[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2717 Introduced in House (IH)]







107th CONGRESS
  1st Session
                                H. R. 2717

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

                             August 2, 2001

Mr. Tauzin (for himself, Mr. Traficant, Mr. Barr of Georgia, Mr. Brady 
   of Texas, Mr. Burton of Indiana, Mr. Callahan, Mr. Culberson, Mr. 
  DeMint, Mr. Hall of Texas, and Mr. Stump) 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 2001''.
    (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, 
        2003.
            (2) Income tax.--The amendment made by subsection (a)(1) 
        shall apply to taxable years beginning after June 30, 2003.
            (3) Sales tax.--The amendment made by section 4 shall take 
        effect on July 1, 2003.
            (4) Social security benefits.--The amendment made by 
        section 9 shall take effect on January 1, 2003.
            (5) Supermajority required.--The amendment made by section 
        11 shall take effect on January 1, 2003.

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, 2003, 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 2003, 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 2003,
        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, 2003, 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, 2003 (including 
                any amounts capitalized by virtue of section 263A as in 
                effect on June 30, 2003).
            ``(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 that 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 2001 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 2005 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 Counsel.''.
    (d) Short Year.--
            (1) For purposes of the Federal income tax, the tax imposed 
        by section 1 and section 11 for taxable years ending June 30, 
        2003, shall be modified as set forth in this subsection.
            (2) For calendar year taxpayers, the dollar 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, 2003, 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, 2003, 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 2003 shall be the unrecovered 
        basis amount as of the end of December 31, 2002, 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, 2003, and
                    ``(B) inventory held as of the end of 2002 
                (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, 2003, shall not be qualified fixed income 
payments. Payments pursuant to a defined benefit plan to a beneficiary 
that had been a participant in said defined benefit plan (within the 
meaning of section 410 of the 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, 2004, 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 2003 for said 18-month period. The 
baseline assumption for the 6 months in 2003 shall be \1/2\ of the 
assumed increase for the entire calendar year 2003.
    (g) Application Required.--In order to receive compensating 
payments, each eligible person must apply in a form prescribed by the 
Secretary of Health and Human Services and provide such documentation 
as the Secretary may reasonably require.
    (h) Means of Payment.--Each person entitled to a compensating 
payment shall receive the compensating payment with their Social 
Security benefit payment. The compensating payment shall be separately 
indicated but may be included in one check. The funds to make 
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.
                                 <all>