activities tax.''
            (3) Overpayments; credits and refunds.--
                    (A) Overpayments.--Subsection (b) of section 6401 
                (relating to amounts treated as overpayments) is 
                amended by adding at the end the following new 
                paragraph:
            ``(3) Special rule for credit under section 3916.--Any 
        excess of credits treated by section 3914(d) as an overpayment 
        of the tax shall be considered an overpayment.''
                    (B) Refund or credit.--Section 6402 (relating to 
                authority to make credits or refunds) is amended by 
                redesignating subsection (h) as (j) and by inserting 
                after subsection (g) the following new subsection:
    ``(h) Repayment of Business Activities Tax.--Within 90 days after 
the date on which a tax return is filed pursuant to section 3913 
showing an overpayment, the Secretary shall make, to the extent he 
deems practical, a limited examination of the return to discover 
omissions and errors of computation, and shall determine the amount of 
the overpayment, if any, for the taxable period to which the return 
relates and refund or credit the amount of such overpayment to the 
taxable person who filed the return.''
            (4) Failure to file.--Section 6652 (relating to failure to 
        file certain information returns, registration statements, 
        etc.) is amended by redesignating subsection (m) as subsection 
        (n) and adding after subsection (l) the following new 
        subsection:
    ``(m) Failure To Give Tax Invoice.--In the case of each failure to 
give a tax invoice as required by section 3922(a) within the time 
prescribed therefore, unless it is shown that such failure is due to 
reasonable cause and not to willful neglect, there shall be paid (on 
notice and demand by the Secretary and in the same manner as tax) by 
the person failing to provide such tax invoice, an amount equal to 
$1,000 for each such failure. If such failure continues for 10 days 
after notice and demand by the purchaser for such tax invoice, unless 
it is shown that such failure is due to reasonable cause and not to 
willful neglect, there shall be paid (on notice and demand by the 
Secretary and in the same manner as tax) by the person failing to 
provide such tax invoice, an additional amount equal to 10 percent of 
the amount required to be shown as tax on such tax invoice if the 
failure is for not more than 1 month, with an additional 5 percent for 
each additional month or fraction thereof during which such failure 
continues.''
            (5) Clerical amendment.--The table of chapters for subtitle 
        D (relating miscellaneous excise taxes) is amended by adding 
        before the item relating to chapter 31 the following new item:

                ``CHAPTER 30--BUSINESS ACTIVITIES TAX''.

    (d) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to transactions occurring on or after January 1 of the 2d 
        calendar year following the date of the enactment of this Act.
            (2) Tax on sales pursuant to contracts executed before the 
        effective date of chapter 30.--The tax imposed by section 3901 
        of the Internal Revenue Code of 1986 shall be imposed on any 
        taxable transaction pursuant to any contract executed before 
        the date referred to in paragraph (1) if the transaction has a 
        tax point on or after that date. Any separately stated tax 
        imposed by such section 3901 on any transaction to which this 
        paragraph applies shall be treated as additional consideration 
        for the item acquired and as a legal obligation of the 
        purchaser to the seller.

                       TITLE II--SURPLUS REVENUES

SEC. 201. REVENUES FROM VALUE ADDED TAX TO BE USED TO REDUCE THE PUBLIC 
              DEBT AND FINANCE HEALTH CARE REFORM.

    (a) In General.--Subchapter I of chapter 31 of title 31, United 
States Code, is amended by adding at the end the following new section:
``Sec. 3114. Certain proceeds of value added tax to reduce public debt 
              and to provide health care reform
    ``(a) There is established in the Treasury of the United States a 
trust fund to be known as the `Deficit Reduction and Health Care Reform 
Trust Fund'.
    ``(b)(1) There is appropriated to the Deficit Reduction and Health 
Care Reform Trust Fund amounts equivalent to amounts received in the 
Treasury from the tax imposed under section 3901 of the Internal 
Revenue Code of 1986 (relating to the value added tax).
    ``(2) The amounts appropriated by paragraph (1) shall be 
transferred at least monthly from the General Fund in the Treasury to 
the Deficit Reduction and Health Care Reform Trust Fund on the basis of 
estimates made by the Secretary of the Treasury of the amounts referred 
to in paragraph (1). Proper adjustments shall be made in amounts 
subsequently transferred to the extent prior estimates were in excess 
of or less than the amounts required to be transferred.
    ``(c)(1) The Secretary of the Treasury shall use the money in the 
Deficit Reduction and Health Care Reform Trust Fund to pay for any 
administrative costs in collecting the tax imposed under section 3901 
of the Internal Revenue Code of 1986 or in operating the Deficit 
Reduction and Health Care Reform Trust Fund.
    ``(2) Of the moneys remaining in the Trust Fund after payment of 
costs under paragraph (1), the Secretary of the Treasury--
            ``(A) shall use 80 percent of such moneys solely to pay at 
        maturity, or to redeem or buy before maturity, an obligation of 
        the Government included in the public debt, and
            ``(B) shall use 20 percent of such moneys, as provided in 
        appropriations Act, solely to carry out Federal health care 
        reform programs.
    ``(d) Any obligation of the Government which is paid, redeemed, or 
bought with money from the Deficit Reduction and Health Care Reform 
Trust Fund shall be canceled and retired and may not be reissued.
    ``(e) In calculating for any fiscal year the deficit under section 
3(6) of the Congressional Budget Act of 1974 for purposes of comparison 
with the maximum deficit amount under the Balanced Budget and Emergency 
Deficit Control Act of 1985 (and in calculating the excess deficit 
under sections 251 and 252 of such Act)--
            ``(1) amounts received in the Deficit Reduction and Health 
        Care Reform Trust Fund during such fiscal year shall not be 
        included in total revenues, and
            ``(2) the disbursements out of such Trust Fund for such 
        fiscal year shall not be included in total budget outlays.''
    (b) Conforming Amendment.--The table of sections for subchapter I 
of chapter 31 of title 31, United States Code, is amended by adding at 
the end thereof the following new item:

``3114. Proceeds of value added tax to reduce public debt and to 
                            provide health care reform.''
                                 <all>
S 237 IS----2
S 237 IS----3
S 237 IS----4