[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 1921 Introduced in Senate (IS)]


109th CONGRESS
  1st Session
                                S. 1921

To promote freedom, fairness, and economic opportunity by repealing the 
 income tax and other taxes, abolishing the Internal Revenue Service, 
 and replacing such taxes with a national sales tax and a business tax.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            October 26, 2005

 Mr. DeMint (for himself and Mr. Graham) introduced the following bill; 
     which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To promote freedom, fairness, and economic opportunity by repealing the 
 income tax and other taxes, abolishing the Internal Revenue Service, 
 and replacing such taxes with a national sales tax and a business tax.

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

SECTION 1. TABLE OF CONTENTS.

    The table of contents for this Act is as follows:

Sec. 1. Table of Contents.
Sec. 2. Congressional findings.
      TITLE I--REPEAL OF THE INCOME TAX AND ESTATE AND GIFT TAXES

Sec. 101. Income taxes repealed.
Sec. 102. Estate and gift taxes repealed.
Sec. 103. Effective dates; other matters.
                       TITLE II--GENERAL MATTERS

Sec. 201. General matters.
                     ``Subtitle A--General Matters

         ``Chapter 1--Principles of Interpretation; Definitions

``Sec. 1. Principles of interpretation.
``Sec. 2. Definitions.
                      TITLE III--SALES TAX ENACTED

Sec. 301. Sales tax.
                        ``Subtitle B--Sales Tax

          ``Chapter 1--Imposition of Tax; General Rules, Etc.

``Sec. 101. Imposition of sales tax.
``Sec. 102. Intermediate and export sales.
``Sec. 103. Rules relating to collection and remittance of tax.
                     ``Chapter 2--Credits; Refunds

``Sec. 201. Credits and refunds.
``Sec. 202. Business use conversion credit.
``Sec. 203. Intermediate and export sales credit.
``Sec. 204. Administration credit.
``Sec. 205. Bad debt credit.
``Sec. 206. Insurance proceeds credit.
``Sec. 207. Refunds.
``Sec. 208. Previously taxed property credit.
               ``Chapter 3--Family Consumption Allowance

``Sec. 301. Family consumption allowance.
``Sec. 302. Qualified family.
``Sec. 303. Monthly poverty level.
``Sec. 304. Rebate mechanism.
``Sec. 305. Change in family circumstances.
     ``Chapter 4--State and Federal Cooperative Tax Administration

``Sec. 401. Authority for States to collect tax.
``Sec. 402. Federal administrative support for States.
``Sec. 403. Federal-State conferences.
``Sec. 404. Federal administration in certain States.
``Sec. 405. Interstate allocation and destination determination.
``Sec. 406. General administrative matters.
``Sec. 407. Jurisdiction.
                       ``Chapter 5--Special Rules

``Sec. 501. Hobby activities.
``Sec. 502. Gaming activities.
``Sec. 503. Government purchases.
``Sec. 504. Government enterprises.
``Sec. 505. Mixed use property.
``Sec. 506. Not-for-profit organizations.
             ``Chapter 6--Financial Intermediation Services

``Sec. 601. Determination of financial intermediation services amount.
``Sec. 602. Bad debts.
``Sec. 603. Timing of tax on financial intermediation services.
``Sec. 604. Financing leases.
``Sec. 605. Basic interest rate.
``Sec. 606. Foreign financial intermediation services.
                     TITLE IV--BUSINESS TAX ENACTED

Sec. 401. Business tax.
                       ``Subtitle C--Business Tax

                     ``Chapter 1--Imposition of Tax

``Sec. 1101. Tax imposed.
               ``Chapter 2--Basic Rules for Business Tax

``Sec. 1201. Gross profits.
``Sec. 1202. Taxable receipts.
``Sec. 1203. Deductible amounts.
``Sec. 1204. Cost of business purchases.
``Sec. 1205. Business entity and business activity.
``Sec. 1206. Loss carryover deduction.
    ``Chapter 3--Capital Contributions, Mergers, Acquisitions, and 
                             Distributions

``Sec. 1301. Contributions to a business entity.
``Sec. 1302. Distributions of property.
``Sec. 1303. Asset acquisitions.
``Sec. 1304. Mergers and stock acquisitions.
``Sec. 1305. Spinoffs, splitoff, etc.
``Sec. 1306. Allocation of certain tax attributes.
                 ``Chapter 4--Land and Rental Property

``Sec. 1401. No deduction for land purchased for nonbusiness use.
``Sec. 1402. Taxable receipts for land held for nonbusiness use.
``Sec. 1403. Certain rental property.
             ``Chapter 5--Insurance and Financial Products

``Sec. 1501. General rules.
``Sec. 1502. Fees for financial intermediation services.
``Sec. 1503. Deductible insurance premiums.
``Sec. 1504. Nondeductible insurance premiums.
``Sec. 1505. Certain implicit fees for financial intermediation 
                            services.
    ``Chapter 6--Financial Intermediation and Financial Institutions

``Sec. 1601. Activities constituting a financial intermediation 
                            business.
``Sec. 1602. General rule for taxation.
``Sec. 1603. Special rule for banks.
``Sec. 1604. Insurance companies.
``Sec. 1605. Financial pass-thru entities.
                 ``Chapter 7--Tax-Exempt Organizations

``Sec. 1701. Exemption for governmental entities.
``Sec. 1702. Taxable activity of governmental entities.
``Sec. 1703. Tax-exempt organizations.
``Sec. 1704. Special rules for (c)(3) organizations.
``Sec. 1705. Tax on unrelated business activity.
``Sec. 1706. Unrelated business activity.
                       ``Chapter 8--Cooperatives

``Sec. 1801. Patronage dividends of cooperatives.
                      ``Chapter 9--Sourcing Rules

``Sec. 1901. Exports of property or services.
``Sec. 1902. Imports of property or services.
``Sec. 1903. Import or export of services.
``Sec. 1904. International transportation services.
``Sec. 1905. International communications.
``Sec. 1906. Insurance.
``Sec. 1907. Banking services.
                        ``Chapter 10--Import Tax

``Sec. 2001. Imposition of tax on import of property.
``Sec. 2002. Imposition of tax on import of services.
``Sec. 2003. General rules for the import tax.
               TITLE V--TAX ADMINISTRATION AND TRANSITION

Sec. 501. Tax administration and transition.
          ``Subtitle D--Administration and Transition Matters

              ``Chapter 1--Other Administrative Provisions

``Sec. 2501. Reports and payments.
``Sec. 2502. Registration.
``Sec. 2503. Accounting.
``Sec. 2504. Registration certificates.
``Sec. 2505. Penalties.
``Sec. 2506. Burden of persuasion and burden of production.
``Sec. 2507. Attorneys and accountancy fees.
``Sec. 2508. Summons, examinations, audits, etc.
``Sec. 2509. Records.
``Sec. 2510. Tax to be separately stated and charged.
``Sec. 2511. Coordination with title 11.
``Sec. 2512. Applicable interest rate.
           ``Chapter 2--Collection; Appeals; Taxpayer Rights

``Sec. 2601. Collections.
``Sec. 2602. Power to levy, etc.
``Sec. 2603. Problem resolution offices.
``Sec. 2604. Appeals.
``Sec. 2605. Taxpayer rights.
``Sec. 2606. Installment agreements; compromises.
                  ``Chapter 3--Accounting Method Rules

``Sec. 2701. General accounting rules.
``Sec. 2702. Use of the cash method of accounting.
``Sec. 2703. Taxable year.
``Sec. 2704. Long-term contracts.
``Sec. 2705. Post-sale price adjustments and refunds.
``Sec. 2706. Bad debts.
``Sec. 2707. Consolidated returns.
``Sec. 2708. Transition rules.
                     ``Chapter 4--Transition Rules

``Sec. 2801. Amortization of transition basis.
``Sec. 2802. Sales of transition basis property.
``Sec. 2803. Carryovers.
``Sec. 2804. Transition inventory credit.
                    ``Chapter 5--Additional Matters

``Sec. 2901. Additional matters.
``Sec. 2902. Wages To Be reported to Social Security Administration.
``Sec. 2903. Trust fund revenues.
                        TITLE VI--OTHER MATTERS

Sec. 601. Phase-out of administration repealed Federal taxes.
Sec. 602. Administration of other Federal taxes.
Sec. 603. Sales tax inclusive Social Security benefits indexation.
Sec. 604. Conforming and technical amendments.
               TITLE VII--INDIVIDUAL DEVELOPMENT ACCOUNTS

Sec. 701. Short title.
Sec. 702. Purposes.
Sec. 703. Definitions.
Sec. 704. Structure and administration of qualified individual 
                            development account programs.
Sec. 705. Procedures for opening and maintaining an individual 
                            development account and qualifying for 
                            matching funds.
Sec. 706. Deposits by qualified individual development account 
                            programs.
Sec. 707. Withdrawal procedures.
Sec. 708. Certification and termination of qualified individual 
                            development account programs.
Sec. 709. Reporting, monitoring, and evaluation.
Sec. 710. Authorization of appropriations.
Sec. 711. Matching funds for individual development accounts provided 
                            for qualified financial institutions.

SEC. 2. CONGRESSIONAL FINDINGS.

    (a) 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 the United 
        States industry;
            (3) reduces savings and investment in the United States by 
        taxing them multiple times;
            (4) slows the capital formation necessary for real wages to 
        steadily increase;
            (5) lowers productivity;
            (6) imposes unacceptable and unnecessary administrative and 
        compliance costs on individual and business taxpayers;
            (7) is unfair and inequitable;
            (8) unnecessarily intrudes upon the privacy and civil 
        rights of United States citizens;
            (9) hides the true cost of government by embedding taxes in 
        the costs of everything we buy;
            (10) is not being complied with at satisfactory levels and 
        therefore raises the tax burden on law abiding citizens; and
            (11) impedes upward social mobility.
    (b) Congress finds further that the estate and gift taxes--
            (1) force family businesses and farms to be sold out of the 
        family to pay tax;
            (2) discourage capital formation and entrepreneurship;
            (3) foster the continued dominance of large enterprises 
        over small family-owned companies and farms; and
            (4) impose unacceptably high tax planning costs on small 
        businesses and farms.
    (c) Congress finds further that a broad-based national sales tax on 
goods and services purchased for final consumption--
            (1) is similar in many respects to the sales and use taxes 
        in place in 45 of the 50 States;
            (2) will promote savings and investment;
            (3) will promote fairness;
            (4) will promote economic growth;
            (5) will raise the standard of living of the American 
        people;
            (6) will increase investment;
            (7) will enhance productivity and international 
        competitiveness;
            (8) will reduce administrative burdens on the American 
        taxpayer;
            (9) will improve upward social mobility; and
            (10) will respect the privacy interests and civil rights of 
        taxpayers.
    (d) Congress finds that a business tax which imposes the same tax 
burden on foreign and United States produced goods and services and is 
not biased against investment--
            (1) will promote savings and investment;
            (2) will promote fairness;
            (3) will promote economic growth;
            (4) will raise the standard of living of the American 
        people;
            (5) will increase investment;
            (6) will enhance productivity and international 
        competitiveness;
            (7) will reduce administrative burdens on the American 
        taxpayer; and
            (8) will improve upward social mobility.
    (e) 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 foster 
        administration and collection of the Federal sales tax at the 
        State level in return for a reasonable administration fee to 
        the States; and
            (4) businesses that must collect and remit taxes should 
        receive reasonable compensation for the cost of doing so.

      TITLE I--REPEAL OF THE INCOME TAX AND ESTATE AND GIFT TAXES

SEC. 101. INCOME TAXES REPEALED.

    Subtitle A of the Internal Revenue Code of 1986 (relating to income 
taxes and self-employment taxes) is hereby repealed.

SEC. 102. ESTATE AND GIFT TAXES REPEALED.

    Subtitle B of the Internal Revenue Code of 1986 (relating to estate 
and gift taxes) is hereby repealed.

SEC. 103. EFFECTIVE DATES; OTHER MATTERS.

    (a) Subtitle H of the Internal Revenue Code of 1986 (relating to 
Financing of Presidential Election Campaigns) is hereby repealed.
    (b) Subtitle C (relating to employment taxes) is redesignated as 
subtitle E.
    (c) Subtitle D (relating to miscellaneous excise taxes) is 
redesignated as subtitle F.
    (d) Subtitle E (relating to Alcohol, Tobacco and Certain Other 
Excise Taxes) is redesignated as subtitle G.
    (e) Subtitle F (relating to Procedure and Administration) is 
redesignated as subtitle H.
    (f) Subtitle G (relating to the Joint Committee on Taxation) is 
redesignated as subtitle L.
    (g) References to provisions repealed by this Act shall be treated 
as references to such provisions as in effect on the day before the 
date of the enactment of this Act.
    (h) Effective Dates.--The amendments made by this Act shall take 
effect on January 1, 2007. The Internal Revenue Code of 1986 enacted 
October 22, 1986 as heretofore, hereby, or hereafter amended may be 
cited as the ``Internal Revenue Code of 2005''.

                       TITLE II--GENERAL MATTERS

SEC. 201. GENERAL MATTERS.

    (a) In General.--The Internal Revenue Code of 1986 is amended by 
inserting at the beginning the following new subtitle:

                     ``Subtitle A--General Matters

                              ``Chapter 1--Principles of 
                                        interpretation; definitions.

         ``CHAPTER 1--PRINCIPLES OF INTERPRETATION; DEFINITIONS

                              ``Sec. 1. Principles of interpretation.
                              ``Sec. 2. Definitions.

``SEC. 1. PRINCIPLES OF INTERPRETATION.

    ``(a) In General.--Any court, the Secretary and any sales tax 
administering authority shall consider the purposes of this title (as 
set forth in subsection (b)) as the primary aid in statutory 
construction.
    ``(b) Purposes.--
            ``(1) A purpose of this title is to raise revenue needed by 
        the Federal Government in a manner consistent with the title's 
        other purposes.
            ``(2) A purpose of this title is to tax consumption of 
        goods and services in the United States by means of the sales 
        tax and the business tax.
            ``(3) A purpose of this title is to prevent double, 
        multiple or cascading taxation.
            ``(4) A purpose of this title is to simplify the tax law 
        and reduce the administration costs of, and the costs of 
        compliance with, the tax law.
            ``(5) A purpose of this title is to provide for the 
        administration of the tax law in a manner that respects--
                    ``(A) privacy,
                    ``(B) due process,
                    ``(C) individual rights when interacting with the 
                Government,
                    ``(D) the presumption of innocence in criminal 
                proceedings, and
                    ``(E) the presumption of lawful behavior in civil 
                proceedings.
            ``(6) A purpose of this title is to increase the role of 
        State governments in Federal tax administration because of 
        State government expertise in sales tax administration.
            ``(7) A purpose of this title is to enhance generally 
        cooperation and coordination among State tax administrators and 
        to enhance cooperation and coordination among State and Federal 
        tax administrators, consistent with the principle of 
        intergovernmental tax immunity.
    ``(c) Secondary Aids to Statutory Construction.--As a secondary aid 
in statutory construction, any court, the Secretary and any sales tax 
administering authority shall--
            ``(1) consider the common law canons of statutory 
        construction,
            ``(2) consider the meaning and construction of concepts and 
        terms used in the Internal Revenue Code of 1986 as in force 
        prior to the date of the enactment of this subtitle, and
            ``(3) construe any ambiguities in this title in favor of 
        reserving powers to the States respectively, or to the people.

``SEC. 2. DEFINITIONS.

    ``(a) Affiliated Firms.--A firm is affiliated with another if 1 
firm owns 50 percent or more of--
            ``(1) the voting shares in a corporation, or
            ``(2) the capital interests of a business firm that is not 
        a corporation.
    ``(b) Business Purpose.--The term `business purpose' means a 
purpose reasonably designed or calculated to further the profitability 
of a trade or business, including without limitation for the purpose of 
using a good or service in that trade or business--
            ``(1) for resale,
            ``(2) to produce, provide, render or sell taxable property 
        or services, or
            ``(3) in furtherance of other bona fide business purposes.
    ``(c) Conforming State Sales Tax.--The term `conforming State sales 
tax' means a sales tax imposed by a State that adopts the same 
definition of taxable property and services as the tax imposed by this 
title.
    ``(d) Designated Commercial Private Courier Service.--The term 
`designated commercial private courier service' means a firm designated 
as such by the Secretary or any sales tax administering authority. The 
Secretary or any sales tax administering authority shall designate a 
firm as a designated commercial private courier service upon 
application of the firm provided that the firm--
            ``(1) provides its services to the general public,
            ``(2) records electronically to its data base kept in the 
        regular course of its business the date on which an item was 
        given to such firm for delivery, and
            ``(3) has been operating for at least 1 year.
    ``(e) Educational Expenses.--
            ``(1) In general.--The term `educational expenses' means 
        expenses directly related to--
                    ``(A) primary, secondary, college or university 
                level instruction or course work, or
                    ``(B) employment or career related training or 
                instruction by or under qualified instructors in a 
                structured program.
            ``(2) Exclusion.--Such term does not include room, board, 
        sports activities, recreational activities, hobbies, games, 
        arts or crafts or cultural activities.
    ``(f) Family Member.--The term `family member' has the meaning 
given such term by section 302(b).
    ``(g) Federal Short Term Rate.--The term `Federal short term rate' 
has the meaning given such term by section 2512(b).
    ``(h) Gross Payments.--The term `gross payments' means payments for 
the taxable property or services (excluding Federal taxes imposed by 
subtitle B).
    ``(i) Import Tax.--The term `import tax' means any tax imposed by 
chapter 10 of subtitle C.
    ``(j) Intangible Property.--
            ``(1) In general.--The term `intangible property' includes 
        copyrights, trademarks, patents, goodwill, financial 
        instruments, securities, commercial paper, debts, notes and 
        bonds and other property deemed intangible at common law. The 
        Secretary shall promulgate regulations to resolve differences 
        among the common law of the several States.
            ``(2) Certain types of property.--Such term does not 
        include tangible personal property (or rents or leaseholds of 
        any term thereon), real property (or rents or leaseholds of any 
        term thereon) and computer software.
            ``(3) Cross reference.--For anti avoidance rules relating 
        to intangible property, see section 2901(a).
    ``(k) Investment Purposes.--The term `investment purposes' means 
for purposes of appreciation or the production of income but not 
entailing more than minor personal efforts.
    ``(l) Person.--The term `person' means any natural person, and 
unless the context clearly does not allow it, any corporation, 
partnership, limited liability company, trust, estate, government, 
agency, administration, organization, association or other legal entity 
(foreign or domestic).
    ``(m) Produce, Provide, Render, or Sell Taxable Property or 
Services.--
            ``(1) In general.--Taxable property or services are used to 
        produce, provide, render or sell a taxable property or service 
        if such property or service is purchased by a person engaged in 
        a trade or business for the purpose of employing or using such 
        taxable property or service in the production, provision, 
        rendering or sale of other taxable property or services in the 
        ordinary course of that trade or business.
            ``(2) Research, experimentation, testing, and 
        development.--Taxable property or services used in a trade or 
        business for the purpose of research, experimentation, testing 
        and development shall be treated as used to produce, provide, 
        render or sell taxable property or services.
            ``(3) Insurance payments.--Taxable property or services 
        purchased by an insurer on behalf of an insured shall be 
        treated as used to produce, provide, render or sell taxable 
        property or services if the premium for the insurance contract 
        giving rise to the insurer's obligation was subject to tax 
        pursuant to section 601 (relating to financial intermediation 
        services).
            ``(4) Education and training.--Educational expenses shall 
        be treated as services used to produce, provide, render or sell 
        taxable property or services.
    ``(n) Purchaser's Receipt.--The term `purchaser's receipt' means 
the receipt required by section 2510.
    ``(o) Registered Seller.--The term `registered seller' means a 
person registered pursuant to section 2502.
    ``(p) Savings Assets.--The term `savings assets' means financial 
assets held for an investment purpose.
    ``(q) Sales Tax Administering Authority.--The term `sales tax 
administering authority' means--
            ``(1) in an administering State, the State agency 
        designated to collect and administer the sales tax imposed by 
        subtitle B, or
            ``(2) the Secretary, in a State that neither--
                    ``(A) is an administering States, nor
                    ``(B) has elected to have its sales tax 
                administered by an administering State, or
            ``(3) in a State that has elected pursuant to section 
        401(g) to have another State administer the sales tax, the 
        State agency designated to collect and administer the sales tax 
        imposed by this subtitle.
    ``(r) Secretary.--The term `Secretary' means the Secretary of the 
Treasury.
    ``(s) Taxable Employers.--
            ``(1) In general.--The term `taxable employers' means 
        employers that are not--
                    ``(A) engaged in a trade or business,
                    ``(B) a not-for-profit organization (as defined in 
                section 506), or
                    ``(C) a Government enterprise (as defined in 
                section 504).
            ``(2) Examples.--Such term includes--
                    ``(A) households employing domestic servants 
                (including cooks, gardeners, maids, laborers, child 
                care providers, and nurses), and
                    ``(B) government except for Government enterprises 
                as defined in section 504.
            ``(3) Cross reference.--For rules relating to collection 
        and remittance of tax on wages by taxable employers, see 
        section 103.
    ``(t) Taxable Property or Services.--
            ``(1) General rule.--For purposes of subtitle B, 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 (as defined in subsection (j)), and
                    ``(B) any service (including any financial 
                intermediation services as determined by section 601).
            ``(2) Services.--For purposes of subparagraph (1), the term 
        `services' does not include services performed by an employee 
        for which the employee is paid wages or a salary (as defined in 
        subsection (w))--
                    ``(A) for an employer in the regular course of the 
                employer's trade or business,
                    ``(B) for an employer that is a not-for-profit 
                organization (as defined in section 506), and
                    ``(C) for an employer that is a Government 
                enterprise (as defined in section 504).
            ``(3) Wages and salary paid by taxable employers.--
                    ``(A) General rule.--The term `services' includes 
                wages and salary paid by taxable employers (as defined 
                in subsection (l)).
                    ``(B) Educational services.--The term `services' 
                does not include wages or salary paid by taxable 
                employers to employees whose work is directly related 
                to--
                            ``(i) providing primary, secondary, college 
                        or university level instruction or course work, 
                        or
                            ``(ii) employment or career related 
                        training or instruction by or under qualified 
                        instructors in a structured program.
                The term `services' includes wages or salary paid by 
                taxable employers to employees whose work is related to 
                providing room, board, sports activities, recreational 
                activities, hobbies, games, arts or crafts or cultural 
                activities.
    ``(u) United States.--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.
    ``(v) Used Property.--The term `used property' means--
            ``(1) property on which the tax imposed by section 101 has 
        been collected and for which no credit has been allowed under 
        section 203, and
            ``(2) property that was held other than for a business 
        purpose (as defined in section 2) on December 31, 2006.
    ``(w) Wages, Salary, or Compensation.--The term `wages and salary' 
means all compensation paid for employment service including cash 
compensation, employee benefits, disability insurance or wage 
replacement insurance payments, unemployment compensation insurance, 
workers compensation insurance and the fair market value of any other 
consideration paid by an employer to an employee in consideration for 
employment services rendered.
    ``(x) Wholesale Seller.--
            ``(1) In general.--The term `wholesale seller' means a 
        registered seller for whom, in the previous calendar year, more 
        than 80 percent of gross payments received were from sales to 
        registered sellers.
            ``(2) First year.--Firms may petition the sales tax 
        administering authority to be deemed wholesaler sellers for 
        calendar year 2007. The sales tax administering authority may 
        require reasonable documentation relating to whether more than 
        80 percent of the gross payments received by the firm were from 
        sales to persons that would have been registered sellers in the 
        year 2006 had the sales tax been in effect.''.

                      TITLE III--SALES TAX ENACTED

SEC. 301. SALES TAX.

    (a) In General.--The Internal Revenue Code of 1986 is amended by 
inserting after subtitle A the following new subtitle:

                        ``Subtitle B--Sales Tax

                              ``Chapter 1. Imposition of tax; general 
                                        rules, etc.
                              ``Chapter 2. Credits; refunds.
                              ``Chapter 3. Family consumption 
                                        allowance.
                              ``Chapter 4. State and Federal 
                                        cooperative tax administration.
                              ``Chapter 5. Special rules.
                              ``Chapter 6. Financial intermediation 
                                        services.

          ``CHAPTER 1--IMPOSITION OF TAX; GENERAL RULES, ETC.

                              ``Sec. 101. Imposition of sales tax.
                              ``Sec. 102. Intermediate and export 
                                        sales.
                              ``Sec. 103. Rules relating to collection 
                                        and remittance of tax.

``SEC. 101. IMPOSITION OF SALES TAX.

    ``(a) In General.--There is hereby imposed a tax at the rate of 8.4 
percent on the use or consumption in the United States of taxable 
property or services (as defined in section 2).
    ``(b) Coordination With Import Duties and Business Tax.--The tax 
imposed by this section is in addition to any import duties imposed by 
chapter 4 of title 19 and the tax imposed by subtitle C. The Secretary 
shall provide by regulation that, to the maximum extent practicable, 
the tax imposed by this section on certain imported taxable property 
and services is collected and administered in conjunction with any 
applicable import duties imposed by the United States and with any 
applicable business tax imposed by subtitle C.
    ``(c) Liability for Tax.--The person using or consuming taxable 
property or services in the United States is liable for the tax imposed 
by this section, except as provided by subsection (d) of this section.
    ``(d) Exception From Liability for Tax.--A person using or 
consuming a taxable property or service in the United States is not 
liable for the tax imposed by this section if the person pays the tax 
to a person selling the taxable property or service and receives from 
such person a purchaser's receipt (as defined in section 2).

``SEC. 102. INTERMEDIATE AND EXPORT SALES.

    ``(a) Business Purpose.--No tax shall be imposed under section 101 
on any taxable property or service purchased for a business purpose in 
a trade or business, provided that the purchaser provided the seller 
with a registration certificate.
    ``(b) Exports.--No tax shall be imposed under section 101 on any 
taxable property or service purchased for export from the United States 
for use or consumption outside the United States, provided that the 
purchaser provided the seller with a registration certificate.
    ``(c) Purchases for Investment Exempt From Tax.--No tax shall be 
imposed under section 101 on any taxable property or service purchased 
for an investment purpose (as defined in section 2) and held 
exclusively for an investment purpose.

``SEC. 103. RULES RELATING TO COLLECTION AND REMITTANCE OF TAX.

    ``(a) Liability for Collection and Remittance of the Tax.--Any tax 
imposed by this subtitle shall be collected and remitted by the seller 
of taxable property or services (including financial intermediation 
services), except as provided otherwise by this section.
    ``(b) Tax To Be Remitted by Purchaser in Certain Circumstances.--
            ``(1) In general.--In the case of taxable property or 
        services purchased outside of the United States and imported 
        into the United States for use or consumption in the United 
        States, the purchaser shall remit the tax imposed by section 
        101.
            ``(2) Certain wages or salary.--In the case of wages or 
        salary (as defined in section 2) paid by a taxable employer (as 
        defined in section 2) for taxable services (within the meaning 
        of section 2), the employer shall remit the tax imposed by 
        section 101.
    ``(c) Conversion of Business or Export Property or Services.--
Property or services purchased for a business purpose, for export or an 
investment purpose (sold untaxed pursuant to section 102) that is 
subsequently converted to personal use shall be deemed purchased at the 
time of conversion and shall be subject to the tax imposed by section 
101 at the fair market value of the converted property as of the date 
of conversion. The tax shall be due as if the property had been sold at 
the fair market value during the month of conversion. The person using 
or consuming the converted property is liable for and shall remit the 
tax.
    ``(d) Seller Relieved of Liability in Certain Cases.--In the case 
of any taxable property or service which is sold untaxed pursuant to 
section 102, the seller shall be relieved of the duty to collect and 
remit the tax imposed under section 101 on such purchase if the 
seller--
            ``(1) received in good faith, and retains on file for the 
        period set forth in section 2509, a copy of a registration 
        certificate from the purchaser, and
            ``(2) did not, at the time of sale, have reasonable cause 
        to believe that the buyer was not registered pursuant to 
        section 2502.
    ``(e) Purchaser Liable to Collect and Remit in Certain Cases.--In 
the case of any taxable property or service which is sold untaxed 
pursuant to section 102, if the seller is relieved by virtue of 
subsection (d) of the duty to collect and remit the tax imposed by 
section 101, then the duty to pay any tax due shall rest with the 
purchaser.
    ``(f) Barter Transactions.--If gross payment for taxable property 
or services is made by a means other than money, then the person 
responsible for collecting and remitting the tax shall remit the tax to 
the sales tax administering authority in money as if the gross payment 
had been made in money at the fair market value of the taxable property 
or services purchased.
    ``(g) Intercompany Sales.--Firms that make purchases from or sales 
to affiliated firms (as defined in section 2) that are untaxed pursuant 
to section 102 shall not need to comply with the requirements of 
subsection (d) (relating to certificates) for such purchases or sales 
to remain untaxed.
    ``(h) Election With Respect to Primary Residence.--
            ``(1) In general.--A purchaser may elect, in a form 
        prescribed by the Secretary, to pay the tax imposed by section 
        101 ratably over 30 years (together with interest at the 
        applicable interest rate (as defined in section 2512)) if the 
        taxable property is the primary residence of the purchaser.
            ``(2) Special rules.--If property with respect to which an 
        election has been made under paragraph (1) ceases to be the 
        primary residence of the purchaser or is sold, then the 
        remaining tax (and any accrued interest) shall be paid within 5 
        days of such sale or such residence ceasing to be the 
        purchaser's primary residence.

                     ``CHAPTER 2--CREDITS; REFUNDS

                              ``Sec. 201. Credits and refunds.
                              ``Sec. 202. Business use conversion 
                                        credit.
                              ``Sec. 203. Intermediate and export sales 
                                        credit.
                              ``Sec. 204. Administration credit.
                              ``Sec. 205. Bad debt credit.
                              ``Sec. 206. Insurance proceeds credit.
                              ``Sec. 207. Refunds.
                              ``Sec. 208. Previously taxed property 
                                        credit.

``SEC. 201. CREDITS AND REFUNDS.

    ``(a) In General.--Each person shall be allowed a credit with 
respect to the taxes imposed by section 101 for each month in an amount 
equal to the sum of--
            ``(1) such person's business use conversion credit pursuant 
        to section 202 for such month,
            ``(2) such person's intermediate and export sales credit 
        pursuant to section 203 for such month,
            ``(3) the administration credit pursuant to section 204 for 
        such month,
            ``(4) the bad debt credit pursuant to section 205 for such 
        month,
            ``(5) the insurance proceeds credit pursuant to section 206 
        for such month,
            ``(6) the transitional inventory credit pursuant to section 
        2804,
            ``(7) the previously taxed property credit pursuant to 
        section 208, and
            ``(8) any amount paid in excess of the amount due.
    ``(b) Credits Not Additive.--Except for the administration credit 
allowed by section 204, only 1 credit allowed by chapter 2 may be taken 
with respect to any particular gross payment.

``SEC. 202. BUSINESS USE CONVERSION CREDIT.

    ``(a) In General.--For purposes of section 201, a person's business 
use conversion credit for any month is the aggregate of the amounts 
determined under subsection (b) with respect to taxable property and 
services--
            ``(1) on which tax was imposed by section 101 (and actually 
        paid), and
            ``(2) which commenced to be 95 percent or more used during 
        such month for business purposes (within the meaning of section 
        2).
    ``(b) Amount of Credit.--The amount determined under this paragraph 
with respect to any taxable property or service is the lesser of--
            ``(1) the product of--
                    ``(A) the rate imposed by section 101, and
                    ``(B) the fair market value of the property or 
                service when its use is converted, or
            ``(2) the amount of tax paid with respect to such taxable 
        property or service, including the amount, if any, determined 
        in accordance with section 505 (relating to mixed use 
        property).
    ``(c) Credit Provided to Person Converting Property.--The credit 
provided by subsection (a) shall be provided to the person converting 
the property to business use. The credit shall only be available to 
registered persons.
    ``(d) Certification.--The Secretary shall provide a form whereby a 
consumer may certify under penalty of perjury that a consumer good had 
been subject to the tax imposed by section 101. Such certification 
shall be sufficient to meet the requirements of subsection (a)(1).
    ``(e) Purchases From Non-Registered Person.--In the case of 
property purchased by a registered person from a non-registered person, 
the purchase price of the property shall be the fair market value for 
purposes of subsection (b).

``SEC. 203. INTERMEDIATE AND EXPORT SALES CREDIT.

    ``For purposes of section 201, a person's intermediate and export 
sales credit is the amount of sales tax paid on the purchase of any 
taxable property or service purchased for--
            ``(1) a business purpose in a trade or business (as defined 
        in section 2), or
            ``(2) export from the United States for use or consumption 
        outside the United States.

``SEC. 204. ADMINISTRATION CREDIT.

    ``(a) Every person filing a timely monthly report (with regard to 
extensions) in compliance with section 2501 shall be entitled to a 
taxpayer administrative credit equal to the greater of--
            ``(1) $200, or
            ``(2) one-quarter of 1 percent of the tax remitted.
    ``(b) The credit afforded by this section shall not exceed 20 
percent of the tax due to be remitted prior to the application of any 
credit or credits permitted by section 201.

``SEC. 205. BAD DEBT CREDIT.

    ``(a) Financial Intermediation Services.--Any person who has 
experienced a bad debt (other than unpaid invoices within the meaning 
of subsection (b)) shall be entitled to a credit equal to the product 
of--
            ``(1) the rate imposed by section 101, and
            ``(2) the amount of the bad debt (as defined in section 2).
    ``(b) Unpaid Invoices.--Any person electing the accrual method of 
accounting that has with respect to a transaction--
            ``(1) invoiced the tax imposed by section 101,
            ``(2) remitted the invoiced tax,
            ``(3) actually delivered the taxable property or performed 
        the taxable services invoiced, and
            ``(4) not been paid 180 days after 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.
    ``(c) Subsequent Payment.--Any payment made with respect to a 
transaction subsequent to a section 205 credit being taken with respect 
to that transaction shall be subject to tax in the month the payment 
was received as if a sale of taxable property and services in the 
amount of the payment had been made.
    ``(d) Partial Payments.--Partial payments shall be treated as pro 
rata payments of the underlying obligation and shall be allocated 
proportionately--
            ``(1) for fully taxable payments, between payment for the 
        taxable property and service and tax, or
            ``(2) for partially taxable payments, among payment for the 
        taxable property and service, tax and other payment.
    ``(e) Related Parties.--The credit provided by this section shall 
not be available with respect to sales made to related parties. For 
purposes of this section, the term `related party' means affiliated 
firms (as defined in section 2) and family members (as defined in 
section 2).

``SEC. 206. INSURANCE PROCEEDS CREDIT.

    ``(a) In General.--A person receiving a payment from an insurer by 
virtue of an insurance contract shall be entitled to a credit in an 
amount determined by subsection (b), less any amount paid to the 
insured by the insurer pursuant to subsection (c), provided that the 
entire premium (except that portion allocable to the investment account 
of the underlying policy) for the insurance contract giving rise to the 
insurer's obligation to make a payment to the insured was subject to 
the tax imposed by section 101 and such tax was paid.
    ``(b) Credit Amount.--The amount of the credit shall be the product 
of--
            ``(1) the rate imposed by section 101, and
            ``(2) the amount of the payment made by the insurer to the 
        insured.
    ``(c) Administrative Option.--The credit determined in accordance 
with subsection (b) shall be paid by the insurer to the insured and the 
insurer shall be entitled to the credit in lieu of the insured 
provided, however, that the insurer may elect, in a form prescribed by 
the Secretary, to not pay the credit and require the insured to make 
application for the credit. In the event of such election, the insurer 
shall provide to the Secretary and the insured the name and tax 
identification number of the insurer and of the insured and indicate 
the proper amount of the credit.
    ``(d) Coordination With Respect to Exemption.--If taxable property 
or services purchased by an insurer on behalf of an insured are 
purchased free of tax, then the credit provided by this section shall 
not be available with respect to that purchase.
    ``(e) Insurance Contract.--For purposes of subsection (a), 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.

``SEC. 207. REFUNDS.

    ``(a) Registered Sellers.--If a registered seller files a monthly 
tax report with an overpayment, then, upon application by the 
registered seller in a form prescribed by the sales tax administering 
authority, the overpayment shown on the report shall be refunded to the 
registered seller within 60 days of receipt of such application. In the 
absence of such application, the overpayment may be carried forward, 
without interest, by the person entitled to the credit.
    ``(b) Other Persons.--If a person other than a registered seller 
has an overpayment for any month, then, upon application by the person 
in a form prescribed by the sales tax administering authority, the 
credit balance due shall be refunded to the person within 60 days of 
receipt of such application.
    ``(c) Interest.--No interest shall be paid on any balance due from 
the sales tax administering authority under this subsection for any 
month if such balance due is paid within 60 days after the application 
for refund is received. Balances due not paid within 60 days after the 
application for refund is received shall bear interest from the date of 
application. Interest shall be paid at the Federal short term rate (as 
defined in section 2512).

``SEC. 208. PREVIOUSLY TAXED PROPERTY CREDIT.

    ``(a) General Rule.--A seller of used property (within the meaning 
of section 2(v)) shall be entitled to a previously taxed property 
credit. The previously taxed property credit amount shall be the lesser 
of--
            ``(1) the amount of tax due and paid by virtue of the 
        present sales transactions (without regard to any credits), or
            ``(2) the most recent prior tax imposed by section 101 with 
        respect to such property (without regard to any credits).
    ``(b) Transitional Deemed Paid Rule for Property Owned on Effective 
Date of Act.--In the case of property which was acquired by the seller 
before December 31, 2006, the amount of the previously taxed property 
credit allowable pursuant to section (a)(2) shall be 8.4 percent of the 
fair market value of the property as of December 31, 2006. The seller 
shall be entitled to rely on the local government real property tax 
assessment of the property, or such other means as may be permitted by 
the Secretary, to establish fair market value.

               ``CHAPTER 3--FAMILY CONSUMPTION ALLOWANCE

                              ``Sec. 301. Family consumption allowance.
                              ``Sec. 302. Qualified family.
                              ``Sec. 303. Monthly poverty level.
                              ``Sec. 304. Rebate mechanism.
                              ``Sec. 305. Change in family 
                                        circumstances.

``SEC. 301. FAMILY CONSUMPTION ALLOWANCE.

    ``Each qualified family (as defined in section 302) shall be 
eligible to receive a sales tax rebate each month. The sales tax rebate 
shall be in an amount equal to the product of--
            ``(1) the rate of tax imposed by section 101, and
            ``(2) the monthly poverty level (as defined in section 
        303).

``SEC. 302. QUALIFIED FAMILY.

    ``(a) General Rule.--For purposes of this section, the term 
`qualified family' means 1 or more family members sharing a common 
residence. All family members sharing a common residence shall be 
considered as part of 1 qualified family.
    ``(b) Family Size Determination.--
            ``(1) In general.--To determine the size of a qualified 
        family for purposes of this chapter, the term `family member' 
        means--
                    ``(A) an individual,
                    ``(B) the individual's spouse,
                    ``(C) all lineal ancestors and descendants of such 
                individual (and such individual's spouse),
                    ``(D) all legally adopted children of such 
                individual (and such individual's spouse), and
                    ``(E) all children under legal guardianship of such 
                individual (or such individual's spouse).
            ``(2) In order for a person to be counted as a member of 
        the family for purposes of determining the size of the 
        qualified family, such person must--
                    ``(A) have a bona fide social security number, and
                    ``(B) be a lawful resident of the United States.
    ``(c) Children Living Away From Home.--
            ``(1) Members living away from home.--Any person who is a 
        registered student during no fewer than 5 months in a calendar 
        year while living away from the common residence of a qualified 
        family but who receives over 50 percent of his or her support 
        during the calendar year from members of the qualified family 
        shall be included as a member of the family unit whose members 
        provided such support for purposes of this section.
            ``(2) Children of divorced or separated parents.--If a 
        child's parents are divorced or legally separated, a child for 
        purposes of this section shall be treated as a member of the 
        qualified family of the custodial parent. In cases of joint 
        custody, the custodial parent for purposes of this section 
        shall be the parent that has custody of the child for more than 
        one half of the time during a given calendar year. In the event 
        that both parents have custody of the child for equal time 
        during a given calendar year, then they may by agreement in a 
        form prescribed by the Secretary determine which parent is the 
        custodial parent for purposes of this section. In the event 
        that both parents have custody of the child for equal time 
        during a given calendar year and they have not agreed pursuant 
        to the previous sentence, then the mother shall be treated as 
        the custodial parent in even years and the father as the 
        custodial parent in odd years for purposes of this section. A 
        parent entitled to treat a child as a member of the parent's 
        qualified family pursuant to this subparagraph may release this 
        claim to the other parent provided that such release is in 
        writing.
    ``(d) Annual Registration.--In order to receive the family 
consumption allowance provided by section 301, a qualified family must 
register with the sales tax administering authority (as defined in 
section 2) in a form prescribed by the Secretary. The annual 
registration form shall provide--
            ``(1) the name of each family member who shared the 
        qualified family's residence on the family determination date 
        (as defined in subsection (m)),
            ``(2) the social security number of each family member who 
        shared the qualified family's residence on the family 
        determination date,
            ``(3) the family member or family members to whom the 
        family consumption allowance should be paid,
            ``(4) a certification that all listed family members are 
        lawful residents of the United States,
            ``(5) a certification that all family members sharing the 
        common residence are listed,
            ``(6) a certification that no family members were 
        incarcerated on the family determination date (within the 
        meaning of subsection (l)), and
            ``(7) the address of the qualified family.
Such registration shall be signed by all members of the qualified 
family that have attained the age of 21 years as the date of filing.
    ``(e) Registration Not Mandatory.--Registration is not mandatory 
for any qualified family.
    ``(f) Effect of Failure To Provide Annual Registration.--Any 
qualified family that fails to register in accordance with this section 
within 30 days of the family determination date shall cease receiving 
the monthly family consumption allowance in the month beginning 90 days 
after the family determination date.
    ``(g) Effect of Curing Failure To Provide Annual Registration.--Any 
qualified family that failed to timely make its annual registration in 
accordance with this section but subsequently cures its failure to 
register, shall be entitled to up to 6 months of lapsed sales tax 
rebate payments. No interest on lapsed payment amounts shall be paid.
    ``(h) Effective Date of Annual Registrations.--An annual 
registration shall take effect for the month beginning 90 days after 
the family registration date.
    ``(i) Effective Date of Revised Registrations.--A revised 
registration made pursuant to section 305 shall take effect for the 
first month beginning 60 days after the revised registration was filed. 
The existing registration shall remain in effect until the effective 
date of the revised registration.
    ``(j) Determination of Registration Filing Date.--An annual or 
revised registration shall be deemed filed when--
            ``(1) deposited in the United States mail, postage prepaid, 
        to the address of the sales tax administering authority,
            ``(2) delivered and accepted at the offices of the sales 
        tax administering authority, or
            ``(3) provided to a designated commercial private courier 
        service (as defined in section 2) for delivery within 2 days to 
        the sales tax administering authority at the address of the 
        sales tax administering authority.
    ``(k) Proposed Registration To Be Provided.--30 or more days before 
the family determination date, the sales tax administering authority 
shall mail to the address shown on the most recent rebate registration 
or change of address notice filed pursuant to section 305(d) a proposed 
registration that may be simply signed by the appropriate family 
members if family circumstances have not changed.
    ``(l) Incarcerated Individuals.--An individual shall not be 
eligible under this section to be included as a member of any qualified 
family if that individual--
            ``(1) is incarcerated in a local, State or Federal jail, 
        prison, mental hospital or other institution on the family 
        determination date, and
            ``(2) is scheduled to be incarcerated for 6 months or more 
        in the 12 month period following the effective date of the 
        annual registration or the revised registration of such 
        qualified family.
    ``(m) Family Determination Date.--The family determination date is 
a date assigned to each family by the Secretary for purposes of 
determining qualified family size and other information necessary for 
the administration of this Chapter. The Secretary shall promulgate 
regulations regarding the issuance of family determination dates. In 
the absence of any regulations, the family determination date for all 
families shall be October 1st. The Secretary may assign family 
determination dates for administrative convenience. Permissible means 
of assigning family determination dates include a method based on the 
birth dates of family members.

``SEC. 303. MONTHLY POVERTY LEVEL.

    ``The monthly poverty level for any particular month shall be the 
annual 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 families of a particular size divided by 12.

``SEC. 304. REBATE MECHANISM.

    ``(a) General Rule.--The Social Security Administration shall 
provide a monthly sales tax rebate to duly registered qualified 
families in an amount determined in accordance with section 301.
    ``(b) Persons Receiving Rebate.--The payments shall be made to an 
individual designated by the qualifying family in the annual or revised 
registration for each qualified family in effect with respect to the 
month for which payment is being made. Payments may only be made to 
persons 18 years or older.
    ``(c) How Rebate Provided.--In the case of employed persons, the 
rebate shall be provided (1) by reducing the amount of Social Security 
and Medicare payroll taxes withheld from the individual's compensation 
and (2) reducing the amount that the employer must remit. In the case 
of persons that are not employed, the rebate shall be in the form of a 
check mailed monthly or provided by smartcard or by direct electronic 
deposit (at the election of the rebate recipient).
    ``(d) When Rebates Mailed.--Rebates shall be mailed on or before 
the first business day of the month for which the rebate is being 
provided.
    ``(e) Smartcards and Direct Electronic Deposit Permissible.--The 
Social Security Administration may provide rebates in the form of 
smartcards that carry cash balances in their memory for use in making 
purchases at retail establishments or by direct electronic deposit. The 
Social Security Administration shall provide that, at the request of 
the designated individual, rebates will be transferred to the 
individual development account of such individual in an amount 
specified by such individual.

``SEC. 305. CHANGE IN FAMILY CIRCUMSTANCES.

    ``(a) General Rule.--In the absence of the filing of a revised 
registration in accordance with this section, the common residence of 
the qualified family, marital status and number of persons in a 
qualified family on the family determination date shall govern 
determinations required to be made under this subchapter for purposes 
of the following year.
    ``(b) No Double Counting.--In no event shall any person be 
considered part of more than 1 qualified family.
    ``(c) Revised Registration Permissible.--A qualified family may 
file a revised registration for purposes of section 302(d) to reflect a 
change in family circumstances. A revised registration form shall 
provide--
            ``(1) the name of each family member who shared the 
        qualified family's residence on the filing date of the revised 
        registration,
            ``(2) the social security number of each family member who 
        shared the qualified family's residence on the filing date of 
        the revised registration,
            ``(3) the family member or family members to whom the 
        family consumption allowance should be paid,
            ``(4) a certification that all listed family members are 
        lawful residents of the United States,
            ``(5) a certification that all family members sharing the 
        common residence are listed,
            ``(6) a certification that no family members were 
        incarcerated on the family determination date (within the 
        meaning of section 302(l)), and
            ``(7) the address of the qualified family.
Such revised registration shall be signed by all members of the 
qualified family that have attained the age of 21 years as of the 
filing date of the revised registration.
    ``(d) Change of Address.--A change of address for a qualified 
family may be filed with the sales tax administering authority at any 
time and shall not constitute a revised registration.
    ``(e) Revised Registration Not Mandatory.--Revised registrations 
reflecting changes in family status are not mandatory.

     ``CHAPTER 4--STATE AND FEDERAL COOPERATIVE TAX ADMINISTRATION

                              ``Sec. 401. Authority for States to 
                                        collect tax.
                              ``Sec. 402. Federal administrative 
                                        support for States.
                              ``Sec. 403. Federal-State conferences.
                              ``Sec. 404. Federal administration in 
                                        certain States.
                              ``Sec. 405. Interstate allocation and 
                                        destination determination.
                              ``Sec. 406. General administrative 
                                        matters.
                              ``Sec. 407. Jurisdiction.

``SEC. 401. AUTHORITY FOR STATES TO COLLECT TAX.

    ``(a) In General.--The tax imposed by section 101 on gross payments 
for the use or consumption of taxable property or services within a 
State shall be administered, collected, and remitted to the United 
States Treasury by such State if the State is an `administering State' 
(as defined in subsection (b)).
    ``(b) Administering State.--For purposes of this section, the term 
`administering State' means any State--
            ``(1) which maintains a sales tax, and
            ``(2) which enters into a cooperative agreement with the 
        Secretary 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) Cooperative Agreements.--The agreement under subsection 
(b)(2) shall include provisions for the expeditious transfer of funds, 
contact officers, dispute resolution (including agreement to abide by 
the arbitration process for resolving disputes among States provided in 
section 405(i)), information exchange, confidentiality, taxpayer rights 
and other matters of importance. The agreement shall not contain 
extraneous matters.
    ``(d) Timely Remittance of Tax.--
            ``(1) In general.--Administering States shall remit and pay 
        over taxes collected under this subtitle on behalf of the 
        United States (less the administration fee allowable under 
        paragraph (2)) no later than 5 days after receipt. Interest at 
        150 percent of the Federal short-term rate shall be paid with 
        respect to amounts remitted after the due date.
            ``(2) Administration fee.--An administering State may 
        retain an administration fee equal to one-quarter of 1 percent 
        of the amounts otherwise required to be remitted to the United 
        States under this chapter by the administering State.
    ``(e) Limitation on Administration of Tax by United States.--The 
Secretary may administer the tax imposed by this subtitle in an 
administering State only if--
            ``(1)(A) such State has failed on a regular 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 basis otherwise 
        materially breached the agreement referred to in subsection 
        (b)(2),
            ``(2) the State has failed to cure such alleged failures 
        and breaches within a reasonable time,
            ``(3) the Secretary provides such State with written notice 
        of such alleged failures and breaches, and
            ``(4) a District Court of the United States within such 
        State, upon application of the Secretary, has rendered a 
        decision--
                    ``(A) making findings of fact that--
                            ``(i) such State has failed on a regular 
                        basis to timely remit to the United States 
                        taxes collected under this chapter on behalf of 
                        the United States, or such State has on a 
                        regular basis otherwise materially breached the 
                        agreement referred to in subsection (b)(2), and
                            ``(ii) the Secretary has provided such 
                        State with written notice of such alleged 
                        failures and breaches, and
                            ``(iii) the State has failed to cure such 
                        alleged failures and breaches within a 
                        reasonable time, and
                    ``(B) making a determination that it is in the best 
                interest of the citizens of the United States that the 
                administering State's authority to administer the tax 
                imposed by this subtitle be revoked and such tax be 
                administered directly by the Secretary.
        The order of the District Court revoking the authority of an 
        administering State shall contain provisions governing the 
        orderly transfer of authority to the Secretary.
    ``(f) Reinstitution.--A State that has had its authority revoked 
pursuant to subsection (e) shall not be an administering State for a 
period of not less than 5 years after the date of the order of 
revocation. For the first calendar year commencing 8 years after the 
date of the order of revocation, the State shall be regarded without 
prejudice as eligible to become an administering State.
    ``(g) Third State Administration Permissible.--It shall be 
permissible for a State to contract with an administering State to 
administer the State's sales tax for an agreed fee. In this case, the 
agreement contemplated by subsection (c) shall have both States and the 
Federal Government as parties.
    ``(h) Investigations and Audits.--Administering States shall not 
conduct investigations or audits at facilities in other administering 
States in connection with the tax imposed by section 101 or conforming 
State sales tax but shall instead cooperate with other administering 
States using the mechanisms established by section 402 of this chapter, 
by compact or by other agreement.

``SEC. 402. FEDERAL ADMINISTRATIVE SUPPORT FOR STATES.

    ``(a) The Secretary shall administer a program to facilitate 
information sharing among administering States.
    ``(b) The Secretary shall facilitate, and may be a party to, a 
compact among the States for purposes of facilitating the taxation of 
interstate sales and for other purposes that may facilitate 
implementation of this subtitle.
    ``(c) The Secretary shall enter into an agreement among conforming 
States enabling conforming States to collect conforming State sales tax 
on sales made by sellers without a particular conforming State to a 
destination within that particular conforming State.
    ``(d) The Secretary shall have the authority to promulgate 
regulations, to provide 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 the public.

``SEC. 403. FEDERAL-STATE CONFERENCES.

    ``No less than once annually, the Secretary shall host a conference 
with the sales tax administrators from the various administering States 
to evaluate the state of a national sales tax system, to address issues 
of mutual concern and to develop and consider legislative, regulatory 
and administrative proposals to improve the tax system.

``SEC. 404. FEDERAL ADMINISTRATION IN CERTAIN STATES.

    ``The Secretary shall directly administer the tax imposed by this 
subtitle in any State or other United States jurisdiction that has 
not--
            ``(1) become an administering State, or
            ``(2) elected to have another State administer its tax in 
        accordance with section 401(g).

``SEC. 405. INTERSTATE ALLOCATION AND DESTINATION DETERMINATION.

    ``(a) Destination Generally.--The tax imposed by this subtitle is a 
destination principle tax. This section shall govern for purposes of 
determining--
            ``(1) whether the destination of taxable property and 
        services is within or without the United States, and
            ``(2) which State or territory within the United States is 
        the destination of taxable property and services.
    ``(b) Tangible Personal Property.--Except as provided in subsection 
(g) (relating to certain leases), the destination of tangible personal 
property shall be the State or territory in which the property was 
first delivered to the purchaser (including the purchaser's agents and 
authorized representatives).
    ``(c) Real Property.--The destination of real property, or rents or 
leaseholds on real property, shall be the State or territory in which 
the real property is located.
    ``(d) Other Property.--The destination of any other taxable 
property shall be the residence of the purchaser.
    ``(e) Services.--
            ``(1) General rule.--The destination of services shall be 
        the State or territory in which the use or consumption of the 
        services occurred. Allocation of services relating to more than 
        1 jurisdiction shall be on the basis of time or another method 
        determined by regulation.
            ``(2) Telecommunications services.--The destination of 
        telecommunications services shall be the residence of the 
        purchaser. The term `telecommunications services' includes 
        telephone, telegraph, beeper, radio, cable television, 
        satellite and computer online 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 each final destination).
            ``(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.
            ``(5) Electrical service.--The destination of electrical 
        services shall be the residence of the purchaser.
    ``(f) Financial Intermediation Services.--The destination of 
financial intermediation services shall be the residence of the 
purchaser.
    ``(g) Rents Paid for the Lease of Tangible Property.--
            ``(1) General rule.--Except as provided in subparagraph 
        (2), the destination of rents paid for the lease of tangible 
        property and leaseholds on such property shall be where the 
        property is located while in use.
            ``(2) Land vehicles; aircraft; water craft.--The 
        destination of rental and lease payments on land vehicles, 
        aircraft and water craft shall be--
                    ``(A) in the case of rentals and leases of a term 1 
                month or less, the location where the land vehicle, 
                aircraft or water craft was originally delivered to the 
                renter or lessee, and
                    ``(B) in the case of rentals and leases of a term 
                greater than 1 month, the residence of the renter or 
                lessee.
    ``(h) Allocation Rules.--Tax revenue from taxes imposed by this 
subtitle or from conforming State sales taxes shall be allocated 
between or among States by reference to which State or States are the 
destination of the taxable property or service.
    ``(i) 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: The standard of such judicial review shall be 
abuse of discretion.

``SEC. 406. GENERAL ADMINISTRATIVE MATTERS.

    ``(a) In General.--The Secretary and each sales tax administering 
authority may employ such persons as may be necessary for the 
administration of this title 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 sales tax administering authority have 
issued inconsistent rules or regulations, any lawful rule or regulation 
issued by the Secretary shall govern.
    ``(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.--No 
rule, ruling or regulation issued or promulgated by the Secretary 
relating to any internal revenue law or by a sales tax administering 
authority shall apply to a period prior to its publication in the 
Federal Register (or State equivalent) except that a regulation may 
take retroactive effect to prevent abuse.
    ``(e) Review of Impact of Regulations, Rules and Rulings on Small 
Business.--
            ``(1) 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 
        30 days 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.
            ``(2) 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--
                    ``(A) consider the comments of the Chief Counsel 
                for Advocacy of the Small Business Administration on 
                such proposed or temporary regulation, and
                    ``(B) in promulgating such final regulation, 
                include a narrative that describes the response to such 
                comments.
            ``(3) Submission of certain final regulation.--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 paragraphs (1) and (2) 
        shall apply, except that the submission under paragraph (1) 
        shall be made at least 30 days before the date of such 
        promulgation, and the consideration and discussion required 
        under paragraph (2) shall be made in connection with the 
        promulgation of such final regulation.
    ``(f) Small Business Regulatory Safeguards.--The Small Business 
Regulatory Enforcement Fairness Act, Public Law No. 104-121, 110 Stat. 
857 (`SBREFA') and the Regulatory Flexibility Act, 5 U.S.C. 601-612 
(`RFA') shall apply to regulations promulgated under this subtitle.

``SEC. 407. JURISDICTION.

    ``(a) State Jurisdiction.--A sales tax administering authority 
shall have jurisdiction over any gross payments made which have a 
destination (as determined in accordance with section 405) within the 
State of such sales tax administering authority. This grant of 
jurisdiction is not exclusive of other jurisdiction that such sales tax 
administering authority may have.
    ``(b) Federal Jurisdiction.--The grant of jurisdiction in 
subsection (a) shall not be in derogation of Federal jurisdiction over 
the same matter. The Federal Government shall have the right to 
exercise pre-emptive jurisdiction over matters relating to the taxes 
imposed by this subtitle.

                       ``CHAPTER 5--SPECIAL RULES

                              ``Sec. 501. Hobby activities.
                              ``Sec. 502. Gaming activities.
                              ``Sec. 503. Government purchases.
                              ``Sec. 504. Government enterprises.
                              ``Sec. 505. Mixed use property.
                              ``Sec. 506. Not-for-profit organizations.

``SEC. 501. HOBBY ACTIVITIES.

    ``(a) In General.--Neither the exemption afforded by section 102 
for intermediate sales nor the credits available pursuant to sections 
202 or 203 shall be available for any taxable property or service 
purchased for use in an activity if that activity is not engaged in for 
profit.
    ``(b) Treatment of Certain Business Activity.--If the activity 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 and salary paid, and
            ``(3) taxes (of any type) paid
in 2 or more of the most recent 3 calendar years during which it 
operated, then the business activity shall be conclusively deemed to be 
engaged in for profit.

``SEC. 502. GAMING ACTIVITIES.

    ``(a) Registration.--Any person engaging in the trade or business 
of selling 1 or more chances (as defined in subsection (b)) is a gaming 
sponsor and shall register, in a form prescribed by the Secretary, with 
the sales tax administering authority as a gaming sponsor.
    ``(b) Chance Defined.--For purposes of this section, the term 
`chance' means a lottery ticket, a raffle ticket, chip, other token, a 
bet placed, a wager placed or any similar device where the purchase of 
the right gives rise to an obligation by the gaming sponsor to pay upon 
the occurrence of--
            ``(1) a random or unpredictable event, or
            ``(2) an event over which neither the gaming sponsor nor 
        the person purchasing the chance has any substantial degree of 
        control over the outcome.
    ``(c) Taxable Property or Service.--A chance is taxable property or 
services for purposes of section 101.
    ``(d) In General.--A person receiving a gaming payment from a 
gaming sponsor because of the purchase of a chance that was taxed 
pursuant to section 101 shall be entitled to a credit in an amount 
determined by subsection (e). The gaming sponsor shall pay the credit 
to the person receiving such gaming payment. The gaming sponsor shall 
reduce the amount of sales tax remitted to the sales tax administering 
authority by the amount of any credits paid.
    ``(e) Credit Amount.--The amount of the credit shall be the product 
of--
            ``(1) the rate imposed by section 101, and
            ``(2) the amount of the payment made by the gaming sponsor 
        to the person.
    ``(f) Illegal Operations.--The credit afforded by this section 
shall be available only if--
            ``(1) the sale or purchase of the chance giving rise to the 
        payment was lawful under Federal and State law where and when 
        sold and purchased, and
            ``(2) the payment by the gaming sponsor to the person 
        seeking the credit was lawful under Federal and State law where 
        and when paid.
    ``(g) Foreign Gaming Payments.--The credit afforded by this section 
shall not be available unless--
            ``(1) the gaming payment is made in the United States, and
            ``(2) the gaming services were provided in the United 
        States.
    ``(h) Gaming Payments Other Than Money.--A person who receives a 
gaming payment other than money shall not be entitled to a credit under 
this section.
    ``(i) Gaming Payments In Cases Where Consideration Not Provided.--
Gaming payments and prizes received by a person who did not provide 
consideration for the right to receive the gaming payment or prize 
shall be treated as a taxable proxy purchase or provision within the 
meaning of section 2901.

``SEC. 503. GOVERNMENT PURCHASES.

    ``(a) Government Purchases.--
            ``(1) Purchases by the federal government.--Purchases by 
        the Federal Government of taxable property and services shall 
        be subject to the tax imposed by section 101.
            ``(2) Purchases by state governments and their political 
        subdivisions.--Purchases by State governments and their 
        political subdivisions shall be subject to the tax imposed by 
        section 101 unless--
                    ``(A) the purchase directly relates to an 
                inherently governmental activity within the meaning of 
                section 1702, or
                    ``(B) the purchase would have been exempt if made 
                by a tax-exempt organization.
    ``(b) Cross References.--For purchases by Government enterprises 
see section 504.

``SEC. 504. GOVERNMENT ENTERPRISES.

    ``(a) Government Enterprises To Collect and Remit Taxes on Sales.--
Nothing in this subtitle shall be construed to exempt any Federal, 
State, or local governmental entity (whether or not the State is an 
administering State) engaged in any business activity from collecting 
and remitting tax imposed by this subtitle on any sale of taxable 
property or services. Government entities shall comply with all duties 
imposed by this subtitle and shall be liable for penalties and subject 
to enforcement action in the same manner as private persons.
    ``(b) Government Enterprise.--Any entity owned or operated by a 
Federal, State, or local governmental unit or political subdivision 
that receives gross payments from non-governmental 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 selling taxable property or 
services that exceed $2,500.
    ``(c) Government Enterprises Intermediate Sales.--
            ``(1) Government enterprises shall not be subject to tax on 
        purchases that would not be subject to tax pursuant to section 
        102 if the Government enterprise were a private enterprise.
            ``(2) Government enterprises may not use the exemption 
        afforded by section 102 to serve as a conduit for tax free 
        purchases by Government units that would otherwise be subject 
        to taxation on purchases pursuant to section 503. If taxable 
        property or services purchased exempt from tax by a Government 
        enterprise are transferred by a Government enterprise to such 
        Government unit then the Government enterprise shall remit tax 
        as if a taxable sale were made on the date of the transfer at 
        the fair market value of the taxable property or service 
        transferred.
    ``(d) Separate Books of Account.--Any Government enterprise must 
maintain books of account, separate from the non-enterprise Government 
accounts, maintained in accordance with generally accepted accounting 
principles.
    ``(e) Trade or Business.--A Government enterprise shall be treated 
as a trade or business for purposes of this subtitle.
    ``(f) Enterprise Subsidies Constitute Taxable Purchase.--A transfer 
of funds to a Government enterprise by a Government entity without full 
consideration shall constitute a taxable Government purchase within the 
meaning of section 503 (to the extent that the transfer of funds 
exceeds the fair market value of the consideration).

``SEC. 505. MIXED USE PROPERTY.

    ``(a) Mixed Use Property or Service.--
            ``(1) Mixed use property or service.--Mixed Use Property or 
        Service is a taxable property or taxable service used for 
        both--
                    ``(A) taxable use or consumption, and
                    ``(B) for a purpose that would not be subject to 
                tax pursuant to section 102.
            ``(2) Taxable threshold.--Mixed Use Property or Service 
        shall be subject to tax notwithstanding section 102 unless such 
        property or service is used more than 95 percent for purposes 
        that would give rise to an exemption pursuant to section 102 
        during each calendar year (or portions thereof) it is owned.
            ``(3) Mixed use property or services credit.--A person 
        registered pursuant to section 2502 is entitled to a business 
        use conversion credit (pursuant to section 202) equal to the 
        product of--
                    ``(A) the mixed use property amount,
                    ``(B) the business use ratio, and
                    ``(C) the rate of tax imposed by section 101.
            ``(4) Mixed use property amount.--The mixed use property 
        amount for each month (or fraction thereof) in which the 
        property was owned shall be--
                    ``(A) one-three-hundred-sixtieth of the gross 
                payments for real property for 360 months or until the 
                property is sold,
                    ``(B) one-eighty-fourth of the gross payments for 
                tangible personal property (other than vehicles) for 84 
                months or until the property is sold,
                    ``(C) one-sixtieth of the gross payments for 
                vehicles for 60 months or until the property is sold, 
                or
                    ``(D) for other types of taxable property or 
                services, a reasonable amount or in accordance with 
                regulations prescribed by the Secretary.
            ``(5) Business use ratio.--The business use ratio is the 
        ratio of business use to total use for a particular calendar 
        month (or portion thereof if the property was owned for only 
        part of such calendar month). For vehicles, the business use 
        ratio will be the ratio of business purpose miles to total 
        miles in a particular calendar month. For real property, the 
        business use ratio is the ratio of floor space used primarily 
        for business purposes to total floor space in a particular 
        calendar month. 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 in a particular 
        calendar year. For other property or services, the business 
        ratio shall be calculated using a reasonable method. Reasonable 
        records must be maintained to support a person's business use 
        of the mixed use property or service.
    ``(b) Timing of Business Use Conversion Credit Arising out of 
Ownership of Mixed Use Property.--A person entitled to a credit 
pursuant to subsection (a)(3) arising out of the ownership of mixed use 
property must account for the mixed use on a calendar year basis, and 
may file for the credit with respect to mixed use property in any month 
following the calendar year giving rise to the credit.
    ``(c) Cross References.--For business use conversion credit, see 
section 202.

``SEC. 506. NOT-FOR-PROFIT ORGANIZATIONS.

    ``(a) Not-for-Profit Organizations.--Dues, contributions and 
similar payments to--
            ``(1) organizations described in section 1703, or
            ``(2) organizations that are--
                    ``(A) civic leagues,
                    ``(B) social welfare organizations, or
                    ``(C) fraternal beneficiary societies, orders or 
                associations, no part of the net earnings of which 
                inures to the benefit of any private shareholder or 
                individual,
shall not be considered gross payments for taxable property or services 
for purposes of this subtitle.
    ``(b) Qualification Certificates for Qualified Not-for-Profit 
Organizations.--Upon application in a form prescribed by the Secretary, 
the sales tax administering authority shall provide qualification 
certificates to qualified not-for-profit organizations.
    ``(c) Treatment of Property and Services Provided in Connection 
With Contributions.--If an organization described in subsection (a) 
provides taxable property or services in connection with contributions, 
dues or similar payments to the organization, then it shall be required 
to treat the provision of such taxable property or services as a 
purchase taxable pursuant to this subtitle at the fair market value of 
such taxable property or services.
    ``(d) Not-for-Profit Organization Enterprise Intermediate Sales.--
            ``(1) Not-for-profit organization enterprises shall not be 
        subject to tax on purchases that would not be subject to tax 
        pursuant to section 102 if the not-for-profit organization 
        enterprise were a private enterprise.
            ``(2) Not-for-profit organization enterprises may not use 
        the exemption afforded by section 102 to serve as a conduit for 
        tax free purchases by the not-for-profit organization that 
        would otherwise be subject to taxation. If taxable property or 
        services purchased exempt from tax by a not-for-profit 
        organization enterprise are transferred by such enterprise to 
        the not-for-profit organization then the not-for-profit 
        organization enterprise shall remit tax as if a taxable sale 
        were made on the date of the transfer at the fair market value 
        of the taxable property or service transferred.
    ``(e) Trade or Business.--The determination of whether an activity 
engaged in by a not-for-profit organization is a trade or business 
shall be made without regard to--
            ``(1) the fact that it is engaged in by a not-for-profit 
        organization, and
            ``(2) the destination or use of the revenue or profits of 
        the activity engaged in.

             ``CHAPTER 6--FINANCIAL INTERMEDIATION SERVICES

                              ``Sec. 601. Determination of financial 
                                        intermediation services amount.
                              ``Sec. 602. Bad debts.
                              ``Sec. 603. Timing of tax on financial 
                                        intermediation services.
                              ``Sec. 604. Financing leases.
                              ``Sec. 605. Basic interest rate.
                              ``Sec. 606. Foreign financial 
                                        intermediation services.

``SEC. 601. 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 fees for financial 
                intermediation services, and
                    ``(B) implicitly charged fees for financial 
                intermediation services.
            ``(2) Explicitly charged fees for financial intermediation 
        services.--The term `explicitly charged fees' has the meaning 
        given such term by section 1502(c).
            ``(3) Implicitly charged fees for financial intermediation 
        services.--
                    ``(A) In general.--The term `implicitly charged 
                fees for financial intermediation services' includes 
                the gross imputed amount with respect 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 605) over the rate paid on such 
                                investment, and
                                    ``(II) the amount of the investment 
                                or account, 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 
                                605), and
                                    ``(II) the amount of the debt.
    ``(b) Persons Treated as Sellers.--For purposes of section 103(a), 
the seller of financial intermediation services shall be--
            ``(1) in the case of explicitly charged fees for financial 
        intermediation services (as defined in subsection (a)(2)), the 
        seller shall be the person who receives the gross payments for 
        the charged financial intermediation services,
            ``(2) in the case of implicitly charged fees for 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 implicitly charged fees for financial 
        intermediation services (as defined in subsection (a)(3)) with 
        respect to any interest bearing debt, the person receiving the 
        interest payments on the interest bearing debt.

``SEC. 602. BAD DEBTS.

    ``(a) For purposes of section 205(a), a bad debt shall be a 
business loan or debt that becomes wholly or partially worthless to the 
payee.
    ``(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 to be repaid.
    ``(c) No loan or debt shall be considered wholly or partially 
worthless unless it has been in arrears for 180 days or more, provided, 
however, that if a debt is discharged wholly or partially in bankruptcy 
before 180 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 180 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.--See section 205(c) for tax on subsequent 
payments.

``SEC. 603. TIMING OF TAX ON FINANCIAL INTERMEDIATION SERVICES.

    ``The tax on financial intermediation services within the meaning 
of section 601 with respect to an underlying investment account or debt 
shall be imposed 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. 604. FINANCING LEASES.

    ``(a) Defined.--For purposes of this section, a financing lease 
shall be any lease under which the lessee has the right to acquire the 
property for 50 percent or less of its fair market value at the end of 
the lease term.
    ``(b) In General.--Financing leases shall be taxed using the method 
set forth in this section.
    ``(c) Determination of Principal and Interest Components of 
Financing Lease.--The Secretary shall promulgate rules for 
disaggregating the principal and interest components of a financing 
lease. The principal amount shall be determined to the extent possible 
by examination of the contemporaneous sales price or prices of property 
the same or similar as the leased property.
    ``(d) Alternative Method.--In the event that contemporaneous sales 
prices of property the same or similar as the leased property are not 
available, the principal and interest components of a financing lease 
shall be disaggregating using the applicable interest rate (as defined 
in section 2512) plus 4 percent.
    ``(e) 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 on which such lease 
was executed.
    ``(f) Interest Component.--The financial intermediation services 
amount with respect to the interest component of the financing lease 
shall be subject to tax under this subtitle.
    ``(g) Coordination.--
            ``(1) In general.--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.
            ``(2) Cross reference.--For the definition of taxable 
        property and services, including as it relates to leases, see 
        section 2.

``SEC. 605. 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 2512). 
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 reference interest rate for each 
month.

``SEC. 606. FOREIGN FINANCIAL INTERMEDIATION SERVICES.

    ``(a) 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 affiliated firm as defined in section 2 or a person's spouse) 
purchasing the services is a resident of the United States.
    ``(b) Designation of United States Tax Representative.--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 for purposes of this subtitle. This United States tax 
representative and the person providing financial intermediation 
services 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. The Secretary or a sales tax administering authority 
may bring an action seeking a temporary restraining order, an 
injunction, or such other order as may be appropriate to enforce this 
section.''.

                     TITLE IV--BUSINESS TAX ENACTED

SEC. 401. BUSINESS TAX.

    The Internal Revenue Code of 1986 is amended by inserting after 
subtitle B the following new subtitle:

                       ``Subtitle C--Business Tax

                              ``Chapter 1. Imposition of tax.
                              ``Chapter 2. Basic rules for business 
                                        tax.
                              ``Chapter 3. Capital contributions, 
                                        mergers, acquisitions, and 
                                        distributions.
                              ``Chapter 4. Land and rental property.
                              ``Chapter 5. Insurance and financial 
                                        products.
                              ``Chapter 6. Financial intermediation and 
                                        financial institutions.
                              ``Chapter 7. Tax-exempt organizations.
                              ``Chapter 8. Cooperatives.
                              ``Chapter 9. Sourcing rules.
                              ``Chapter 10. Import tax.

                     ``CHAPTER 1--IMPOSITION OF TAX

                              ``Sec. 1101. Tax imposed.

``SEC. 1101. TAX IMPOSED.

    ``(a) Taxable Business Activity.--A business tax is imposed on the 
sale of taxable property and services in the United States by a 
business entity.
    ``(b) Business Tax.--The `business tax' imposed on a business 
entity that sells or leases property or sells services in the United 
States equals 8.4 percent of the gross profit of the business entity 
for the taxable year.
    ``(c) Taxable Employers.--A tax is hereby imposed on taxable 
employers (as defined by section 2(s)) equal to 8.4 percent of the 
wages and salary (as defined by section 2(w)) paid by such taxable 
employer. The tax imposed by this subsection is in addition to any tax 
imposed by subtitle B.
    ``(d) Import Tax.--For rules relating to the import tax imposed by 
this chapter, see section 2001.

               ``CHAPTER 2--BASIC RULES FOR BUSINESS TAX

                              ``Sec. 1201. Gross profits.
                              ``Sec. 1202. Taxable receipts.
                              ``Sec. 1203. Deductible amounts.
                              ``Sec. 1204. Cost of business purchases.
                              ``Sec. 1205. Business entity and business 
                                        activity.
                              ``Sec. 1206. Loss carryover deduction.

``SEC. 1201. GROSS PROFITS.

    ``The term `gross profits' means for a taxable year of a business 
entity the amount by which--
            ``(1) the taxable receipts of the business entity for the 
        taxable year exceed,
            ``(2) the deductible amounts for the business entity for 
        the taxable year.

``SEC. 1202. TAXABLE RECEIPTS.

    ``(a) In General.--The term `taxable receipts' means all receipts 
from the sale of taxable property and services.
    ``(b) Games of Chance.--Amounts received by business entities 
engaging in the activity of providing games of chance shall be treated 
as receipts from the sale of property or services.
    ``(c) In-Kind Receipts.--The taxable receipts attributable to the 
receipt of property, use of property or services in whole or partial 
exchange for property, use of property or services shall equal the fair 
market value of the services or property received, plus any cash 
received.
    ``(d) Taxes.--The term `taxable receipts' does not include any 
excise tax, sales tax, custom duty, or other separately stated levy 
imposed by a Federal, State, or local government received by a business 
entity in connection with the sale of property or services or the use 
of property.
    ``(e) Financial Receipts.--
            ``(1) In general.--Except as provided in chapter 6 of this 
        subtitle (relating to financial intermediation and financial 
        institutions), taxable receipts do not include financial 
        receipts.
            ``(2) Financial receipts.--The term `financial receipts' 
        includes--
                    ``(A) interest,
                    ``(B) dividends and other distributions by a 
                business entity,
                    ``(C) proceeds from the sale of stock, other 
                ownership interests in business entities, or other 
                financial instruments (as defined in chapter 6 of this 
                subtitle),
                    ``(D) proceeds from life insurance policies,
                    ``(E) proceeds from annuities,
                    ``(F) proceeds from currency hedging or exchanges, 
                and
                    ``(G) proceeds from other financial transactions.
    ``(f) Cross References.--
            ``(1) Financial intermediation.--See chapters 5 and 6 of 
        this subtitle for rules relating to financial intermediation.
            ``(2) Exports, sales in the united states.--See section 
        1901 for the exclusion from gross receipts for export sales and 
        for rules on sales of property and services in the United 
        States.
            ``(3) Insurance proceeds.--See section chapter 5 of this 
        subtitle for rules on the inclusion of certain insurance 
        proceeds in taxable receipts.

``SEC. 1203. DEDUCTIBLE AMOUNTS.

    ``(a) In General.--The term `deductible amounts' for a business 
entity in a taxable year includes--
            ``(1) the cost of business purchases in the taxable year 
        (as determined under section 1204),
            ``(2) such entity's loss carryover deduction (as determined 
        under section 1206), and
            ``(3) the transition basis deduction (as determined under 
        section 2801).
    ``(b) Financial Intermediation.--See chapters 5 and 6 for special 
rules for business entities engaging in financial intermediation.

``SEC. 1204. COST OF BUSINESS PURCHASES.

    ``(a) Business Purchases.--
            ``(1) In general.--The term `business purchases' means the 
        acquisition of--
                    ``(A) property,
                    ``(B) the use of property, or
                    ``(C) services,
        for a business purpose in connection with a trade or business 
        in the United States.
            ``(2) Examples.--Business purchases include (without 
        limitation) the--
                    ``(A) purchase or rental of real property,
                    ``(B) purchase or rental of capital equipment,
                    ``(C) purchase of supplies and inventory,
                    ``(D) purchase of services from independent 
                contractors (who are registered sellers),
                    ``(E) purchase of financial intermediation 
                services, and
                    ``(F) imports for use in a business activity in the 
                United States.
            ``(3) Exclusions.--The term `business purchases' does not 
        include--
                    ``(A) payments for use of money or capital, such as 
                interest or dividends (except to the extent that a 
                portion so paid is a fee for financial intermediation 
                services),
                    ``(B) premiums for life insurance,
                    ``(C) the acquisition of savings assets or 
                financial instruments,
                    ``(D) property acquired outside the United States 
                (but such property shall be taken into account as an 
                import if imported),
                    ``(E) services performed outside the United States 
                (unless treated as imported into the United States),
                    ``(F) compensation expenses for an individual 
                (other than amounts paid to an individual in his 
                capacity as a business entity), or
                    ``(G) taxes (except as provided in subsection 
                (b)(2) relating to product taxes).
            ``(4) Compensation expenses.--The term `compensation 
        expenses' means--
                    ``(A) wages, salaries, or other cash payable for 
                services by employees,
                    ``(B) any taxes imposed on the recipient that are 
                withheld by the business entity,
                    ``(C) the cost of property purchased to provide 
                employees with compensation (other than property 
                incidental to the provision of fringe benefits that are 
                excluded from income under the individual tax),
                    ``(D) the cost of fringe benefits which are 
                provided in connection with the services performed by 
                the employee, partner or proprietor in their capacity 
                as such, including (without limitation)--
                            ``(i) contributions to retirement and 
                        severance benefit plans,
                            ``(ii) premiums for the cost of life, 
                        health, accident, disability and other 
                        insurance policies for which the service 
                        provider, members of his family, or persons 
                        designated by him or members of his family are 
                        the beneficiaries,
                            ``(iii) the cost of providing parking to 
                        employees (unless the parking space is used for 
                        a vehicle that is regularly used in a business 
                        activity),
                            ``(iv) employer-paid educational benefits,
                            ``(v) employer-paid housing (other than 
                        housing provided for the convenience of the 
                        employer), and
                            ``(vi) employer-paid meals (other than 
                        meals provided for the convenience of the 
                        employer).
    ``(b) Cost of Business Purchases.--
            ``(1) In general.--The term `cost of a business purchase' 
        is the amount paid or to be paid for the business purchase.
            ``(2) Taxes.--
                    ``(A) In general.--The term `cost of business 
                purchases' includes any product taxes paid or to be 
                paid with respect to the property or services 
                purchased.
                    ``(B) Product tax.--The term `product tax' means 
                any excise tax, sales or use tax, custom duty, or other 
                separately stated levy imposed by a Federal, State, or 
                local government on the production, severance or 
                consumption of property or on the provision of 
                services, whether or not separately stated, and 
                including any such taxes that are technically imposed 
                on the seller of property or services.
                    ``(C) Taxes not product taxes.--The term `product 
                taxes' does not include--
                            ``(i) the import tax (imposed by chapter 
                        10),
                            ``(ii) State and local property taxes,
                            ``(iii) franchise or income taxes,
                            ``(iv) payroll taxes and self-employment 
                        taxes, or
                            ``(v) the business tax (imposed by section 
                        1101).
            ``(3) Imports.--In the case of an import by a business 
        entity, the cost of the import is the import price for purposes 
        of the import tax. The import tax is not part of the cost of 
        the import.
    ``(c) Property and Services Acquired for Property.--If a business 
entity receives property or services from a business entity in whole or 
partial exchange for property or services, the property or services 
acquired shall be treated as if such property and services were 
purchased for an amount equal to the fair market value of the services 
or property received, plus any cash received. For purposes of this 
section, property includes stock and other equity interests in business 
other than stock or an equity interest in the business entity acquiring 
the property or services. See chapter 3 for rules on property or 
services received in exchange for an equity interest in the recipient.
    ``(d) Gambling Payments.--In the case of a business involving 
gambling, lotteries, or other games of chance, business purchases 
include amounts paid to winners.
    ``(e) Mixed Use Property or Services.--Deductions for property or 
services used both for a business purpose and otherwise shall be 
allowable only in proportion to the business use ratio as determined in 
accordance with section 505(a)(5), provided however that if property or 
services are used 95 percent or more for a business purpose during a 
taxable year, then the property or service shall be deemed used 
exclusively for a business purpose.
    ``(f) Cross References.--
            ``(1) Financial intermediation and insurance.--For rules 
        relating to fees for financial intermediation services and 
        insurance, see subchapter F.
            ``(2) Land.--For special rules relating to the acquisition 
        of land, see subchapter E.
            ``(3) Outside the united states.--For special rules 
        relating to services performed outside the United States but 
        used inside the United States and international services, see 
        chapter 9.

``SEC. 1205. BUSINESS ENTITY AND BUSINESS ACTIVITY.

    ``(a) Business Entity.--For purposes of the business tax, the term 
`business entity' means any corporation, unincorporated association, 
partnership, limited liability company, proprietorship, independent 
contractor, individual, or any other person engaging in business 
activity in the United States. An individual shall be considered a 
business entity only with respect to the individual's business 
activities.
    ``(b) Business Activity.--The term `business activity' means the 
sale of property or services, the leasing of property, the development 
of property or services for subsequent sale or use in producing 
property or services for subsequent sale. Such term does not include--
            ``(1) casual or occasional sales of property used by an 
        individual (other than in a business activity), such as the 
        sale by an individual of a vehicle used by the individual, or
            ``(2) sales by a business entity with gross revenues of 
        $1,200 annually or less.
    ``(c) Exception for Certain Employees.--
            ``(1) In general.--The term `business activity' does not 
        include--
                    ``(A) the performance of services by an employee 
                for an employer that is a business entity with respect 
                to the activity in which the employee is engaged, or
                    ``(B) the performance of regular domestic household 
                services (including babysitting, housecleaning, and 
                lawn cutting)--
                            ``(i) by an employee that is compensated in 
                        an amount less than $5,000 annually, or
                            ``(ii) by an employer that is an individual 
                        or family.
            ``(2) Employee defined.--For purposes of this subsection, 
        the term `employee' includes an individual partner who provides 
        services to a partnership, an individual member who provides 
        services to a limited liability company, or a proprietor with 
        respect to compensation for services from his proprietorship.

``SEC. 1206. LOSS CARRYOVER DEDUCTION.

    ``(a) Deduction.--The loss carryover deduction for a taxable year 
is the lesser of--
            ``(1) the business entity's gross profits for the taxable 
        year (determined without the loss carryover deduction), or
            ``(2) the amount of the loss carryover to the taxable year.
    ``(b) Loss Carryover.--
            ``(1) General rule.--A loss for any taxable year may be a 
        loss carryover to each of the 10 taxable years following the 
        taxable year of the loss.
            ``(2) Loss carryovers to a taxable year.--The loss 
        carryover to a taxable year is the sum of the loss carryovers 
        from all prior taxable years beginning on or after January 1, 
        2007, that can be carried over to the taxable year.
            ``(3) Reduction of loss carryovers as a result of the 
        deduction.--A business entity's loss carryovers shall be 
        reduced each year by the amount of the loss carryover deduction 
        for the year. Loss carryovers shall be reduced in the order 
        that such carryovers arose.
    ``(c) Loss for Taxable Year.--A business entity's loss (if any) for 
the taxable year equals the excess (if any) of--
            ``(1) the sum of--
                    ``(A) the cost of business purchases for the 
                taxable year, and
                    ``(B) the transition basis adjustment for the 
                taxable year, over
            ``(2) taxable receipts for the taxable year.
    ``(d) Special Rules.--
            ``(1) Consolidated returns.--In the case of a consolidated 
        return, the loss for a taxable year shall be determined on a 
        consolidated group basis. In the case of a deconsolidation, the 
        loss carryovers from the consolidated group shall be allocated 
        in accordance with rules to be prescribed by the Secretary.
            ``(2) Loss carryovers of acquired business entity.--
                    ``(A) In general.--If a business entity acquires 
                another business entity in a transaction that is 
                considered the acquisition of a business entity and the 
                2 entities file a consolidated return or if 2 business 
                entities merge, the loss carryovers will survive and 
                can be applied against the taxable receipts 
                attributable to the business activities carried on (or 
                in the case of a merger formerly carried on) by either 
                entity.
                    ``(B) Asset acquisition.--If a business entity 
                acquires all or substantially all of the assets of 
                another entity in a transaction that is considered an 
                asset acquisition rather than the acquisition of a 
                business entity, the acquirer will be treated as if it 
                acquired the loss carryovers of the selling entity. For 
                purposes of this rule, the assets of a business entity 
                include ownership interests in other business entities.
                    ``(C) Substantially all.--For purposes of this 
                paragraph, the term `substantially all' means more than 
                80 percent of the fair market value of a business 
                entity's net assets. Under rules prescribed by the 
                Secretary, the parties to a transaction may elect to 
                treat acquisitions in excess of 70 percent of the fair 
                market value of a business entity's net assets as 
                acquisitions of `substantially all' of a business 
                entity's net assets.

    ``CHAPTER 3--CAPITAL CONTRIBUTIONS, MERGERS, ACQUISITIONS, AND 
                             DISTRIBUTIONS

                              ``Sec. 1301. Contributions to a business.
                              ``Sec. 1302. Distributions of property.
                              ``Sec. 1303. Asset acquisitions.
                              ``Sec. 1304. Mergers and stock 
                                        acquisitions.
                              ``Sec. 1305. Spinoffs, splitoff, etc.
                              ``Sec. 1306. Allocation of certain tax 
                                        attributes.

``SEC. 1301. CONTRIBUTIONS TO A BUSINESS ENTITY.

    ``(a) By Business Entity.--
            ``(1) Cash.--If a business entity contributes cash to a 
        business entity of which it is or becomes a partial or full 
        owner, the amount contributed is not a deductible amount to the 
        contributor or a taxable receipt to the recipient.
            ``(2) Property or services.--If a business entity 
        contributes property or services to a business entity of which 
        it is or becomes a partial or full owner, the transaction will 
        not result in taxable receipts to the contributor or a 
        deduction for a business purchase for the recipient and will 
        not constitute a sale resulting in taxable receipts to the 
        contributor.
    ``(b) By Individual.--
            ``(1) Cash.--If an individual contributes cash to a 
        business entity, the cash received is not a taxable receipt.
            ``(2) New property.--If an individual contributes to a 
        business entity property that the individual purchased for the 
        business entity and which was not used by any person after its 
        purchase, the property shall be considered purchased by such 
        business entity from the person from whom the individual 
        purchased the property and the basis of such property in the 
        hands of the business entity shall be the such basis in the 
        hands of the individual.
            ``(3) Personal use property.--
                    ``(A) In general.--If an individual contributes 
                personal use property to a business entity in which the 
                individual has an ownership interest or for which the 
                individual receives an ownership interest, the business 
                entity shall not be permitted to deduct the value of 
                the property received as a business expense. The 
                business entity will have a tax basis in the 
                contributed property equal to the contributor's basis.
                    ``(B) Personal use property.--The term `personal 
                use property' means any property used by an individual 
                at any time other than in a business activity.
            ``(4) Services.--If an individual contributes services to a 
        business entity in which the individual has an ownership 
        interest or receives an ownership interest, the business entity 
        shall not be permitted to deduct the value of the services 
        received (or the value of the equity interest provided to the 
        services provider).

``SEC. 1302. DISTRIBUTIONS OF PROPERTY.

    ``(a) Distributions Other Than to Controlling Business.--If a 
business entity distributes all or a portion of its assets to its 
owners (other than a controlling business entity), the business entity 
will be treated as if it sold the assets to its owners at fair market 
value. The fair market value will be determined by the distributing 
corporation and those determinations, unless unreasonable, will be 
binding on the recipients.
    ``(b) Distributions to a Controlling Business.--If a business 
entity distributes all or a portion of its assets to a controlling 
business, the controlling business will assume the distributing 
entity's tax attributes with respect to the assets and neither entity 
will have taxable receipts or a deduction as a result of the 
transaction.
    ``(c) Controlling Business Entity.--A business entity is a 
`controlling business entity' with respect to another business entity 
if it owns directly or indirectly more than 50 percent of the profits 
or capital interest in the other business entity.
    ``(d) Application of This Section.--This section applies to both 
liquidating and nonliquidating distributions. Property shall be treated 
as distributed if the property is used for a nonbusiness purpose for 
more than an insubstantial period of time during a taxable year. See 
chapter 4 for rules relating to certain rental property.

``SEC. 1303. ASSET ACQUISITIONS.

    ``(a) In General.--If a business entity transfers some or all of 
its assets, the consideration received for such assets shall be 
allocated among the assets transferred in the same manner as was 
required by section 1060 of the Internal Revenue Code of 1986. If the 
transferee and transferor agree in writing on the allocation of any 
consideration, or as to the fair market value of any of the assets, 
such agreement shall be binding on both the transferor and transferee 
unless the Secretary determines that such allocation (or fair market 
value) is not appropriate.
    ``(b) Tax Consequences.--The tax consequences of an asset 
acquisition shall be determined in accordance with the rules of this 
chapter and shall be dependent upon allocations made under subsection 
(a). In general, consideration allocable to savings assets, such as 
stock in another business entity, would not be included in taxable 
receipts of the transferor and would not be a business purchase of the 
purchaser, but consideration allocable to the sale of tangible property 
and intangible property (other than savings assets) will constitute 
taxable receipts to the seller and a business purchase by the 
purchaser.
    ``(c) Election To Treat Asset Acquisition as a Stock Acquisition.--
In the case of the sale of substantially all of the assets of a 
business entity or substantially all of the assets of a line of 
business or a separately standing business of a business entity, the 
transferee and transferor can jointly elect to treat the acquisition as 
if it were an acquisition of the stock of a business entity holding the 
assets so transferred. In such case, the rules of section 1304 shall 
apply.
    ``(d) Authority To Require Allocation Agreement and Notice to the 
Secretary.--If the Secretary determines that certain types of asset 
acquisitions have significant possibilities of tax avoidance, the 
Secretary may require--
            ``(1) parties to such types of acquisitions to enter into 
        agreements allocating consideration,
            ``(2) parties to acquisitions involving certain kinds of 
        assets to enter into agreements allocating part of the 
        consideration to those assets, or
            ``(3) parties to certain acquisitions to report information 
        to the Secretary.
    ``(e) Asset Acquisition Rules Do Not Apply if Consideration 
Includes Equity in Purchaser.--
            ``(1) In general.--If a business entity issues its own 
        equity or equity in a subsidiary or other controlled entity as 
        part of the consideration for the transfer of assets to it, the 
        transaction shall not be treated as an asset acquisition and 
        the rules of section 1304 shall apply.
            ``(2) Equity.--For purposes of this subsection, the term 
        `equity' means--
                    ``(A) stock, in the case of a corporation,
                    ``(B) a partnership or similar interest, in the 
                case of a partnership or limited liability company, and
                    ``(C) an ownership interest or interest in profits 
                in the case of any other business entity.

``SEC. 1304. MERGERS AND STOCK ACQUISITIONS.

    ``(a) Mergers.--A merger of 1 business entity into another or 2 
businesses entities into a 3rd business entity or any other similar 
transaction shall have no direct consequences under the business tax. 
The surviving entity shall assume the tax attributes of the merged 
corporations, including any loss carryovers and credit carryovers.
    ``(b) Stock Acquisition.--The acquisition of all or substantially 
all of the ownership interest in 1 business entity either for cash or 
in exchange for ownership in the acquiring entity or an entity 
controlled by the acquired entity shall have no direct consequences 
under the business tax.

``SEC. 1305. SPINOFFS, SPLITOFF, ETC.

    ``A spinoff, splitoff, or splitup of a business entity shall have 
no direct tax consequences under the business tax.

``SEC. 1306. ALLOCATION OF CERTAIN TAX ATTRIBUTES.

    ``The Secretary shall prescribe rules for allocation of loss 
carryovers in cases of substantial shifts of assets from 1 business 
entity to another business entity. Under such rules, a portion of a 
business entity's carryovers may be deemed transferred when assets are 
transferred.

                 ``CHAPTER 4--LAND AND RENTAL PROPERTY

                              ``Sec. 1401. No deduction for land 
                                        purchased for nonbusiness use.
                              ``Sec. 1402. Taxable receipts for land 
                                        held for nonbusiness use.
                              ``Sec. 1403. Certain rental property.

``SEC. 1401. NO DEDUCTION FOR LAND PURCHASED FOR NONBUSINESS USE.

    ``(a) In General.--The acquisition of unimproved land shall not 
constitute a business purchase if the unimproved land is not acquired 
to be used in a business activity or if the land is acquired for use in 
compensating employees.
    ``(b) Unimproved Land.--The term `unimproved land' means--
            ``(1) land with no buildings on it,
            ``(2) land with improvements if the value of the 
        improvements is relatively small in comparison to the value of 
        the land and it is anticipated that the improvements will be 
        demolished and not used, or
            ``(3) land in excess of the amount reasonably needed for 
        the buildings located on it.
    ``(c) Conversion to Business Use.--If the acquisition of land is 
not treated as a business purchase by reason of subsection (a) and the 
land is subsequently used in a manner for which it could have been 
treated as a business purchase, the cost of the land will be treated as 
a business purchase when the improvements on the land are placed in 
service (or in the case of construction for sale, substantially 
completed and advertised for sale).

``SEC. 1402. TAXABLE RECEIPTS FOR LAND HELD FOR NONBUSINESS USE.

    ``(a) Tax Basis.--A business entity shall have a tax basis in land 
equal to the cost of the land if such cost is not deductible by reason 
of section 1401.
    ``(b) Taxable Receipts of a Land Sale.--The taxable receipts from 
the sale of land (or portion thereof) in which a business entity has a 
tax basis by reason of subsection (a) shall be the amount by which the 
proceeds exceed the basis of such land (or portion thereof).

``SEC. 1403. CERTAIN RENTAL PROPERTY.

    ``(a) In General.--Except as provided in subsection (b), the 
activity of rental of real estate is a business activity to which the 
business tax applies.
    ``(b) Not Rental Property.--
            ``(1) In general.--If the owners of property use the 
        property for at least 14 days during the taxable year for a 
        nonbusiness purpose and rent the property for no more than 14 
        days during the taxable year, the property shall not be 
        considered rental property or used in the activity of rental of 
        real estate during the taxable year for purposes of the 
        business tax.
            ``(2) Nonbusiness use.--For purposes of this section, the 
        term `use for a nonbusiness purpose' means use other than--
                    ``(A) use for which fair rent is paid,
                    ``(B) use in connection with the preparation of the 
                property for rental, or
                    ``(C) use that serves a clear business purpose.
        Use during any part of a day shall constitute use for that day.
    ``(c) Rental Property Becomes Nonrental Property.--If property 
which is considered rental property for purposes of subsection (a) in 1 
taxable year ceases to be rental property (by reason of subsection (b)) 
in the following taxable year, the property (and any associated debt) 
shall be treated as distributed by the business entity to its owners. 
Section 1302 shall apply to such distribution.

             ``CHAPTER 5--INSURANCE AND FINANCIAL PRODUCTS

                              ``Sec. 1501. General rules.
                              ``Sec. 1502. Fees for financial 
                                        intermediation services.
                              ``Sec. 1501. Deductible insurance 
                                        premiums.
                              ``Sec. 1501. Nondeductible insurance 
                                        premiums.
                              ``Sec. 1501. Certain implicit fees for 
                                        financial intermediation 
                                        services.

``SEC. 1501. GENERAL RULES.

    ``(a) Taxable Receipts.--Except in the case of a financial 
intermediation business, taxable receipts do not include financial 
receipts (as defined in section 1202(e)(2)).
    ``(b) Business Purchases.--Except in the case of a financial 
intermediation business, business purchases do not include the cost of 
financial instruments (as defined in section 1602(b)(3)) or payments 
for use of money or capital, other than fees for financial 
intermediation services.

``SEC. 1502. FEES FOR FINANCIAL INTERMEDIATION SERVICES.

    ``(a) Business Purchases.--Business purchases include explicit fees 
and implicit fees (within the meaning of section 603(a)(3)) for 
financial intermediation services (except to the extent that such fees 
are for services treated as performed outside the United States and not 
imported into the United States or for services treated as exported.).
    ``(b) Financial Intermediation Services.--The definition of 
`financial intermediation service' in section 1601 applies for purposes 
of this section.
    ``(c) Explicit fees.--
            ``(1) In general.--The term `explicit fees for financial 
        intermediation services' means separately stated fees for 
        services provided by a business entity in the financial 
        intermediation business. Explicit fees do not include fees for 
        use of money or capital.
            ``(2) Examples.--Explicit fees for financial intermediation 
        services include (without limitation)--
                    ``(A) separately listed maintenance and service 
                charges of providers of financial intermediation 
                services,
                    ``(B) loan documentation fees,
                    ``(C) brokerage fees,
                    ``(D) safe deposit box fees,
                    ``(E) mutual fund sales, management or exit fees,
                    ``(F) loan origination, processing, documentation, 
                or similar fees,
                    ``(G) underwriting fees,
                    ``(H) trustees' fees, and
                    ``(I) fees for credit checks.
            ``(3) Exclusions.--Explicit fees for financial 
        intermediation services do not include prepaid interest and 
        other fees for use of money or capital even if such fees are 
        separately stated or are labeled as service fees.

``SEC. 1503. DEDUCTIBLE INSURANCE PREMIUMS.

    ``(a) In General.--The cost of insurance premiums on business loss 
policies to the extent that such policies insure risks in the United 
States constitute costs of business purchases. Proceeds from such 
policies constitute taxable receipts.
    ``(b) Business Loss Policy.--A `business loss policy' is an 
insurance policy--
            ``(1) owned by a business entity,
            ``(2) the beneficiary of which is the business entity or 
        another business entity doing business with the owner of the 
        policy,
            ``(3) that has no inside buildup or other savings 
        component,
            ``(4) that covers losses on a loss incurred or claims made 
        basis during the term of the policy,
            ``(5) that has a term of not more than 2 years,
            ``(6) that is not a direct or indirect form of 
        compensation, and
            ``(7) that covers direct losses of the business, such as--
                    ``(A) damage to or theft of property used in the 
                business activity,
                    ``(B) tort claims against the business,
                    ``(C) loss of use of business premises or services,
                    ``(D) malpractice, or
                    ``(E) alleged or actual breach of fiduciary 
                obligations.

``SEC. 1504. NONDEDUCTIBLE INSURANCE PREMIUMS.

    ``(a) Nondeductibility.--The cost of insurance policies that are 
not business loss policy policies are not deductible costs of business 
purchases.
    ``(b) Proceeds of Nondeductible Policies.--Insurance proceeds from 
policies described in subsection (a) do not constitute taxable 
receipts.
    ``(c) Application of This Section to Certain Insurance.--This 
section shall apply to life insurance policies.

``SEC. 1505. CERTAIN IMPLICIT FEES FOR FINANCIAL INTERMEDIATION 
              SERVICES.

    ``(a) Deductibility of Fees.--If a financial intermediation 
business (as defined in section 1601) elects to determine implicit fees 
for financial intermediation services pursuant to this section and 
notify its business customers of their share of the implicit fees in 
accordance with this section, a business entity which receives such 
notice may treat the amount reported in the notice as an implicit fee 
for financial intermediation services in the calendar year to which 
such notice relates.
    ``(b) Allocation and Reporting.--
            ``(1) In general.--A financial intermediation business 
        may--
                    ``(A) allocate fees received for services for which 
                no separately stated fees are charged among recipients 
                of such services on a reasonable and consistent basis, 
                and
                    ``(B) report to each recipient not later than 
                February 15th of each year the amount so allocated to 
                it with respect to the immediately preceding calendar 
                year.
            ``(2) Maximum fees allocated.--The maximum amount that may 
        be allocated by a financial intermediation business for a 
        calendar year is the excess of--
                    ``(A) the gross profits of the financial 
                intermediation business for the calendar year (as 
                reasonably estimated by the financial intermediation 
                business), over
                    ``(B) the explicit fees for financial 
                intermediation services received by the financial 
                intermediation business.
            ``(3) Reasonable allocation.--An allocation will not be 
        considered reasonable unless it takes into account and 
        allocates fees to--
                    ``(A) both services provided to business entities 
                and services provided to individuals (other than in a 
                business capacity), and
                    ``(B) both persons who receive money from the 
                financial intermediation business and persons who pay 
                money to the financial intermediation business (even 
                though amounts allocated to the former do not 
                constitute implicit fees).
            ``(4) Regulations.--The Secretary shall prescribe 
        regulations relating to the allocations under this subsection, 
        including regulations addressing--
                    ``(A) rules for timing of deductions of implicit 
                fees paid by fiscal year recipients,
                    ``(B) subsequent year adjustments if a financial 
                intermediation business allocates too much in a 
                calendar year,
                    ``(C) rules for advance approval from the Secretary 
                for allocation procedures, and
                    ``(D) safe-harbor alternatives to the allocation 
                procedures described in this subsection.
    ``(c) Not Applicable to Lending Services.--This section shall not 
apply to lending services.

    ``CHAPTER 6--FINANCIAL INTERMEDIATION AND FINANCIAL INSTITUTIONS

                              ``Sec. 1601. Activities constituting a 
                                        financial intermediation 
                                        business.
                              ``Sec. 1602. General rule for taxation.
                              ``Sec. 1603. Special rule for banks.
                              ``Sec. 1604. Insurance companies.
                              ``Sec. 1605. Financial pass-thru 
                                        entities.

``SEC. 1601. ACTIVITIES CONSTITUTING A FINANCIAL INTERMEDIATION 
              BUSINESS.

    ``(a) Financial Intermediation Business.--The providing of 
financial intermediation services shall be considered a business 
activity. The gross profit of a business entity providing financial 
intermediation services shall be determined by taking into account the 
rules of this subchapter.
    ``(b) Separate Business Activity.--The provision of financial 
intermediation services for unrelated persons shall be considered a 
separate business activity and a business shall be considered a 
separate entity with respect to such activity. An entity engaging in 
such business is referred to in this chapter as a `financial 
intermediation business'.
    ``(c) Internal Financial Intermediation by a Business.--A business 
entity that provides financial intermediation services for itself and 
related parties but generally does not provide such services for 
unrelated parties is not a financial intermediation business.
    ``(d) Definitions.--
            ``(1) Financial intermediation services.--The term 
        `financial intermediation services' includes--
                    ``(A) lending services,
                    ``(B) insurance services,
                    ``(C) market-making and dealer services, and
                    ``(D) any other service provided as business 
                activity in which a person acts as an intermediary in--
                            ``(i) the transfer of property, services, 
                        or financial assets, liabilities, risks or 
                        instruments (or income or expense derived 
                        therefrom) between 2 or more persons, or
                            ``(ii) the pooling of economic risk among 
                        other persons and derives all or a portion of 
                        such person's gross receipts from streams of 
                        income or expense, discounts, or other 
                        financial flows associated with the matter with 
                        respect to which such person is acting as an 
                        intermediary.
            ``(2) Lending services.--The term `lending services' means 
        the regular making of loans and providing credit to, or taking 
        deposits from customers, but does not include an installment or 
        delayed payment arrangement provided by a seller of property or 
        services under which additional charges or fees are imposed by 
        the seller for the late payment.
            ``(3) Market-making or dealer services.--The term `market-
        making or dealer services' means services provided by a person 
        who--
                    ``(A) regularly purchases financial instruments 
                from or sells financial instruments to customers in the 
                ordinary course of a trade or business, or
                    ``(B) regularly offers to enter into, assume, 
                offset, assign, or otherwise terminate positions in 
                financial instruments with customers in the ordinary 
                course of a trade or business.

``SEC. 1602. GENERAL RULE FOR TAXATION.

    ``(a) In General.--In the case of a financial intermediation 
business, gross profits shall be computed by--
            ``(1) substituting financial receipts for taxable receipts, 
        and
            ``(2) including financial expenses as business purchases.
    ``(b) Definitions.--
            ``(1) Financial receipts.--The term `financial receipts' 
        means all receipts other than amounts received as contributions 
        to capital.
            ``(2) Financial expenses.--The term `financial expenses' 
        includes--
                    ``(A) payments for principal and interest that is 
                properly allocable to the provision of financial 
                intermediation services,
                    ``(B) the cost of and payments under financial 
                instruments (other than financial instruments of the 
                person subject to the tax imposed under this chapter 
                and any person related to such person),
                    ``(C) claims and cash surrender values paid in 
                connection with insurance or reinsurance services, and
                    ``(D) amounts paid for reinsurance.
            ``(3) Financial instrument.--The term `financial 
        instrument' means any--
                    ``(A) share of stock in a corporation,
                    ``(B) equity ownership in any widely held or 
                publicly traded partnership, trust, or other business 
                entity,
                    ``(C) note, bond, debenture, or other evidence of 
                indebtedness,
                    ``(D) interest rate, currency, or equity notional 
                principal contract,
                    ``(E) evidence or interest in, or a derivative 
                financial instrument in, any financial instrument 
                described in subparagraph (A), (B), (C), or (D), or any 
                currency, including any option, forward contract, short 
                position, and any similar financial instrument in such 
                a financial instrument or currency, and
                    ``(F) a position which--
                            ``(i) is not a financial instrument 
                        described in subparagraph (A), (B), (C), (D) or 
                        (E),
                            ``(ii) is a hedge with respect to such a 
                        financial instrument, and
                            ``(iii) is clearly identified in the 
                        dealer's records as being described in this 
                        subparagraph before the close of the day on 
                        which it was acquired or entered into.
    ``(c) International Matters.--For purposes of this section in the 
case of a financial intermediation business with activity in and 
outside the United States--
            ``(1) Inclusion regardless of source.--
                    ``(A) Financial receipts shall be determined 
                without regard to whether such receipts are received 
                for property or service provided in or outside the 
                United States, except that financial receipts do not 
                include amounts that--
                            ``(i) are not taxable receipts (as 
                        determined without regard to this section), but
                            ``(ii) would have been taxable receipts (as 
                        determined without regard to this section) if 
                        such receipts had been received for services or 
                        property in the United States.
                    ``(B) Financial expenses shall be determined 
                without regard to whether such expenses are received 
                for property or services acquired in or outside the 
                United States.
            ``(2) Allocation.--Under regulations prescribed by the 
        Secretary, gross profits (as determined without regard to this 
        paragraph) shall be reduced by the amount of financial 
        intermediation gross profit attributable to financial 
        intermediation activity provided outside the United States.
            ``(3) Gross profit attributable to financial intermediation 
        activity.--The term `gross profits attributable to financial 
        intermediation activity' means the excess of--
                    ``(A) gross profits as determined under this 
                section (but without regard to paragraph (2)), over
                    ``(B) gross profits as determined without regard to 
                this subchapter.

``SEC. 1603. SPECIAL RULE FOR BANKS.

    ``(a) In General.--In the case of a bank, gross profits shall be 
determined in accordance with section 1602, except that--
            ``(1) Financial receipts.--Financial receipts shall include 
        only--
                    ``(A) taxable receipts (as determined without 
                regard to this subchapter),
                    ``(B) interest on loans made or acquired by the 
                bank,
                    ``(C) gain on the sale of loans,
                    ``(D) discount points received, and
                    ``(E) any explicit fees for financial or fiduciary 
                services not included in subparagraphs (A) through (D).
            ``(2) Financial expenses.--Financial expenses shall include 
        only--
                    ``(A) interest paid to depositors and on other 
                funds borrowed by the bank, and
                    ``(B) reasonable additions to reserves for bad 
                debts.
            ``(3) Foreclosure property.--Gross profits shall properly 
        take into account proceeds from the operation or sale of 
        foreclosure property.
    ``(b) Bank.--
            ``(1) In general.--The term `bank' means a bank or trust 
        company incorporated and doing business under the laws of the 
        United States, the District of Columbia, or any State, a 
        substantial part of the business of which consists of receiving 
        deposits and making loans and discounts, or of exercising 
        fiduciary powers similar to those exercised by national banks 
        under the authority of the Comptroller of the Currency, and 
        which is subject by law to supervision and examination by State 
        or Federal authority having supervision over banking 
        institutions or credit unions. Such term includes domestic 
        building and loan associations and credit unions.
            ``(2) Other activities.--If a bank is engaged in 
        significant amounts of activities other than those described in 
        paragraph (1), the bank shall be considered as a separate 
        business entity with respect to such other activity.

``SEC. 1604. INSURANCE COMPANIES.

    ``(a) In General.--In the case of companies providing insurance 
services, gross profits shall be determined in accordance with section 
1602, except--
            ``(1) subsection (c) of section 1602 (relating to 
        international operations) shall not apply, and
            ``(2) the rules of chapter 9 (sourcing rules) shall apply 
        to determine financial receipts and financial expenses.
    ``(b) Result Inconsistent With Statutory Intent.--If an insurance 
company determines that the application of subsection (a) produces 
results inconsistent with the territorial approach of the business tax, 
it may apply to the Secretary for permission to apply section 1602 in 
lieu of subsection (a).

``SEC. 1605. FINANCIAL PASS-THRU ENTITIES.

    ``(a) In General.--In the case of a financial pass-thru entity, 
gross profits shall be determined in accordance with section 1602.
    ``(b) Pass-Thru Entity.--
            ``(1) In general.--The term `pass-thru entity' means a 
        business entity that is intended to serve as a conduit. The 
        Secretary shall prescribe regulations defining pass-thru 
        entity. Such term shall include--
                    ``(A) entities that would qualify as regulated 
                investment companies under the Internal Revenue Code of 
                1986,
                    ``(B) entities that would qualify as real estate 
                investment trusts under the Internal Revenue Code of 
                1986,
                    ``(C) entities that would qualify as REMICs under 
                the Internal Revenue Code of 1986, and
                    ``(D) partnerships whose purposes are to invest the 
                funds of the partners in financial instruments, 
                distribute or reinvest the income from such 
                investments, and distribute or reinvest the proceeds 
                from the sale of such instruments.
            ``(2) Engagement in business activity.--An entity will not 
        qualify as a pass-thru entity if it engages in more than an 
        insubstantial amount of business activity (other than investing 
        in and selling financial instruments). The preceding sentence 
        will not apply if the business entity treats the business 
        activity as engaged in by a separate business entity 
        (separately subject to tax under this chapter).

                 ``CHAPTER 7--TAX-EXEMPT ORGANIZATIONS

                              ``Sec. 1701. Exemption for governmental 
                                        entities.
                              ``Sec. 1702. Taxable activity of 
                                        governmental entities.
                              ``Sec. 1703. Tax-exempt organizations.
                              ``Sec. 1704. Special rules for (c)(3) 
                                        organizations.
                              ``Sec. 1705. Tax on unrelated business 
                                        activity.
                              ``Sec. 1706. Unrelated business activity.

``SEC. 1701. EXEMPTION FOR GOVERNMENTAL ENTITIES.

    ``Except as provided in section 1702, a State, political 
subdivision thereof, the District of Columbia and the government of any 
possession of the United States shall be exempt from taxation under 
this subtitle on any gross profits derived from the exercise of any 
inherently governmental function.

``SEC. 1702. TAXABLE ACTIVITY OF GOVERNMENTAL ENTITIES.

    ``(a) Not Inherently Governmental Function.--A governmental entity 
engaged in any business activity that is not an inherently government 
function and shall be subject to tax. The Secretary shall by regulation 
prescribe rules for differentiating inherently governmental functions 
in accordance with this section.
    ``(b) Certain Activities Taxable.--For purposes of subsection (a), 
business activity of a type frequently provided by business entities 
subject to tax under this subtitle include (without limitation) the--
            ``(1) provision of transportation services,
            ``(2) provision of travel and tour services,
            ``(3) provision of public utility services,
            ``(4) provision of refuse collection and recycling 
        services,
            ``(5) provision of athletic and recreational services,
            ``(6) provision of hospital services,
            ``(7) provision of printing services,
            ``(8) provision of water, sanitation and sewer services,
            ``(9) provision of food and restaurant services,
            ``(10) provision of music, theater and entertainment, and
            ``(11) provision of mail and delivery services.
    ``(c) Certain Activities Inherently Governmental.--For purposes of 
subsection (a), activities that are inherently governmental shall 
include (without limitation) the provision of public safety services 
(including fire, police and defense services) and the provision of 
justice and courts.
    ``(d) Parity With Tax-Exempt Organizations.--No governmental entity 
shall be subject to tax if it would not be subject to tax pursuant to 
section 1703 were it a private organization.

``SEC. 1703. TAX-EXEMPT ORGANIZATIONS.

    ``(a) Exemption From Taxation.--An organization described in 
subsection (c) shall be exempt from taxation under this chapter.
    ``(b) Tax on Unrelated Business Activity.--An organization exempt 
from taxation under subsection (a) shall be subject to tax to the 
extent provided in sections 1705 and 1706, but shall be considered a 
tax-exempt organization for purposes of any law that refers to tax-
exempt organizations.
    ``(c) List of Exempt Organizations.--The following organizations 
are referred to in subsection (a):
            ``(1) Title holding companies.--Corporations organized for 
        the exclusive purpose of holding title to property, collecting 
        income therefrom, and turning over the entire amount thereof, 
        less expenses, to an organization which itself is exempt under 
        this section.
            ``(2) Religious and apostolic organizations.--Religious or 
        apostolic associations or corporations, if such associations or 
        corporations have a common treasury or community treasury, even 
        if such associations or corporations engage in business for the 
        common benefit of the members, but only if such activity is 
        treated as unrelated business activity.
            ``(3) Charitable, religious, and educational 
        organizations.--Corporations, and any community chest, fund, or 
        foundation, organized and operated exclusively for religious, 
        charitable, scientific, literary, or educational purposes, or 
        for the prevention of cruelty to children or animals, no part 
        of the net earnings of which inures to the benefit of any 
        private shareholder or individual, no substantial part of the 
        activities of which is carrying on propaganda, or otherwise 
        attempting, to influence legislation, and which does not 
        participate in, or intervene in (including the publishing or 
        distributing of statements), any political campaign on behalf 
        of (or in opposition to) any candidate for public office.
            ``(4) Qualified benefit plan or trust.--A corporation, 
        trust, or other organization described in any of the following 
        paragraphs of section 501(c) of the Internal Revenue Code of 
        1986--
                    ``(A) paragraph (9) (relating to voluntary 
                employees' beneficiary associations),
                    ``(B) paragraph (11) (relating to teachers' 
                retirement funds),
                    ``(C) paragraph (17) (relating to supplemental 
                unemployment compensation benefits),
                    ``(D) paragraph (18) (certain grandfathered pension 
                trusts),
                    ``(E) paragraph (21) (relating to Black Lung Act 
                trusts),
                    ``(F) paragraph (22) (relating to certain 
                multiemployer trusts), or
                    ``(G) paragraph (24) (relating to certain 
                grandfathered ERISA trusts).

``SEC. 1704. SPECIAL RULES FOR (C)(3) ORGANIZATIONS.

    ``(a) New Organizations Must Notify Secretary.--Except as provided 
in subsection (b), an organization shall not be treated as an 
organization described in section 1703(c)(3)--
            ``(1) unless such organization has given notice to the 
        Secretary, in such manner as the Secretary may prescribe, that 
        it is applying for recognition of such status, or
            ``(2) for any period before giving of such notice, if such 
        notice is given after the time prescribed by the Secretary by 
        regulations for giving notice under this subsection.
    ``(b) Exceptions.--Subsection (a) shall not apply to--
            ``(1) organizations which obtained recognition of tax-
        exempt status under section 501(c)(3) of the Internal Revenue 
        Code of 1986,
            ``(2) churches, their integrated auxiliaries, and 
        conventions and associations of churches,
            ``(3) any organization the gross receipts of which in each 
        taxable year are not more than $50,000, or
            ``(4) such other classes of organizations which the 
        Secretary may exempt.

``SEC. 1705. TAX ON UNRELATED BUSINESS ACTIVITY.

    ``(a) In General.--Each organization described in subsection (b) 
shall be subject to the business tax under section 1101 on its gross 
profits from its unrelated business activity.
    ``(b) Organizations Subject to Tax.--This section shall apply to 
organizations exempt from the business tax under section 1703.

``SEC. 1706. UNRELATED BUSINESS ACTIVITY.

    ``(a) In General.--The term `unrelated business activity' means any 
regularly carried on trade or business the conduct of which is not 
substantially related (aside from the need of such organization for 
income or funds or the use it makes of the profits derived) to the 
exercise or performance by such organization of its charitable, 
educational, or other purpose or function constituting the basis for 
its exemption under section 1703
    ``(b) Advertising, Etc., Activities.--For purposes of this section, 
the term `trade or business' includes any activity which is carried on 
for the production of income from the sale of goods or the performance 
of services. For purposes of the preceding sentence, an activity does 
not lose identity as a trade or business merely because it is carried 
on within a larger aggregate of similar activities or within a larger 
complex of other endeavors which may, or may not, be related to the 
exempt purposes of the organization. Where an activity carried on for 
profit constitutes an unrelated trade or business, no part of such 
trade or business shall be excluded from such classification merely 
because it does not result in profit.
    ``(c) Certain Business Activities.--The conduct of certain trades 
or business shall be deemed per se unrelated to an exempt purpose. 
These include (without limitation) the--
            ``(1) provision of travel and tour services,
            ``(2) provision of public utility services,
            ``(3) provision of refuse collection and recycling 
        services,
            ``(4) provision of athletic and recreational services,
            ``(5) provision of hospital services,
            ``(6) provision of water, sanitation and sewer services,
            ``(7) provision of food and restaurant services,
            ``(8) provision of map-making services,
            ``(9) provision of laundry services,
            ``(10) provision of music, theater, and entertainment, and
            ``(11) provision of mail and delivery services.

                       ``CHAPTER 8--COOPERATIVES

                              ``Sec. 1801. Patronage dividends of 
                                        cooperatives.

``SEC. 1801. PATRONAGE DIVIDENDS OF COOPERATIVES.

    ``(a) Patronage Dividends Paid by Supply Cooperatives.--A qualified 
patronage dividend paid by a supply cooperative to a patron shall be 
treated as if it is a refund of a portion of the amounts paid by the 
patron for goods, services, or use of capital. In general, if the 
supply cooperative included the amount received from the patron in 
taxable receipts, the dividend shall reduce taxable receipts in the 
year incurred. If the recipient of the dividend is a business entity 
which deducted the cost of business purchases to which the dividend 
related, the recipient will reduce its cost of business purchases by 
the amount of the dividend in the year the dividend is paid or 
incurred.
    ``(b) Patronage Dividends Paid by Marketing Cooperatives.--A 
qualified patronage dividend paid to a patron by a marketing 
cooperative shall be treated as an upward price adjustment in the 
amount received by the patron for its goods marketed by the 
cooperative. In general, the cooperative will increase its cost of 
business purchases by the amount of the qualified patronage dividend 
and the recipient will increase its taxable receipts by the amount of 
the qualified patronage dividend.
    ``(c) Dividend Treatment.--Only the portion of a patronage dividend 
that is not a qualified patronage dividend shall be treated as a 
dividend under this chapter and chapter 1.
    ``(d) Definitions.--
            ``(1) Qualified patronage dividend.--The term `qualified 
        patronage dividend' means that part of a patronage dividend 
        that is attributable to the patron's allocable share of 
        patronage earnings of a marketing cooperative or a supply 
        cooperative.
            ``(2) Supply cooperative.--The term `supply cooperative' 
        means a cooperative that sells goods or services to patrons and 
        provided patronage dividends with respect to the quantity of 
        purchases of the patrons.
            ``(3) Marketing cooperative.--The term `marketing 
        cooperative' means a cooperative that sells goods produced by 
        its members and provides patronage dividends to the members 
        based on the quantities of goods sold or provided for sale.
    ``(e) Special Rules.--
            ``(1) Notices of allocation and per-unit retain 
        certificates.--Except as provided in paragraph (2), a notice of 
        allocation, per-unit retain certificate, or other similar 
        document shall not be treated as a patronage dividend until it 
        is redeemed in cash or property.
            ``(2) Opportunity to receive cash.--If a patron is given an 
        opportunity to receive a patronage dividend in cash, but 
        instead chooses to accept a per-unit retain certificate or a 
        qualified notice of allocation, the patron will be treated as 
        receiving cash and simultaneously contributing to the capital 
        of the cooperative.
            ``(3) Application limited to qualified cooperatives.--Under 
        rules to be prescribed by the Secretary, this section shall 
        apply only to cooperatives to which 1 of the following 
        provisions of the Internal Revenue Code of 1986 would have 
        applied:
                    ``(A) Section 501(c)(12) (relating to cooperative 
                telephone companies and similar organizations).
                    ``(B) Section 501(c)(14) (relating to certain 
                cooperative banks).
                    ``(C) Section 521 (relating to farm cooperatives).
                    ``(D) Section 1381 (relating to cooperatives 
                generally).
            ``(4) Regulations.--The Secretary shall prescribe 
        regulations for the application of this section. The 
        regulations shall generally be consistent with subchapter T of 
        chapter 1 of the Internal Revenue Code of 1986 except to the 
        extent that such rules are inconsistent with provisions of this 
        chapter.

                      ``CHAPTER 9--SOURCING RULES

                              ``Sec. 1901. Exports of property or 
                                        services.
                              ``Sec. 1902. Imports of property or 
                                        services.
                              ``Sec. 1903. Import or export of 
                                        services.
                              ``Sec. 1904. International transportation 
                                        services.
                              ``Sec. 1905. International 
                                        communications.
                              ``Sec. 1906. Insurance.
                              ``Sec. 1907. Banking services.

``SEC. 1901. EXPORTS OF PROPERTY OR SERVICES.

    ``(a) General Rule.--Taxable receipts do not include amounts 
received for property or services exported from the United States by 
the exporter thereof for use or consumption outside the United States.
    ``(b) Export Through Nonbusiness Entity.--For purposes of 
subsection (a), if property or services are sold to a governmental 
entity or a tax-exempt organization for export and are exported other 
than in an activity of such entity which is subject to the business 
tax, then the seller of such property or services is deemed to be the 
exporter thereof.
    ``(c) Export of Services.--See section 1903 for rules for 
determining whether services are exported or imported.

``SEC. 1902. IMPORTS OF PROPERTY OR SERVICES.

    ``(a) In General.--The import of property or services for 
consumption in the United States shall constitute a business purchase 
if such property or service is to be used in a business activity in the 
United States. Property being held for sale or retail by a business 
entity that is in the business of selling goods shall be considered 
held for use in a business activity.
    ``(b) Amount of Business Purchase.--
            ``(1) In general.--The cost of business purchases with 
        respect to the import of property or services for use or 
        consumption in the United States is the customs value, price, 
        or other amount used for purposes of determining the import tax 
        under chapter 10.
            ``(2) Import tax.--The cost of business purchases does not 
        include any import tax paid. No deduction shall be allowed with 
        respect to property or service imported by a business entity 
        unless the import tax is paid with respect to such import.

``SEC. 1903. IMPORT OR EXPORT OF SERVICES.

    ``(a) In General.--Except as otherwise provided in this subchapter 
or in rules prescribed under chapter 6 (relating to financial 
intermediation business), services shall not be treated as imported or 
exported from the location in which such services are performed.
    ``(b) Import of Services.--A business entity shall be treated as 
importing a service if the benefit will be realized solely in 
connection with the United States business activities of the business 
entity.
    ``(c) Export of Services.--A business will be treated as exporting 
a service if the benefit will be realized solely in connection with the 
activities of the purchaser occurring outside the United States.
    ``(d) Services Acquired From Service Provider That Provides 
Services In and Outside the United States.--
            ``(1) In general.--If a business entity acquires services 
        from a service provider that provides services both in and 
        outside the United States and the service provider shows on the 
        invoice where the services are provided--
                    ``(A) the business entity shall treat the services 
                as provided where stated on the invoice, and
                    ``(B) the service provider shall treat as taxable 
                receipts any services listed as provided in the United 
                States.
            ``(2) No invoice.--If a business entity acquires services 
        from a service provider that provides services both in and 
        outside the United States and the service provider does not 
        show on an invoice where such services are provided--
                    ``(A) the business entity shall treat the services 
                as if provided in the location to which payment is 
                sent, and
                    ``(B) the service provider shall treat as taxable 
                receipts any payments received in the United States.
    ``(e) Special Rules Prevail.--See sections 1904 and 1905 for 
special rules relating to transportation and communication services.

``SEC. 1904. INTERNATIONAL TRANSPORTATION SERVICES.

    ``(a) Transportation of Property.--
            ``(1) Taxable receipts.--
                    ``(A) Exports.--Taxable receipts do not include 
                receipts from the transportation of property exported 
                from the United States.
                    ``(B) Imports.--Taxable receipts include receipts 
                from transportation of property imported into the 
                United States only if such costs are not taken into 
                account in determining the import tax.
                    ``(C) Presumptions.--The Secretary shall prescribe 
                regulations describing situations in which a 
                transporter of property must presume that no import tax 
                has been paid on the cost of its services.
            ``(2) Business purchases.--
                    ``(A) Exports.--Business purchases do not include 
                amounts paid or incurred for the cost of transportation 
                of property exported from the United States.
                    ``(B) Imports.--Amounts paid or incurred for 
                transportation of goods imported into the United States 
                shall constitute a cost of business purchase only to 
                the extent that such amounts are taken into account in 
                determining the customs value for purposes of the 
                import tax.
    ``(b) Transportation of Passengers.--
            ``(1) Taxable receipts.--Taxable receipts--
                    ``(A) include receipts from the transportation of 
                passengers from the United States to a destination 
                outside the United States, but
                    ``(B) do not include receipts from the 
                transportation of passengers from outside the United 
                States to a destination in the United States.
            ``(2) Business purchases.--Business purchases--
                    ``(A) include amounts paid or incurred in a 
                business activity for the transportation of passengers 
                from the United States to a destination outside the 
                United States, but
                    ``(B) do not include amounts paid or incurred for 
                transportation of passengers from outside the United 
                States to a destination in the United States.
            ``(3) Simplifying rules.--The Secretary may provide rules 
        that simplify this subsection, including rules under which--
                    ``(A) half of receipts attributable to 
                transportation to or from the United States are treated 
                as taxable receipts,
                    ``(B) half of the cost for business trips to and 
                from the United States are treated as business 
                purchases, and
                    ``(C) all transportation expenses of a business 
                entity that has no regular business outside the United 
                States are treated as business purchases.

``SEC. 1905. INTERNATIONAL COMMUNICATIONS.

    ``(a) In General.--For purposes of section 1902, communications 
services shall be treated as provided at the point of origin of the 
communications and shall not be treated as imported or exported.
    ``(b) Communications Services.--Communications services include--
            ``(1) telephone communications services,
            ``(2) courier services (except in the case of 
        transportation of property that is imported or exported),
            ``(3) satellite transmission services,
            ``(4) telegraph services,
            ``(5) facsimile transmission services, and
            ``(6) other similar services.

``SEC. 1906. INSURANCE.

    ``(a) In General.--Insurance services will be treated as provided 
at the location of the insurance company providing the services. Except 
as the Secretary may prescribe by regulations, insurance companies will 
be treated as providing services at the location to which insurance 
payments are made.
    ``(b) Insured Risks in the United States.--If insurance services 
are provided outside the United States and the insured risk is located 
in the United States--
            ``(1) the insurance service shall be treated as imported,
            ``(2) the insurance premiums shall be subject to the import 
        tax, and
            ``(3) payments of insurance benefits shall not be treated 
        as imported.
    ``(c) Insured Risk Outside the United States.--If insurance 
services are provided inside the United States and the insured risk is 
located outside the United States--
            ``(1) insurance services shall be treated as exported, and
            ``(2) payments of insurance benefits shall be treated as 
        payments for services outside the United States, and shall not 
        be deducted as business purchases.
    ``(d) Insurance Services.--The term `insurance services' means the 
provision of insurance and services related to insurance other than 
insurance that is treated as a savings asset within the meaning of 
section 2(p).

``SEC. 1907. BANKING SERVICES.

    ``The Secretary shall prescribe regulations on the location of 
banking services and the extent to which such services are to be 
treated as imported or exported.

                        ``CHAPTER 10--IMPORT TAX

                              ``Sec. 2001. Imposition of tax on import 
                                        of property.
                              ``Sec. 2002. Imposition of tax on import 
                                        of services.
                              ``Sec. 2003. General rules for the import 
                                        tax.

``SEC. 2001. IMPOSITION OF TAX ON IMPORT OF PROPERTY.

    ``(a) General Rule.--There is hereby imposed a tax equal to 8.4 
percent of the customs value of all property entered into the United 
States for consumption, use or warehousing.
    ``(b) Liability for Tax.--The tax imposed on the import of property 
by subsection (a) shall be paid by the person entering the property 
into the United States for consumption, use or warehousing. Such tax 
shall be due and payable at the time of import.
    ``(c) Imports of Previously Exported Property.--In the case of any 
article that is classified under a heading or subheading of subchapter 
I or II of chapter 98 of the Tariff Schedules of the United States, the 
tax under this section shall be imposed only on that portion of the 
customs value of such article that is dutiable under such heading or 
subheading.
    ``(d) Imports for Personal Consumption.--The import tax imposed by 
this section shall not apply to the first $400 of goods imported per 
calendar year by a person who (1) is not a business entity or (2) if a 
business entity, imported such goods for a non-business purpose.

``SEC. 2002. IMPOSITION OF TAX ON IMPORT OF SERVICES.

    ``(a) General Rule.--There is hereby imposed a tax equal to 8.4 
percent of the cost of all services treated as imported into the United 
States during the taxable year of the service recipient.
    ``(b) Liability for the Tax.--The tax on the import of services 
imposed by subsection (a) shall be paid by the person who receives the 
imported services. The tax shall be payable as if it were an addition 
to the business tax imposed by section 1101.
    ``(c) Imported Services.--For purposes of this section, services 
shall be treated as imported if such services are treated as imported 
under section 1903 (general rules on import of services) or section 
1906 (related to insurance).
    ``(d) Special Rule for Insurance.--The seller of insurance that is 
treated as imported under section 1906 shall be liable for the 
collection of the tax imposed by subsection (a) on the insurance and 
for paying such tax to the Secretary. The first sentence of subsection 
(b) (relating to the person liable for the tax) shall apply to 
insurance only to the extent that the seller of the insurance services 
does not collect such tax.

``SEC. 2003. GENERAL RULES FOR THE IMPORT TAX.

    ``(a) Import Tax.--The term `import tax' means the tax imposed by 
section 2001 on the import of property and the tax imposed by section 
2002 on the import of services.
    ``(b) No Credits.--No credits shall be allowed against the import 
tax, other than credit for prior overpayment or credits for deposits of 
the import tax.''.

               TITLE V--TAX ADMINISTRATION AND TRANSITION

SEC. 501. TAX ADMINISTRATION AND TRANSITION.

    The Internal Revenue Code of 1986 is amended by inserting after 
subtitle C the following new subtitle:

          ``Subtitle D--Administration and Transition Matters

                              ``Chapter 1. Other administrative 
                                        provisions.
                              ``Chapter 2. Collection; appeals; 
                                        taxpayer rights.
                              ``Chapter 3. Accounting method rules.
                              ``Chapter 4. Transition rules.
                              ``Chapter 5. Additional matters.

              ``CHAPTER 1--OTHER ADMINISTRATIVE PROVISIONS

                              ``Sec. 2501. Reports and payments.
                              ``Sec. 2502. Registration.
                              ``Sec. 2503. Accounting.
                              ``Sec. 2504. Registration certificates.
                              ``Sec. 2505. Penalties.
                              ``Sec. 2506. Burden of persuasion and 
                                        burden of production.
                              ``Sec. 2507. Attorneys and accountancy 
                                        fees.
                              ``Sec. 2508. Summons, examinations, 
                                        audits, etc.
                              ``Sec. 2509. Records.
                              ``Sec. 2510. Tax to be separately stated 
                                        and charged.
                              ``Sec. 2511. Coordination with title 11.
                              ``Sec. 2512. Applicable interest rate.

``SEC. 2501. REPORTS AND PAYMENTS.

    ``(a) In General.--
            ``(1) Sales tax reports and filing dates.--On or before the 
        15th day of each month, each person who is liable to collect 
        and remit the tax imposed by subtitle B by reason of section 
        103(a), or liable to pay tax imposed by subtitle B which is not 
        collected pursuant to section 103(a) shall submit to the 
        appropriate sales tax administering authority (in a form 
        prescribed by the Secretary) a report relating to the previous 
        calendar month that sets forth--
                    ``(A) the gross payments referred to in section 
                101,
                    ``(B) the tax collected under this chapter in 
                connection with such payments,
                    ``(C) the amount and type of any credit claimed, 
                and
                    ``(D) other information reasonably required by the 
                Secretary or the sales tax administering authority for 
                the administration, collection and remittance of the 
                tax imposed by subtitle B.
            ``(2) Business tax reports and filing dates.--On or before 
        the 15th day of April of each year, each person that is liable 
        to remit tax pursuant to subtitle C shall file a tax return in 
        the form prescribed by the Secretary.
    ``(b) Tax Payments Date.--
            ``(1) Sales tax.--The tax imposed by subtitle B during any 
        calendar month is due and shall be paid to the appropriate 
        sales tax administering authority on or before the 15th day of 
        the succeeding month. Both Federal tax imposed by subtitle B 
        and conforming State sales tax (as defined in section 2) (if 
        any) shall be paid in 1 aggregate payment.
            ``(2) Business tax.--Business entities shall pay estimated 
        taxes equal to no less than 100 percent of their estimated tax 
        due under subtitle C within 15 days of the end of their taxable 
        quarter. Any additional tax due shall be paid along with the 
        business entities annual tax return.
            ``(3) Cross reference.--See subsection (e) relating to 
        remitting of separate segregated funds for sellers that are not 
        small sellers.
    ``(c) Extensions for Filing Reports.--
            ``(1) Automatic extensions for not more than 30 days.--On 
        application, an extension of not more than 30 days to file 
        reports or returns required by this section shall be 
        automatically granted.
            ``(2) Other extensions.--On application, extensions of 30 
        to 60 days to file such reports or returns shall be liberally 
        granted by the sales tax administering authority or the 
        Secretary, as the case may be, for reasonable cause. Extensions 
        greater than 60 days may be granted by the sales tax 
        administering authority or the Secretary, as the case may be, 
        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 or remitting the taxes under 
        subtitle B or subtitle C.
    ``(d) Telephone Reporting of Violations.--The Secretary shall 
establish a system whereby violation of the this title can be brought 
to the attention of the sales tax administering authority for 
investigation through the use of a toll-free telephone number and 
otherwise.
    ``(e) Separate Segregated Accounts.--
            ``(1) Deposit Requirement.--Any registered seller that is a 
        not a small seller shall deposit all sales taxes collected 
        pursuant to section 103 in a particular week in a separate 
        segregated account maintained at a bank or other financial 
        institution within 3 business days of the end of such week. 
        Such registered seller shall also maintain in that account 
        sufficient funds to meet the bank or financial institution 
        minimum balance requirements, if any, and to pay account fees 
        and costs.
            ``(2) Small Seller Defined.--For purposes of this 
        subsection, a small seller is any person that has not collected 
        $20,000 or more of the taxes imposed by subtitle B in any of 
        the previous 12 months.
            ``(3) Large sellers.--Any seller that has collected 
        $100,000 or more of the taxes imposed by subtitle B in any of 
        the previous 12 months is a large seller. A large seller shall 
        remit to the sales tax administering authority the entire 
        balance of deposited taxes in its separate segregated account 
        on the first business day following the end of the calendar 
        week. The Secretary may by regulation require the electronic 
        transfer of funds due from large sellers.
            ``(4) Week defined.--For purposes of this subsection, the 
        term `week' shall mean the 7-day period ending on a Friday.
    ``(f) Determination of Report Filing Date.--A report filed pursuant 
to subsection (a) shall be deemed filed when--
            ``(1) deposited in the United States mail, postage prepaid, 
        addressed to the sales tax administering authority,
            ``(2) delivered and accepted at the offices of the sales 
        tax administering authority,
            ``(3) provided to a designated commercial private courier 
        service (as defined in section 2) for delivery within 2 days to 
        the sales tax administering authority at the address of the 
        sales tax administering authority, or
            ``(4) by other means permitted by the Secretary.
    ``(g) Security Requirements.--A large seller (within the meaning of 
subsection (e)(3)) shall be required to provide security in an amount 
equal to the greater of $100,000 or one and one-half times the seller's 
average monthly tax liability during the previous 6 calendar months. 
Security may be a cash bond, a bond from a surety company approved by 
the Secretary, a certificate of deposit, or a State or United States 
Treasury bond. A bond qualifying under this subsection must be a 
continuing instrument for each calendar year (or portion thereof) that 
the bond is in effect. The bond must remain in effect until the surety 
or sureties are released and discharged. Failure to provide security in 
accordance with this section shall result in revocation of the seller's 
section 2502 registration. The security or part of the security, as the 
case may be, may be forfeited in favor of the Secretary to the extent 
of such tax due (plus interest if any) if a person who has provided 
security pursuant to this subsection--
            ``(1) fails to pay an amount indicated in a final notice of 
        amount due under this subtitle (within the meaning of section 
        2605(d)), and
            ``(2) no Taxpayer Assistance Order is in effect relating to 
        the amount due, and
            ``(3) either the time for filing an appeal pursuant to 
        section 2604 has passed or the appeal was denied, and
            ``(4) the amount due is not being litigated in any judicial 
        forum.
    ``(h) Rewards Program.--The Secretary is authorized to maintain a 
program of awards wherein individuals that assist the Secretary or 
sales tax administering authorities in discovering or prosecuting tax 
fraud may be remunerated.
    ``(i) Cross Reference.--For interest due on taxes remitted late, 
see section 6601.

``SEC. 2502. REGISTRATION.

    ``(a) In General.--Any person liable to collect and remit taxes 
pursuant to subtitle B or any business entity subject to the tax 
imposed by subtitle C who is engaged in a trade or business shall 
register as a seller with the sales tax administering authority and as 
a business taxpayer with the Secretary.
    ``(b) Affiliated Firms.--Affiliated firms (as defined in section 2) 
shall be treated as 1 person for purposes of this section. Affiliated 
firms may elect, upon giving notice to the Secretary in a form 
prescribed by the Secretary, to treat separate firms as separate 
persons for purposes of this subtitle.
    ``(c) Designation of Tax Matters Person.--Every person registered 
pursuant to subsection (a) shall designate a tax matters person who 
shall be an individual whom the sales tax administering authority may 
contact regarding tax matters. Each person registered must provide 
notice of a change in the identity of the tax matters person within 30 
days of such change.
    ``(d) Certificates of Registration.--The sales tax administering 
authority and the Secretary shall issue certificates of registration to 
registered sellers.
    ``(e) Effect of Failure To Register.--Any person that is required 
to register and who fails to do so is hereby prohibited from selling 
taxable property or services. The Secretary or a sales tax 
administering authority may bring an action seeking a temporary 
restraining order, an injunction, or such other order as may be 
appropriate to enforce this section.

``SEC. 2503. ACCOUNTING.

    ``(a) Cash Method To Be Used Generally.--For purposes of subtitle B 
and subtitle C, persons shall report transactions using the cash method 
of accounting unless an election to use the accrual method of 
accounting is made pursuant to subsection (b) is made in the form 
prescribed by the Secretary.
    ``(b) Election to Use Accrual Method.--A person may elect, in the 
form prescribed by the Secretary, with respect to a taxable year to 
remit taxes and report transactions using the accrual method of 
accounting.

``SEC. 2504. REGISTRATION CERTIFICATES.

    ``The sales tax administering authority and the Secretary shall 
issue certificates of registration to registered sellers and such other 
certificates as are necessary or may prove useful in the administration 
of the tax imposed by subtitle B or subtitle C.

``SEC. 2505. PENALTIES.

    ``(a) Failure To Register.--Each person who is required to register 
pursuant to section 2502 but fails to do so prior to notification by 
the sales tax administering authority shall be liable for a penalty of 
$500.
    ``(b) Reckless or Willful Failure To Collect Tax.--
            ``(1) Civil penalty; fraud.--Each person who is required to 
        collect taxes imposed by subtitle B as part of a trade or 
        business and recklessly or willfully fails to do so shall be 
        liable for a penalty equal to the greater of $500 or 20 percent 
        of the tax not collected.
            ``(2) Criminal penalty.--Each person who is required to 
        collect taxes imposed by subtitle B as part of a trade or 
        business and willfully fails to do so may be fined an amount up 
        to the amount determined in accordance with paragraph (1) or 
        imprisoned for a period of not more than 1 year or both.
    ``(c) Reckless or Willful Assertion of Invalid Exemption.--
            ``(1) Civil penalty; fraud.--Each person who recklessly or 
        willfully asserts an invalid intermediate or export sales 
        exemption from the taxes imposed by subtitle B 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 asserts 
        an invalid intermediate or export sales exemption from the 
        taxes imposed by subtitle B may be fined an amount up to the 
        amount determined in accordance with paragraph (1) or 
        imprisoned for a period of not more than 1 year or both.
    ``(d) Reckless or Willful Failure To Remit Tax Collected.--
            ``(1) Civil penalty; fraud.--Each person who is required to 
        remit taxes actually collected pursuant to subtitle B and who 
        recklessly or willfully fails to do so shall be liable for a 
        penalty equal to the greater of $1,000 or 40 percent of the tax 
        not remitted.
            ``(2) Criminal penalty.--Each person who is required to 
        remit taxes actually collected pursuant to subtitle B and 
        willfully fails to do so may be fined an amount up to the 
        amount determined in accordance with paragraph (1) or 
        imprisoned for a period of not more than 2 years or both.
    ``(e) Reckless or Willful Failure To Pay Tax.--Each person who is 
required to pay taxes imposed by subtitle B or C and recklessly or 
willfully fails to do so shall be liable for a penalty equal to the 
greater of $500 or 20 percent of the tax not paid.
    ``(f) Penalty for Late Filing.--
            ``(1) In general.--In the case of a failure by any person 
        who is required to file a report or return required by subtitle 
        B or C on or before the due date for such report (determined 
        with regard to any extension) and fails to do so, such person 
        shall pay a penalty for each month or fraction thereof that 
        such report is late equal to the greater of--
                    ``(A) $50, or
                    ``(B) 0.5 percent of the gross payments (or, in the 
                case of the business tax, gross profits or the value of 
                the imported good or service) that is 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 sales tax administering authority.
            ``(3) The penalty imposed pursuant to this subsection shall 
        not exceed 12 percent.
            ``(4) Exceptions.--
                    ``(A) Reasonable cause.--No penalty shall be 
                imposed under this subsection 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 sales tax administering authority, on application, 
                shall waive the penalty imposed by paragraph (1) once 
                per registered person per 24 month period. The 
                preceding sentence shall not apply to a penalty 
                determined under paragraph (2).
    ``(g) Penalty for Willfully or Recklessly Accepting a False 
Intermediate or Export Sales Certificate.--A person who willfully or 
recklessly accepts a false intermediate or export sales certificate 
shall pay a penalty equal to 20 percent of the tax not collected by 
reason of such acceptance.
    ``(h) Penalty for Late Remittance or Payment of Taxes.--
            ``(1) In general.--A person who is required to timely remit 
        or pay taxes imposed by subtitle B or subtitle C and remits or 
        pays taxes more than 1 month after they are due shall pay a 
        penalty equal to 1 percent per month (or fraction thereof) that 
        the remittance or payment is late provided, however, that the 
        penalty imposed pursuant to this subsection shall not exceed 24 
        percent.
            ``(2) Exceptions for reasonable cause.--No penalty shall be 
        imposed under paragraph (1) with respect to any late remittance 
        if it is shown that such late remittance is due to reasonable 
        cause.
    ``(i) Penalty for Filing False Rebate Claim.--
            ``(1) Civil penalty; fraud.--A person who willfully or 
        recklessly files a false claim for a Family Consumption 
        Allowance rebate shall--
                    ``(A) pay a penalty equal to the greater of $500 or 
                50 percent of the claimed annual rebate amount not 
                actually due, and
                    ``(B) repay any rebates received as a result of the 
                false rebate claim (together with interest).
            ``(2) Criminal penalty.--A person who willfully files a 
        false claim for a Family Consumption Allowance rebate may be 
        fined an amount up to the amount determined in accordance with 
        paragraph (1) or imprisoned for a period not more than 1 year 
        or both.
    ``(j) Penalty for Bad Check.--If any check or money order in 
payment of any amount due under this subtitle is not duly paid, in 
addition to other penalties provided by law, the person who tendered 
such check shall pay a penalty equal to the greater of--
            ``(1) $25, or
            ``(2) 2 percent of the amount of such check.
    ``(k) Penalty for Failure to Maintain a Separate Segregated 
Account.--Any person required to maintain a separate segregated account 
pursuant to section 2501(e) who fails to maintain such a separate 
segregated account shall pay a penalty of $500.
    ``(l) Penalty for Failure To Deposit Collected Taxes in a Separate 
Segregated Account.--Any person required to deposit collected taxes 
into a separate segregated account maintained pursuant to section 
2501(e) who fails to timely deposit such taxes into the separate 
segregated account shall pay a penalty equal to 1 percent of the amount 
required to be deposited. The penalty imposed by the previous sentence 
shall be tripled unless such taxes have been deposited in the separate 
segregated account or remitted to the sales tax administering authority 
within 16 days of the date such deposit was due.
    ``(m) Penalty for Insufficient Estimated Tax Payments.--A business 
entity that does not make estimated tax payments with respect to the 
business tax equal to at least 90 percent of the actual tax due shall 
be subject to a penalty equal to 5 percent of such underpayment. A 
business entity that does not make estimated tax payments with respect 
to the business tax equal to at least 80 percent of the actual tax due 
shall be subject to a penalty equal to 10 percent of such underpayment, 
such penalty to be in lieu of the penalty imposed by the previous 
sentence.
    ``(n) Joint and Several Liability for Tax Matters Person and 
Responsible Officers.--The tax matters person (designated pursuant to 
section 2502(c)) and responsible officers or partners of a firm shall 
be jointly and severally liable for the tax imposed by this subtitle 
and penalties imposed by this subtitle.
    ``(o) Right of Contribution.--If more than 1 person is liable with 
respect to any tax or penalty imposed by this subtitle, each person who 
paid such tax or penalty shall be entitled to recover from other 
persons who are liable for such tax or penalty an amount equal to the 
excess of the amount paid by such person over such person's 
proportionate share of the tax or penalty.
    ``(p) Civil Penalties and Criminal Fines Not Exclusive.--
            ``(1) The fact that a civil penalty has been imposed shall 
        not prevent the imposition of a criminal fine.
            ``(2) The fact that a criminal fine has been imposed shall 
        not prevent the imposition of a civil penalty.
    ``(q) False Certification.--A person making a false certification 
under section 202(d) shall pay a penalty equal to the greater of $500 
or 20 percent of the business use conversion credit falsely taken.
    ``(r) Civil Penalties Not Additive.--More than 1 civil penalty may 
not be imposed pursuant to this section as a result of the same act or 
omission.
    ``(s) Confidentiality.--Any person who violates the requirements 
relating to confidentiality of tax information (as provided in section 
2605(f)) may be fined up to $10,000 or imprisoned for a period of not 
more than 1 year or both.
    ``(t) Cross Reference.--For interest due on late payments, see 
section 6601.

``SEC. 2506. BURDEN OF PERSUASION AND BURDEN OF PRODUCTION.

    ``In all disputes concerning taxes imposed by this title, the 
person engaged in a dispute with the sales tax administering authority 
or the Secretary, as the case may be, shall have the burden of 
production of documents and records but the sales tax administering 
authority or the Secretary shall have the burden of persuasion. In all 
disputes concerning an exemption claimed by a purchaser, if the seller 
has on file an intermediate sale or export sale certificate from the 
purchaser and did not have reasonable cause to believe that the 
certificate was improperly provided by the purchaser with respect to 
such purchase (within the meaning of section 103), then the burden of 
production of documents and records relating to that exemption shall 
rest with the purchaser and not with the seller.

``SEC. 2507. ATTORNEYS AND ACCOUNTANCY FEES.

    ``In all disputes concerning taxes imposed by this title, the 
person engaged in a dispute with the sales tax administering authority 
or the Secretary, as the case may be, shall be entitled to reasonable 
attorneys fees, accountancy fees and other reasonable professional fees 
incurred in direct relation to the dispute unless the sales tax 
administering authority or the Secretary establishes that its position 
was substantially justified.

``SEC. 2508. SUMMONS, EXAMINATIONS, AUDITS, ETC.

    ``(a) Persons are subject to administrative summons by the sales 
tax administering authority and the Secretary for records, books, 
papers, documents and effects required to accurately determine 
liability for tax under this subtitle. A summons shall be served by the 
sales tax administering authority or the Secretary by an attested copy 
delivered in hand to the person to whom it is directed or left at his 
last known address. The summons shall describe with reasonable 
certainty what is sought.
    ``(b) The sales tax administering authority and the Secretary have 
the authority to conduct at a reasonable time and place examinations 
and audits of persons who are or may be liable to collect and remit tax 
imposed by this subtitle and to examine the records, books, papers, 
documents and effects of such persons which may be relevant and 
material to the determination of tax due.
    ``(c) No administrative summons may be issued by the sales tax 
administering authority or the Secretary and no action may be commenced 
to enforce an administrative summons with respect to any person if a 
Justice Department referral or referral to a State Attorney General's 
Office is in effect with respect to such person relating to a tax 
imposed by this subtitle (or relating to a conforming State sales tax). 
Such referral is in effect with respect to any person if the sales tax 
administering authority or the Secretary has recommended to the Justice 
Department or a State Attorney General's Office a grand jury 
investigation of such person or a criminal prosecution of such person 
that contemplates criminal sanctions under this title. A referral shall 
be terminated when--
            ``(1) the Justice Department or a State Attorney General's 
        Office notifies the sales tax administering authority or the 
        Secretary that such Department of Office will not--
                    ``(A) prosecute such person for any offense 
                connected with the internal revenue laws (or a 
                conforming State sales tax),
                    ``(B) authorize a grand jury investigation of such 
                person with respect to such offense, or
                    ``(C) continue such a grand jury investigation, or
            ``(2) a final disposition has been made of any criminal 
        proceeding connected with the internal revenue laws, or 
        conforming State sales tax, against such person.

``SEC. 2509. RECORDS.

    ``Any person liable to remit taxes pursuant to subtitle B or C 
shall keep records (including a record of all section 2510 receipts 
provided, complete records of intermediate and export sales, including 
purchaser's intermediate and export sales certificates and tax number 
and the net of tax amount of purchase) sufficient to determine the 
amounts reported, collected, and remitted for a period of 5 years after 
the latter of the filing of the report for which the records formed the 
basis or the date the report was due to be filed. Any purchaser who 
purchased taxable property or services but did not pay tax by reason of 
asserting an intermediate and export sales exemption shall keep records 
sufficient to determine whether such exemption was valid for a period 
of 6 years after the purchase of the taxable property or services.

``SEC. 2510. TAX TO BE SEPARATELY STATED AND CHARGED.

    ``(a) In General.--For each purchase of taxable property or 
services for which a tax is imposed pursuant to section 101 and 1101, 
the seller shall charge the tax imposed by section 101 separately from 
the purchase. For purchase of taxable property or services for which a 
tax is imposed pursuant to section 101, the seller shall provide to the 
purchaser a receipt for each transaction that includes at least the 
following information--
            ``(1) the price of the property or services exclusive of 
        tax,
            ``(2) the amount of tax paid (including both the tax 
        imposed by section 101 and the tax imposed by section 1101),
            ``(3) the price of the property or service inclusive of 
        tax,
            ``(4) the sales tax rate and the business tax rate,
            ``(5) the date that the good or service was sold,
            ``(6) the name of the vendor, and
            ``(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. For 
purposes of this subsection, the term `vending machines' means 
machines--
            ``(1) that dispense taxable property in exchange for coins 
        or currency, and
            ``(2) that sell no single item exceeding $10 per unit in 
        price.
    ``(c) Financial Intermediation Services Exception.--The 
requirements of subsection (a) shall be inapplicable in the case of 
sales of financial intermediation service. With respect to financial 
intermediation services, receipts shall be issued when the tax is 
imposed.

``SEC. 2511. COORDINATION WITH TITLE 11.

    ``No addition to tax shall be made under section 2505 with respect 
to a period during which a case is pending under title 11 of the United 
States Code--
            ``(1) if such tax was incurred by the estate and the 
        failure occurred pursuant to an order of the court finding 
        probable insufficiency of funds of the estate to pay 
        administrative expenses, or
            ``(2) if--
                    ``(A) such tax was incurred by the debtor before 
                the earlier of the order for relief or (in the 
                involuntary case) the appointment of a trustee, and
                    ``(B) the petition was filed before the due date 
                prescribed by law (including extensions) for filing a 
                return of such tax, or the date for making the addition 
                to tax occurs on or after the date the petition was 
                filed.

``SEC. 2512. 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 (selected by the Secretary and ending in the calendar month in 
which the determination is made during any 1 month) on outstanding 
marketable obligations of the United States with remaining periods to 
maturity of 3 years or fewer.
    ``(c) Federal Mid-Term Rate.--The Federal mid-term rate shall be 
the rate determined by the Secretary based on the average market yield 
(selected by the Secretary and ending in the calendar month in which 
the determination is made 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 
(selected by the Secretary and ending in the calendar month in which 
the determination is made 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.

           ``CHAPTER 2--COLLECTIONS; APPEALS; TAXPAYER RIGHTS

                              ``Sec. 2601. Collections.
                              ``Sec. 2602. Power to levy, etc.
                              ``Sec. 2603. Problem resolution offices.
                              ``Sec. 2604. Appeals.
                              ``Sec. 2605. Taxpayer rights.
                              ``Sec. 2606. Installment agreements; 
                                        compromises.

``SEC. 2601. COLLECTIONS.

    ``The sales tax administering authority (as defined by section 2) 
shall collect the taxes imposed by subtitle B and the Secretary shall 
collect the taxes imposed by subtitle C.

``SEC. 2602. POWER TO LEVY, ETC.

    ``(a) In General.--The sales tax administering authority and the 
Secretary may levy and seize property, garnish wages or salary and file 
liens to collect amounts due under this title, pursuant to enforcement 
of--
            ``(1) a judgment duly rendered by a court of law,
            ``(2) an amount due if the taxpayer has failed to exercise 
        his appeals rights under section 2604, or
            ``(3) an amount due if the appeals process determined that 
        an amount remained due and the taxpayer has failed to timely 
        petition the Tax Court for relief.
    ``(b) Exemption from Levy, Seizure and Garnishment.--There shall be 
exempt from levy, seizure and garnishment or penalty in connection with 
any tax imposed by this title--
            ``(1) wearing apparel, school books, fuel, provisions, 
        furniture, personal effects, tools of a trade or profession, 
        and livestock in a household up to an aggregate value of 
        $15,000, and
            ``(2) monthly money income equal to 150 percent of the 
        monthly poverty level (as defined in section 303).
    ``(c) Liens to be Timely Released.--Subject to such reasonable 
regulations as the Secretary may provide, any lien imposed with respect 
to a tax imposed by this title shall be released not later than 30 days 
after--
            ``(1) the liability was satisfied or became unenforceable, 
        or
            ``(2) a bond was accepted as security.

``SEC. 2603. PROBLEM RESOLUTION OFFICES.

    ``(a) Problem Resolution Office To Be Established.--Each sales tax 
administering authority and the Secretary shall establish an 
independent Problem Resolution Office and appoint an adequate number of 
Problem Resolution Officers. The head of the Problem Resolution Office 
must be appointed by, and serve at the pleasure of, either the governor 
of the administering State or the President of the United States.
    ``(b) Authority of Problem Resolution Officers.--Problem Resolution 
Officers shall have the authority to investigate complaints and issue 
Taxpayer Assistance Orders to administratively enjoin any collection 
activity (by the sales tax administering authority if appointed by the 
governor and by the Secretary if appointed by the President) if, in the 
opinion of the Problem Resolution Officer, such collection activity is 
reasonably likely to not be in compliance with law or to prevent 
hardship (other than by reason of having to pay taxes lawfully due). 
Problem Resolution Officers shall also have the authority to issue 
Taxpayer Assistance Orders releasing or returning property that has 
been levied upon or seized and ordering that a lien be released or that 
garnished wages be returned. Such Taxpayer Assistance Order may only be 
rescinded or modified by the Problem Resolution Officer that issued it, 
by either the highest official in the relevant sales tax administering 
authority or by its General Counsel (or by the Secretary or his 
designated counsel) upon a finding that the collection activity is 
justified by clear and convincing evidence. The authority to reverse 
this taxpayer assistance order may not be delegated.
    ``(c) Form of Request for Taxpayer Assistance Order.--The Secretary 
shall establish a form and procedure to aid persons requesting the 
assistance of the Problem Resolution Office and to aid the Problem 
Resolution Office in understanding the needs of the person seeking 
assistance. The use of this form, however, shall not be a prerequisite 
to a Problem Resolution Officer taking action, including issuing a 
Taxpayer Assistance Order.
    ``(d) Content of Taxpayer Assistance Order.--A Taxpayer Assistance 
Order shall contain the name of the Problem Resolution Officer, any 
provision relating to the running of any applicable period of 
limitation, the name of the person that the Taxpayer Assistance Order 
assists, the Government office (or employee or officer of such 
Government office) to whom it is directed and the action or cessation 
of action that the Taxpayer Assistance Order requires of such 
Government office (or employee or officer of such Government office). 
The Taxpayer Assistance Order need not contain findings of fact or its 
legal basis; however, the Problem Resolution Officer must provide 
findings of fact and the legal basis for the issuance of the Taxpayer 
Assistance Order to the sales tax administering authority upon the 
request of an officer of such authority within 2 weeks of the receipt 
of such request.
    ``(e) Independence Protected.--Problem Resolution Officers shall 
not be disciplined or adversely affected for the issuance of 
administrative injunctions unless a pattern of issuing injunctions that 
are unreasonable is proven in an administrative hearing by a 
preponderance of the evidence.
    ``(f) Other Rights Not Limited.--Nothing in this section shall 
limit the authority of the sales tax administering authority, the 
Secretary, the registered person or other person from pursuing any 
legal remedy in any court of competent jurisdiction.
    ``(g) Limitations.--The running of any applicable period of 
limitation shall be suspended for a period of 8 weeks following the 
issuance of a Taxpayer Assistance Order or, if specified, for a longer 
period set forth in the Taxpayer Assistance Order, provided, however, 
that such suspension may not exceed 6 months.

``SEC. 2604. APPEALS.

    ``(a) Administrative Appeals.--The sales tax administering 
authority and the Secretary shall establish an administrative appeals 
process wherein a registered person, business entity or other person in 
disagreement with a decision of the sales tax administering authority 
or the Secretary asserting liability for tax is provided a full and 
fair hearing in connection with any disputes such person has with the 
sales tax administering authority or the Secretary.
    ``(b) Timing of Administrative Appeals.--Such administrative appeal 
must be made within 60 days of receiving a final notice of amount due 
pursuant to section 2605(d) unless leave for an extension is granted by 
the appeals officer in a form prescribed by the Secretary. Leave shall 
be granted to avoid hardship.

``SEC. 2605. TAXPAYER RIGHTS.

    ``(a) Rights To Be Disclosed.--The sales tax administering 
authority or the Secretary shall provide to any person against whom it 
has--
            ``(1) commenced an audit or investigation,
            ``(2) issued a final notice of amount due,
            ``(3) filed an administrative lien, levy or garnishment,
            ``(4) commenced other collection action,
            ``(5) commenced an action for civil penalties, or
            ``(6) any other legal action,
a document setting forth in plain English the rights of such person. 
The document shall explain the administrative appeals process, the 
authority of the Problem Resolution Office (established pursuant to 
section 2603) and how to contact that office, the burden of production 
and persuasion that the person and the sales tax administering 
authority (or the Secretary as the case may be) bear (pursuant to 
section 2506), the right of the person to professional fees (pursuant 
to section 2507), the right to record interviews and such other rights 
as the person may posses under this title. Such document will also set 
forth the procedures for entering into an installment agreement.
    ``(b) Right to Professional Assistance.--In all dealings with the 
sales tax administering authority (or the Secretary as the case may 
be), a person shall have the right to assistance, at the person's own 
expense, of 1 or more professional advisors.
    ``(c) Right to Record Interviews.--Any person who is interviewed by 
an agent of the sales tax administering authority (or the Secretary as 
the case may be) shall have the right to video or audio tape the 
interview at the person's own expense.
    ``(d) Right to Final Notice of Amount Due.--No collection or 
enforcement action will be commenced against a person until 30 days 
after they have been provided with a final notice of amount due under 
subtitle B or C by the sales tax administering authority (or the 
Secretary as the case may be). Such final notice of amount due shall 
set forth the amount of tax due (along with any interest and penalties 
due) and the factual and legal basis for such amounts being due with 
sufficient specificity that such basis can be understood by a 
reasonable person who is not a tax professional. Such final notice 
shall be sent by certified mail, return receipt requested, to--
            ``(1) the address last provided by a registered seller, 
        business entity or other person, or
            ``(2) in the case where an address was not provided, the 
        best available address with respect to such person.
    ``(f) Confidentiality of Tax Information.--
            ``(1) In general.--All reports and report information 
        (related to any internal revenue law) shall be confidential and 
        except as authorized by this title--
                    ``(A) no officer or employee (including former 
                officers and employees) of the United States,
                    ``(B) no officer or employee (including former 
                officers and employees) of any State or local agency 
                who has had access to returns or return information, 
                and
                    ``(C) no other person who has had access to returns 
                or return information,
        shall disclose any report or report information obtained by him 
        in any manner in connection with his service as such officer or 
        employee or otherwise.
            ``(2) Designees.--The sales tax administering authority 
        may, subject to such requirements as the Secretary may impose, 
        disclose the report and report information of a person to that 
        person or persons as that person may designate to receive such 
        information or return.
            ``(3) Other sales tax administering authorities.--A sales 
        tax administering authority may, subject to such requirements 
        as the Secretary may impose, disclose report and report 
        information to another sales tax administering authority or the 
        Secretary.
            ``(4) Incompetency.--A sales tax administering authority or 
        the Secretary may, subject to such requirements as the 
        Secretary may impose, disclose report and report information to 
        the committee, trustee or guardian of a person who is 
        incompetent.
            ``(5) Deceased persons.--A sales tax administering 
        authority or the Secretary may, subject to such requirements as 
        the Secretary may impose, disclose report and report 
        information to the decedent's
                    ``(A) administrator, executor, estate trustee, or
                    ``(B) heir at law, next of kin or beneficiary under 
                a will who has a material interest that will be 
                affected by the report and report information.
            ``(6) Bankruptcy.--A sales tax administering authority or 
        the Secretary may, subject to such requirements as the 
        Secretary may impose, disclose report and report information to 
        a person's trustee in bankruptcy.
            ``(7) Congress.--Upon written request from the Chairman of 
        the Committee on Ways and Means, the Chairman of the Committee 
        on Finance of the Senate, or the Chairman or Chief of Staff of 
        the Joint Committee on Taxation, a sales tax administering 
        authority or the Secretary shall disclose report and report 
        information provided, however, that any report or report 
        information that can be associated with or otherwise identify a 
        particular person shall be furnished to such Committee only 
        when sitting in closed executive session unless such person 
        otherwise consents in writing to such disclosure.
            ``(8) Waiver of privacy rights.--A person may waive 
        confidentiality rights provided by this section. Such waiver 
        must be in writing.
            ``(9) Internal use.--Disclosure of report or report 
        information by officers or employees of a sales tax 
        administering authority (or the Secretary, as the case may be) 
        to other officers or employees of a sales tax administering 
        authority (or the Secretary, as the case may be) in the 
        ordinary course of tax administration activities shall not 
        constitute unlawful disclosure of report or report information.
            ``(10) Statistical use.--Upon request in writing by the 
        Secretary of Commerce, the Secretary shall furnish such reports 
        and report information to officers and employees of the 
        Department of Commerce as the Secretary may prescribe by 
        regulation for the purposes of, and only to the extent 
        necessary in, the structuring of censuses and national economic 
        accounts and conducting related statistical activities 
        authorized by law.
            ``(11) Department of the treasury.--Returns and return 
        information shall be open for inspection by officers and 
        employees of the Department of the Treasury whose official 
        duties require such inspection or disclosure for the purpose 
        of, and only to the extent necessary for, preparing economic or 
        financial forecasts, projections, analyses or estimates. Such 
        inspection or disclosure shall be permitted only upon written 
        request that sets forth the reasons why such inspection or 
        disclosure is necessary and is signed by the head of the bureau 
        or office of the Department of the Treasury requesting the 
        inspection or disclosure.

``SEC. 2606. INSTALLMENT AGREEMENTS; COMPROMISES.

    ``The sales tax administering authority (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 under this subtitle (and penalties and interest 
relating thereto) in installments payments if the sales tax 
administering authority (or the Secretary, as the case may be) 
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 sales 
tax administering authority or the Secretary was materially inaccurate 
or incomplete. The sales tax administering authority (or the Secretary, 
as the case may be) may compromise any amounts alleged to be due.

                  ``CHAPTER 3--ACCOUNTING METHOD RULES

                              ``Sec. 2701. General accounting rules.
                              ``Sec. 2702. Use of the cash method of 
                                        accounting.
                              ``Sec. 2703. Taxable year.
                              ``Sec. 2704. Long-term contracts.
                              ``Sec. 2705. Post-sale price adjustments 
                                        and refunds.
                              ``Sec. 2706. Bad debts.
                              ``Sec. 2707. Consolidated returns.
                              ``Sec. 2708. Transition rules.

``SEC. 2701. GENERAL ACCOUNTING RULES.

    ``(a) In General.--Except as provided in section 2702, a business 
entity shall use an accrual method of accounting for purposes of 
determining the timing of recognition of taxable receipts and 
deductions of business purchases. All business purchases shall be 
deducted when incurred (in the case of a business entity using an 
accrual method of accounting) or when paid (in the case of a business 
entity using the cash receipts and disbursements method of accounting) 
without regard to whether the business purchases are for or relate to--
            ``(1) inventory,
            ``(2) assets with a useful life of more than 1 year, or
            ``(3) property that will be used to produce other property.
    ``(b) Economic Performance.--For purposes of determining whether an 
amount has been incurred, the all events test shall not be treated as 
met any earlier than when economic performance with respect to such 
item occurs.
    ``(c) Change in Accounting Methods.--Except as otherwise expressly 
provided in this chapter, a business entity shall secure the consent of 
the Secretary before changing the method of accounting by which it 
determines gross profits. This provision shall not apply to changes 
required by the adoption of the business tax.

``SEC. 2702. USE OF THE CASH METHOD OF ACCOUNTING.

    ``(a) In General.--A business entity that was permitted to use and 
used the cash receipts and disbursements method of accounting under the 
Internal Revenue Code of 1986 shall be permitted to continue to use the 
cash receipts and disbursements method of accounting. A business entity 
that has gross receipts of less than $10 million annually shall be 
permitted to use the cash receipts and disbursements method of 
accounting.
    ``(b) New Business Entities.--A new business entity shall be 
permitted to use the cash receipts and disbursements method of 
accounting if permitted to under regulations prescribed by the 
Secretary.
    ``(c) Change or Expansion of Business.--Subsection (a) shall cease 
to apply to a business entity that changes or expands its business such 
that under regulations prescribed by the Secretary it is no longer 
eligible to use the cash receipts and disbursements method of 
accounting.
    ``(d) Regulations.--
            ``(1) Use of cash receipts and disbursements method.--The 
        Secretary shall prescribe regulations defining which business 
        entities may use the cash receipts and disbursements method of 
        accounting. In general, those regulations shall be consistent 
        with the rules under sections 447 and 448 of the Internal 
        Revenue Code of 1986, except that all corporations shall be 
        treated as C corporations were treated under those sections.
            ``(2) Change in accounting method.--The Secretary shall 
        prescribe regulations to prevent double counting of taxable 
        receipts and deductible expenses in the case of a change in 
        accounting method.

``SEC. 2703. TAXABLE YEAR.

    ``(a) Computation of Gross Profits.--Gross profits shall be 
computed on the basis of a business entity's taxable year.
    ``(b) Taxable Year.--The term `taxable year' means--
            ``(1) the taxpayer's annual accounting period, if it is a 
        calendar year or a fiscal year,
            ``(2) the calendar year, if subsection (g) applies, or
            ``(3) the period for which the return is made if the return 
        is made for a period of less than 12 months.
    ``(c) Annual Accounting Period.--The term `annual accounting 
period' means the annual period on the basis of which the business 
entity regularly keeps its books.
    ``(d) Calendar Year.--The term `calendar year' means a period of 12 
months ending on December 31.
    ``(e) Fiscal Year.--The term `fiscal year' means a period of 12 
months ending on the last day of any month other than December. In the 
case of any business entity that has made the election provided by 
subsection (f), the term means the annual period (varying from 52 to 53 
weeks) so elected.
    ``(f) Election of 52- to 53-Week Year.--
            ``(1) General rule.--A business entity which, in keeping 
        its books, regularly computes its income or profits on a basis 
        of an annual period which varies from 52 to 53 weeks and ends 
        always on the same day of the week and ends always--
                    ``(A) on whatever date such same day of the week 
                last occurs in a calendar month, or
                    ``(B) on whatever date such same day of the week 
                falls which is nearest to the last day of a calendar 
                month, may elect to compute its gross profits on the 
                basis of such annual period.
            ``(2) Regulations.--The Secretary shall prescribe such 
        regulations as he deems necessary for the application of this 
        subsection, including regulations relating to the application 
        of effective dates to taxpayers using a 52- to 53-week year.
    ``(g) Calendar Year Required.--
            ``(1) No accounting period.--A business entity's taxable 
        year shall be the calendar year if the business entity does not 
        have an annual accounting period or has an annual accounting 
        period that does not qualify as a fiscal year.
            ``(2) New business entity.--The taxable year of a business 
        entity that begins business activity after December 31, 2006, 
        shall be the calendar year (or a 52- to 53-week fiscal year 
        ending in December) unless the business entity can demonstrate 
        a business reason for selecting an accounting period other than 
        the calendar year.
    ``(h) Transition Rule for Business Entities With a Fiscal Year.--
            ``(1) In general.--A business entity with a taxable year 
        that is not the calendar year shall have a short taxable year 
        ending on December 31, 2006, and a subsequent taxable year 
        beginning on January 1, 2007, and ending on the day immediately 
        preceding the beginning of the business entity's next fiscal 
        year.
            ``(2) Business entities with 52- to 53-week year ending in 
        december.--
                    ``(A) In general.--If a business entity has a 52- 
                to 53-week taxable year (under the Internal Revenue 
                Code of 1986) that ends in December 2006, it may elect 
                to begin its first taxable year for the business tax on 
                the first day immediately following the last day of 
                such taxable year.
                    ``(B) No election.--If a business entity that has a 
                52- to 53-week taxable year that ends in December 2006, 
                does not make the election under subparagraph (A) or is 
                prohibited from making such election by subparagraph 
                (C), the business entity's taxable year under the 
                Internal Revenue Code of 1986 that would end in 
                December 2006 shall end on December 31, 2006.
                    ``(C) Anti-abuse rule.--Subparagraph (A) shall not 
                apply to any taxpayer that enters into business 
                transactions in 2006 following the scheduled end of its 
                fiscal year with business entities that are not subject 
                to the business tax at the time of such transactions if 
                such transactions deviate from the normal course of 
                business in order to achieve some tax benefit.

``SEC. 2704. LONG-TERM CONTRACTS.

    ``(a) In General.--In the case of a long-term contract--
            ``(1) Contractor expenses.--The contractor shall be 
        entitled to deduct its business purchases when paid or 
        incurred.
            ``(2) Contractor receipts.--The contractor shall recognize 
        taxable receipts--
                    ``(A) in the case of a project in which the 
                acquirer has no ownership interest in the project until 
                delivery--
                            ``(i) upon delivery of the project, in the 
                        case of an accrual basis contractor, or
                            ``(ii) upon the later of delivery of the 
                        project or the receipt of payment, in the case 
                        of a cash-basis contractor, and
                    ``(B) in the case of a project in which the 
                acquirer obtains an ownership interest as the project 
                is constructed--
                            ``(i) when the contractor has the right to 
                        payments, in the case of an accrual basis 
                        contractor, or
                            ``(ii) upon the later of when the 
                        contractor receives the cash or has the right 
                        to payments, in the case of a cash basis 
                        contractor.
            ``(3) Acquirer expenses.--The acquirer that is a business 
        entity shall be entitled to deduct its costs of the business 
        purchase--
                    ``(A) in the case of a cash-basis acquirer, at such 
                time as a cash basis contractor would be required to 
                treat the amounts paid as taxable receipts, or
                    ``(B) in the case of an accrual-basis acquirer, at 
                such time as an accrual basis contractor would be 
                required to treat the amounts paid or due as taxable 
                receipts.
    ``(b) Right to Payments.--
            ``(1) In general.--A contractor shall be treated as having 
        a right to payments with respect to a project at any time to 
        the extent that the contractor would not be required to return 
        payments received (or would be entitled to collect payments not 
        yet received) if the project were terminated at such time by 
        the contractor.
            ``(2) Contractual provisions.--If a long-term contract 
        includes a procedure for paying the contractor as work is 
        completed (for example, by reason of a draw down from a trust 
        account), the contractual provisions shall generally govern 
        when a contractor has a right to payment.
            ``(3) Percentage completion method of accounting.--If a 
        long-term contract does not include a mechanism for paying the 
        contractor as work is completed, the percentage-of-completion 
        method of accounting shall be used to determine the timing of 
        taxable receipts of the contractor and business purchases of 
        the acquirer.
    ``(c) Long-Term Contract.--
            ``(1) In general.--The term `long-term contract' means--
                    ``(A) any contract that covers service or 
                production through parts of 2 different calendar years 
                if the contract includes a formal deposit and draw-down 
                mechanism, and
                    ``(B) any contract for the manufacture, building, 
                installation, or construction of property if such 
                contract is not completed within the taxable year of 
                the contractor in which such contract is entered into.
            ``(2) Exception.--A contract for the manufacture of 
        property shall not be treated as a long-term contract unless 
        such contract involves the manufacture of--
                    ``(A) any unique item of a type which is not 
                normally included in the finished goods inventory of 
                the taxpayer, or
                    ``(B) any item which normally requires more than 12 
                calendar months to complete.
    ``(d) Consistency.--The Secretary may require business entities to 
file statements containing such information with respect to long-term 
contracts as the Secretary may prescribe to ensure consistency in 
reporting.
    ``(e) Foreign Contracts.--This section shall not be construed to 
permit a deduction for a business purchase for the cost of property 
produced outside the United States pursuant to a long-term contract at 
any time prior to the import of such property into the United States.

``SEC. 2705. POST-SALE PRICE ADJUSTMENTS AND REFUNDS.

    ``(a) Receipt of Price Adjustment.--In the case of a post-sale 
price adjustment attributable to a business purchase which was taken 
into account in computing gross profits for a prior taxable year, the 
amount of such adjustment shall be treated as a reduction or increase, 
as the case may be, in the cost of business purchases for the taxable 
year in which the adjustment is made or incurred.
    ``(b) Issuance of Price Adjustment.--In the case of a post-sale 
price adjustment attributable to a sale the receipts from which were 
taken into account in determining taxable receipts for a prior taxable 
year, the amount of such adjustment shall be treated as a reduction or 
increase, as the case may be, in taxable receipts for the taxable year 
in which the adjustment is made or incurred.
    ``(c) Post-Sale Price Adjustment.--The term `post-sale price 
adjustment' means a refund, rebate, or other price allowance 
attributable to a sale of property or services or an upward adjustment 
in price that was not previously taken into account under the business 
entity's method of accounting.

``SEC. 2706. BAD DEBTS.

    ``(a) Seller.--If an amount owed to an accrual basis business 
entity for property or services sold--
            ``(1) was taken into account as a taxable receipt in a 
        prior taxable year, and
            ``(2) becomes wholly or partially uncollectible during the 
        taxable year,
then the seller shall treat the amount as a reduction in taxable 
receipts for the taxable year in which it becomes wholly or partially 
uncollectible.
    ``(b) Notice Requirement.--No reduction shall be allowed under 
subsection (a) unless the seller notifies the purchaser of the amount 
which the seller has treated as wholly or partially uncollectible.
    ``(c) Subsequent Collection.--If an amount which was treated as 
uncollectible under subsection (a) is subsequently collected, it shall 
be treated as a taxable receipt when collected.
    ``(d) Purchaser.--If a purchaser receives notice under subsection 
(b) from a seller and the purchaser has treated the amount labeled 
uncollectible as a business purchase in a prior taxable year, then the 
purchaser shall treat such amount as a reduction in the cost of 
business purchases in the taxable year to which the notice relates. If 
the purchaser subsequently repays such amount, the repayment shall 
constitute the cost of a business purchase.

``SEC. 2707. CONSOLIDATED RETURNS.

    ``(a) In General.--Business entities may file consolidated returns 
of business tax if such entities would have been permitted to file 
consolidated returns under section 1501 of the Internal Revenue Code of 
1986 and such section was applied by treating each business entity as a 
corporation and its owners or partners as shareholders.
    ``(b) Financial Institutions.--Financial intermediation businesses 
may be included in consolidated returns, but each financial 
intermediation business must compute its gross profits separately.
    ``(c) Intercompany Transactions.--In computing the gross profits of 
a consolidated group, intercompany transactions can be taken into 
account, or at the election of the filer, be disregarded (except in the 
case of transactions with financial intermediation businesses).

``SEC. 2708. TRANSITION RULES.

    ``(a) No Double Deductions.--A business entity shall not be 
entitled to treat as a `cost of business purchase' any amount that the 
business entity deducted in computing taxable income under the income 
tax in effect prior to the effective date of the business tax.
    ``(b) No Double Inclusion.--A business entity shall not be required 
to include in taxable receipts any receipt that the business entity 
took into account in computing taxable income under the income tax in 
effect prior to the effect date of the business tax.
    ``(c) No Loss of Deduction.--An expense which--
            ``(1) a business entity would have been able to deduct as a 
        cost of a business purchase in an accounting period before the 
        effective date of the business tax if the business tax had been 
        in effect in such period, and
            ``(2) the business entity would have been able to deduct as 
        an expense in computing taxable income in a period after the 
        business tax is effective if the income tax had continued in 
        effect,
shall be treated as a cost of a business purchase incurred or paid at 
the time that it would have been paid or incurred under the income tax 
if the income tax had continued in effect. This subsection shall not 
apply to any amount which is to be taken into account under chapter 4 
(relating to amortization of transition basis, and inventory costs), 
any amounts which would have been deducted under the income tax through 
loss carryover deductions, or any deductions deferred by the uniform 
capitalization rules under section 263A of the Internal Revenue Code of 
1986.
    ``(d) All Taxable Receipts Taxed.--A receipt which--
            ``(1) a business entity would have been required to treat 
        as a taxable receipt in an accounting period before the 
        effective date of the business tax if the business tax had been 
        in effect in such period, and
            ``(2) the business entity would have been required to 
        include in gross income in a period after the business tax is 
        effective if the income tax had continued in effect,
shall be treated as a taxable receipt at the time that it would have 
been included in income if the income tax had continued in effect.

                     ``CHAPTER 4--TRANSITION RULES

                              ``Sec. 2801. Amortization of transition 
                                        basis.
                              ``Sec. 2802. Sales of transition basis 
                                        property.
                              ``Sec. 2803. Carryovers.
                              ``Sec. 2804. Transition inventory credit.

                     ``CHAPTER 4--TRANSITION RULES

``SEC. 2801. AMORTIZATION OF TRANSITION BASIS.

    ``(a) Transition Basis Deduction.--The `transition basis deduction' 
for a taxable year is the sum of the amortization allowance determined 
under this section for the taxable year using either--
            ``(1) the 1986 Internal Revenue Code Method, or
            ``(2) the simplified method.
    ``(b) Amortization Rules.--For purposes of the simplified method, 
the amortization allowance for each category of amortizable basis shall 
be determined by amortizing the amortizable basis of such category 
ratably over the amortization period determined in subsection (c) for 
the category beginning January 1, 2007.
    ``(c) Amortization Period.--The amortization periods shall be 
determined in accordance with the following table:

                ``In the case of:
                                            The amortization period is:
                    Category I basis.......................    8 years.
                    Category II basis......................   20 years.
                    Category III basis.....................   30 years.
                    Unrecovered inventory costs............    2 years.
    ``(d) Categories.--
            ``(1) Category i basis.--The term `Category I basis' is the 
        sum of the unrecovered bases as of January 1, 2007, of all 
        depreciable property placed in service prior to January 1, 
        2007, and the unamortized portion of amortizable costs incurred 
        before January 1, 2007, if--
                    ``(A) cost recovery or amortization began before 
                January 1, 2007, and
                    ``(B) the remaining recovery period or amortization 
                period as of January 1, 2007, is less than 15 years.
            ``(2) Category ii basis.--The term `Category II basis' is 
        the sum of the unrecovered bases as of January 1, 2007, of all 
        depreciable property placed in service prior to January 1, 
        2007, and the unamortized portion of amortizable costs incurred 
        before January 1, 2007, if--
                    ``(A) cost recovery or amortization began before 
                January 1, 2007, and
                    ``(B) the remaining recovery period or amortization 
                period as of January 1, 2007, is 15 years or more.
            ``(3) Category iii basis.--The term `Category III basis' is 
        the sum of the adjusted basis of each asset satisfying the 
        following requirements:
                    ``(A) The asset was placed in service prior to 
                January 1, 2007.
                    ``(B) The asset was used in a business activity in 
                2007.
                    ``(C) The cost of the asset was capitalized and not 
                depreciable or otherwise recoverable under the Internal 
                Revenue Code of 1986.
                    ``(D) The cost of the asset would have constituted 
                deductible expenses under the business tax if such cost 
                had been incurred after 2006.
            ``(4) Unrecovered inventory costs.--The term `unrecovered 
        inventory costs' means the cost of goods sold (as determined 
        under the Internal Revenue Code of 1986) determined as if a 
        business entity sold all of its inventory (including inventory 
        being produced) on the effective date of the business tax.
    ``(e) Rules of Application.--
            ``(1) Remaining recovery period.--
                    ``(A) Time of measure.--The remaining recovery 
                period shall be determined as of December 31, 2006, and 
                shall include each taxable year ending after such date 
                in which a deduction would have been allowed under the 
                Internal Revenue Code of 1986.
                    ``(B) Accounting method.--The remaining recovery 
                period shall be determined using the cost recovery 
                method and rules applicable for determining taxable 
                income under the Internal Revenue Code of 1986.
            ``(2) Depletable assets.--Under rules prescribed by the 
        Secretary, this section shall apply to the remaining cost basis 
        of depletable property and to other property for which a cost 
        recovery method other than one based on time is used.
    ``(f) 1986 Internal Revenue Code Method.--The `transition basis 
deduction' for a taxable year using the `1986 Internal Revenue Code 
Method' shall be determined by determining the capital cost recovery, 
amortization and depletion deductions that would have been allowed for 
property placed in service prior to the date of the enactment of this 
section as if the Internal Revenue Code of 1986 were still in place.
    ``(g) Irrevocable Election.--A taxpayer must make an irrevocable 
election with the first business tax return filed after the date of the 
enactment of this section (relating to the tax imposed by section 1101) 
to use either the simplified method or the 1986 Internal Revenue Code 
Method for determining the transition basis deduction.

``SEC. 2802. SALES OF TRANSITION BASIS PROPERTY.

    ``(a) In General.--Except as provided in subsection (b), for 
purposes of determining the tax consequences of a sale, retirement, 
casualty or conversion to personal use of an asset whose basis or cost 
is taken into account under section 2801, the amount to be amortized 
shall be treated as fully deducted upon the adoption of the business 
tax.
    ``(b) Substantial Sales.--
            ``(1) In general.--In the case of a substantial sale of 
        assets to which the amortization rules of section 2801 apply, 
        the purchaser and seller may jointly elect to have the 
        purchaser assume the amortization deductions attributable to 
        such assets, in which case--
                    ``(A) the seller's taxable receipts from such sale 
                shall be reduced by the amount of unamortized basis or 
                cost assumed by the purchaser,
                    ``(B) the purchaser may treat as a cost of a 
                business purchase only the portion of the purchase 
                price in excess of the amount of unamortized basis or 
                cost assumed, and
                    ``(C) the unamortized basis or cost assumed shall 
                continue to be amortized in the manner amortized by the 
                seller.
            ``(2) Substantial sale.--A sale of assets by a business 
        entity to another business entity is a substantial sale if--
                    ``(A) more than 20 percent (in fair market value or 
                in original cost) of the assets of the seller are sold,
                    ``(B) the total consideration for the sale exceeds 
                $1,000,000 or 20 percent of the taxable receipts of the 
                seller for the taxable year preceding the year of the 
                sale, or
                    ``(C) the sale satisfies other criteria established 
                by the Secretary to prevent distortions in gross 
                profits resulting from asset sales.

``SEC. 2803. CARRYOVERS.

    ``(a) No Loss Carryovers.--No deduction shall be allowed under the 
business tax for net operating loss carryovers, capital loss 
carryovers, or any other loss carryovers from the income tax under the 
Internal Revenue Code of 1986.
    ``(b) No Credit Carryovers.--No credits shall be allowed under the 
business tax for business credit carryovers, minimum tax credit 
carryovers, or any other credit carryovers from the income tax under 
the Internal Revenue Code of 1986.

``SEC. 2804. TRANSITION INVENTORY CREDIT.

    ``(a) Inventory.--
            ``(1) Qualified inventory.--Inventory held by a trade or 
        business on the close of business December 31, 2006 shall be 
        qualified inventory if it is sold--
                    ``(A) before December 31, 2008,
                    ``(B) by a registered person, and
                    ``(C) subject to the tax imposed by section 101 (or 
                incorporated into taxable property or services subject 
                to the tax imposed by section 101).
            ``(2) Cost.--For purposes of this section, qualified 
        inventory shall have the cost that it had for Federal income 
        tax purposes for the trade or business as of December 31, 2006 
        (including any amounts capitalized by virtue of Internal 
        Revenue Code section 263A as in effect on December 31, 2006).
            ``(3) Transitional inventory credit.--The trade or business 
        which held the qualified inventory on the close of business on 
        December 31, 2006 shall be entitled to a transitional inventory 
        credit equal to the cost of the qualified inventory (determined 
        in accordance with subparagraph (2)) times the rate of tax 
        imposed by section 101. The business entitled to the 
        transitional inventory credit may sell the right to receive 
        such transitional inventory credit.
            ``(4) Timing of credit.--The credit provided under 
        subparagraph (3) shall be allowed with respect to the month 
        when the inventory is sold subject to the tax imposed by this 
        subtitle. Such credit shall be reported as an intermediate and 
        export sales credit and the person claiming such credit shall 
        attach supporting schedules in the form that the Secretary may 
        prescribe.
    ``(b) Work-In-Process.--For purposes of this section, inventory 
shall include work-in-process.
    ``(c) Qualified Inventory Held by Businesses Not Selling Such 
Qualified Inventory at Retail.--
            ``(1) In general.--Qualified inventory held by a business 
        that sells such qualified inventory not subject to tax pursuant 
        to section 102(a) shall be eligible for the transitional 
        inventory credit only if that business (or a business that has 
        successor rights pursuant to paragraph (2)) receives 
        certification in a form satisfactory to the Secretary that the 
        qualified inventory was subsequently sold subject to the tax 
        imposed by this subtitle (or incorporated into taxable property 
        or services sold subject to the tax imposed by section 101).
            ``(2) Transitional inventory credit right may be sold.--Any 
        purchaser of such qualified inventory (or taxable property or 
        services into which the qualified inventory has been 
        incorporated) may sell the right to such transitional inventory 
        credit to a subsequent purchaser of such qualified inventory 
        (or taxable property or services into which the qualified 
        inventory has been incorporated).

                    ``CHAPTER 5--ADDITIONAL MATTERS

                              ``Sec. 2901. Additional matters.
                              ``Sec. 2902. Wages to be reported to 
                                        Social Security Administration.
                              ``Sec. 2903. Trust Fund revenues.

``SEC. 2901. ADDITIONAL MATTERS.

    ``(a) Intangible Property Anti Avoidance Rule.--Notwithstanding 
section 2, the sale of a copyright or trademark shall be treated as the 
sale of taxable property or services (within the meaning of section 
102) if the substance of such sale of copyright or trademark 
constituted the sale of the services that produced the copyrighted 
material or the trademark.
    ``(b) De Minimis Payments.--Up to $400 of aggregate gross payments 
per calendar year shall be exempt from the tax imposed by section 101 
if--
            ``(1) made by a person not in connection with a trade or 
        business, 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 (or their family within the 
        meaning of section 302(b)) in the United States.
    ``(c) De Minimis Sales.--Up to $1,200 per calendar year of gross 
payments received by a person shall be exempt from the tax imposed by 
section 101 if received by a person not in connection with a trade or 
business, and in connection with casual or isolated sales.
    ``(d) De Minimis Sale of Financial Intermediation Services.--Up to 
$10,000 per calendar year of gross payments received by a person from 
the sale of financial intermediation services (as determined in 
accordance with section 601) shall be exempt from the tax imposed by 
section 101. The exemption provided by this subsection is in addition 
to other exemptions afforded by this chapter. The exemption provided by 
this subsection shall not be available to large sellers (as defined in 
section 2501(e)(3)).
    ``(e) Proxy Purchase or Provision Taxable.--The purchase for, or 
provision to, a person by a registered person of taxable property or 
services as a gift, prize, reward, remuneration for employment or for a 
similar purpose, such taxable property or services having not 
previously been subject to tax pursuant to section 101, shall be deemed 
the conversion of such taxable property or services to personal use 
subject to tax pursuant to section 103(c) at the fair market value of 
such taxable property or services (as defined in section 2) and the 
registered person shall remit the tax as if a taxable sale were made on 
the date of conversion.
    ``(f) Substance Over Form.--The substance of a transaction will 
prevail over its form if the transaction has no bona fide economic 
purpose and is designed to evade tax imposed by subtitle B or C.
    ``(g) Certain Employee Discounts Taxable.--
            ``(1) Employee discount.--The term `employee discount' 
        means when an employer offers taxable property or services for 
        sale to its employees or their families (within the meaning of 
        section 302(b)) for less than such taxable property or services 
        are offered to the general public.
            ``(2) Employee discount amount.--The employee discount 
        amount is the amount by which taxable property or services are 
        sold pursuant to an employee discount (as defined in paragraph 
        1) below the amount for which such taxable property or services 
        would have been sold to the general public.
            ``(3) Taxable amount.--If the employee discount amount 
        exceeds 20 percent of the price that the taxable property or 
        services would have been sold to the general public, then the 
        sale of such taxable property or services by the employer shall 
        be deemed the conversion of such taxable property or services 
        to personal use and tax shall be imposed on the taxable 
        employee discount amount. The taxable employee discount amount 
        shall be--
                    ``(A) the employee discount amount, less
                    ``(B) 20 percent of the amount for which such 
                taxable property or services would have been sold to 
                the general public.
    ``(h) Saturday, Sunday, or Legal Holiday.--When the last day 
prescribed for performing any act required by this title falls on a 
Saturday, Sunday or legal holiday (in the jurisdiction where the return 
is to be filed), the performance of such act shall be considered timely 
if it is performed on the next day which is not a Saturday, Sunday or 
legal holiday (in the jurisdiction where the return is to be filed).

``SEC. 2902. WAGES TO BE REPORTED TO SOCIAL SECURITY ADMINISTRATION.

    ``(a) In General.--Employers shall submit such information to the 
Social Security Administration as is required by the Social Security 
Administration to calculate social security benefits under the Social 
Security Act, including wages paid, in a form prescribed by the 
Secretary. A copy of the employer submission to the Social Security 
Administration relating to each employee shall be provided to each 
employee by the employer.
    ``(b) Wages.--For purposes of this section, the term `wages' means 
all cash remuneration for employment (including tips to an employee by 
third parties provided that the employer or employee maintains records 
documenting such tips) including self-employment income (as defined in 
subsection (c)), except that such term shall not include--
            ``(1) any insurance benefits received (including death 
        benefits),
            ``(2) pension or annuity benefits received,
            ``(3) tips received by an employee over $5,000 per year, or
            ``(4) benefits received under a Government entitlement 
        program (including social security benefits, and unemployment 
        compensation benefits).
    ``(c) Self-Employment Income.--For purposes of subsection (b), the 
term `self-employment income' means gross payments received for taxable 
property or services less the sum of--
            ``(1) gross payments made for taxable property or services 
        (without regard to whether tax was paid pursuant to section 101 
        on such taxable property or services), and
            ``(2) wages (as defined in subsection (b)) paid by the 
        self-employed person to employees of the self-employed person.

``SEC. 2903. TRUST FUND REVENUES.

    ``(a) In General.--The Secretary shall allocate the revenue 
received by virtue of the tax imposed by section 101 in accordance with 
this section. The revenue shall be allocated first to--
            ``(1) the old-age and survivors insurance trust fund, until 
        it has received the amount of money it would have received in 
        absence of the rebate provided by chapter 3 of subtitle B, then 
        to
            ``(2) the disability insurance trust fund, until it has 
        received the amount of money it would have received in absence 
        of the rebate provided by chapter 3 of subtitle B, then to
            ``(3) the hospital insurance trust fund, until it has 
        received the amount of money it would have received in absence 
        of the rebate provided by chapter 3 of subtitle B, then to
            ``(4) the Federal supplementary medical insurance trust 
        fund, until it has received the amount of money it would have 
        received in absence of the rebate provided by chapter 3 of 
        subtitle B, then to the general revenue. If the amount received 
        by a fund is not reduced by virtue of the rebate provided by 
        chapter 3 of subtitle B then the amount received by such fund 
        shall remain the same.
    ``(b) Maintenance of Transfers to Payor Fund and Hospital Insurance 
Trust Fund.--There are hereby appropriated to the payor fund (as 
defined in section 121(e)(3)(A) of the Social Security Amendments of 
1983) and the Hospital Insurance Trust Fund established under section 
1817 of the Social Security Act amounts equal to the reduction in 
revenues to the Treasury by reason of the repeal of sections 86 and 
871(a)(3) of the Internal Revenue Code of 1986 as in effect on the day 
before the date of the enactment of this section. Amounts appropriated 
by the preceding sentence shall be transferred from the general fund at 
such times and in such manner as to replicate to the extent possible 
the transfers which would have occurred to such payor fund and Trust 
Fund had such repeal not been enacted.''.

                        TITLE VI--OTHER MATTERS

SEC. 601. PHASE-OUT OF ADMINISTRATION REPEALED FEDERAL TAXES.

    (a) Appropriations.--Appropriations for any expenses of the 
Internal Revenue Service, including those for processing income tax 
returns for years prior to the repeal of the taxes repealed by title II 
of this Act, revenue accounting, management, and transfer of payroll 
and wage data to the Social Security Administration and otherwise, for 
years after fiscal year 2010 are not authorized.
    (b) Federal Records.--Federal records related to the administration 
of taxes repealed by Title II of this Act shall be destroyed by the end 
of fiscal year 2010 provided, however, that any records necessary to 
calculate social security benefits shall be retained by the Social 
Security Administration and further provided that any records necessary 
to support ongoing litigation with respect to taxes owed or refunds due 
shall be retained until final disposition of such litigation.

SEC. 602. ADMINISTRATION OF OTHER FEDERAL TAXES.

    (a) Tax Bureaus.--Section 7801 is amended by adding the following 
new subsections:
    ``(d) Excise Tax Bureau.--There shall be in the Department of the 
Treasury an Excise Tax Bureau to administer those excise taxes not 
administered by the Bureau of Alcohol, Tobacco, and Firearms.
    ``(e) Sales Tax Bureau.--There shall be in the Department of the 
Treasury a Sales Tax Bureau to administer the national sales tax in 
those States where it is required pursuant to section 404, and to 
discharge other Federal duties and powers relating the national sales 
tax (including those required by sections 402, 403 and 405(i). The 
Office of Revenue Allocation shall be within the Sales Tax Bureau.''.
    (b) Assistant General Counsels.--Section 7801(b)(2) is amended to 
read as follows:
            ``(2) Assistant General Counsels.--The Secretary of the 
        Treasury may appoint, without regard to the provisions of the 
        civil service laws, and fix the duties of not more than 5 
        Assistant General Counsels.''.

SEC. 603. SALES TAX INCLUSIVE SOCIAL SECURITY BENEFITS INDEXATION.

    Subparagraph (D) of section 215(i)(1) of the Social Security Act 
(relating to cost-of-living increases in social security benefits) is 
amended to read as follows:
                    ``(D)(i) In general.--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 paragraph 
                (A)(ii) or, if later, the most recent cost-of-living 
                computation quarter under subparagraph (B).
                    ``(ii) Rule if cpi not sales tax inclusive.--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 paragraph 
                (A)(ii) or, if later, the most recent cost-of-living 
                computation quarter under subparagraph (B).
                    ``(iii) National sales tax factor.--For purposes of 
                this subparagraph, the `national sales tax factor' is 
                equal to 1 plus the quotient that is--
                            ``(I) the sales tax rate imposed by section 
                        101 of the Internal Revenue Code of 2005, 
                        divided by
                            ``(II) the quantity that is 1 minus such 
                        sales tax rate.''

SEC. 604. CONFORMING AND TECHNICAL AMENDMENTS.

    (1) Subchapter A of chapter 61 of redesignated subtitle D (relating 
to information and returns) is hereby repealed.
    (2) Sections 6103 through 6116 of subchapter B of chapter 61 of 
redesignated subtitle D is hereby repealed.
    (3) Subsection (b) of section 6151 is hereby repealed and 
subsection (c) of section 6151 is redesignated as subsection (b).
    (4) Section 6157 (relating to unemployment taxes) is hereby 
repealed.
    (5) Section 6161 is amended to read as follows:

``SEC. 6161. EXTENSION OF TIME FOR PAYING TAX.

    ``The Secretary, except as otherwise provided in this title, may 
extend the time for payment of the amount of the tax shown or required 
to be shown on any return, report or declaration required under 
authority of this title for a reasonable period not to exceed 6 months 
(12 months in the case of a taxpayer who is abroad).''.
    (6) Section 6163 (relating to estate taxes) is hereby repealed.
    (7) Section 6164 (relating to corporate taxes) is hereby repealed.
    (8) Section 6166 (relating to estate taxes) is hereby repealed.
    (9) Section 6167 (relating to foreign expropriation losses) is 
hereby repealed.
    (10) Section 6201, 6205, and 6207 (relating to assessments) are 
hereby repealed.
    (11) Section 6211(a) is amended by striking ``income, estate, and 
gift taxes imposed by subtitles A and B and''.
    (12) Section 6211(b) is amended by repealing paragraphs (1), (3), 
and (4) and by striking the paragraph designation ``(2)'' and 
``subtitle A or B or''.
    (13) Section 6212 is amended by striking ``Income and gift taxes 
and''.
    (14) Sections 6212(b)(2) and 6212(b)(3) are hereby repealed.
    (15) Subchapter C of chapter 63 of redesignated subtitle D 
(relating to tax treatment of partnership items) is hereby repealed.
    (16) Section 6302(b) is amended by striking ``21''.
    (17) Section 6305 (relating to collections of certain liabilities) 
is hereby repealed.
    (18) Sections 6314, 6315, 6316, and 6317 (relating to payments of 
repealed taxes) are hereby repealed.
    (19) Sections 6324, 6324A, and 6324B (relating to liens for estate 
and gift taxes) are hereby repealed.
    (20) Section 6325(c) (relating to estate and gift tax liens) is 
hereby repealed and subsections (d) through (h) of section 6325 are 
redesignated subsections (c) through (g), respectively.
    (21) Section 6344 (relating to cross references) is hereby 
repealed.
    (22) Section 6402(j) (relating to affiliated groups of 
corporations) is hereby repealed.
    (23) Section 6411 (relating to carrybacks) is hereby repealed.
    (24) Section 6414 (relating to withheld income taxes) is hereby 
repealed.
    (25) Section 6422 (relating to cross references) is hereby 
repealed.
    (26) Section 6425 (relating to overpayment of corporate estimated 
taxes) is hereby repealed.
    (27) Section 6501 is amended--
            (A) by striking ``except tax imposed by chapter 3, 21, or 
        24,'' in subsection (b)(1),
            (B) by striking paragraph (2) of subsection (b) and by 
        redesignating paragraphs (3) and (4) of subsection (b) as 
        paragraphs (2) and (3), respectively.
    (28) Section 6501(c)(5) through (c)(9) are hereby repealed.
    (29) Sections 6501(e)(1) and (e)(2) (relating to income tax and 
estate taxes) are hereby repealed.
    (30) Sections 6501(f) through 6501(k) and sections 6501(m) and 
6501(n) are hereby repealed and section 6501(l) is redesignated as 
section 6501(f).
    (31) Section 6503(a)(1) is amended by striking ``(1) General rule'' 
and ``income, estate, gift and''.
    (32) Paragraph (2) of section 6503(a) is hereby repealed.
    (33) Subsections (e), (f), (i), and (k) of section 6503 are hereby 
repealed and subsections (g) through (j) of such section are 
redesignated as subsections (e) through (g), respectively.
    (34) Section 6504 (relating to cross references) is hereby 
repealed.
    (35) Sections 6511(d) (relating to income taxes) and 6511(g) 
(relating to partnership items) are hereby repealed; subsections (f) 
and (h) of section 6511 are redesignated as subsections (d) and (e), 
respectively.
    (36) Section 6512(b)(1) is amended by striking ``of income tax for 
the same taxable year, of gift tax for the same calendar year or 
calendar quarter, of estate tax in respect of the taxable estate of the 
same decedent or''.
    (37) Subsections (b) through (e) of section 6513 are hereby 
repealed and section 6513(a) is amended by striking ``(a) Early return 
or advance payment of tax.--''.
    (38) Chapter 67 (relating to interest) is hereby repealed and a new 
section 6601 is hereby inserted as follows:

``SEC. 6601. INTEREST ON OVERPAYMENTS AND UNDERPAYMENTS.

    ``(a) Underpayments.--If any amount of tax imposed by this title is 
not paid on or before the last date prescribed for payment, interest on 
such amount at the Federal short-term rate (as defined in section 
2512(b)) shall be paid from such last date to the date paid.
    ``(b) Overpayments.--Interest shall be allowed and paid upon any 
overpayment in respect of any internal revenue tax at the Federal 
short-term rate (as defined in section 2512(b)) from 60 days after the 
date of the overpayment until the date the overpayment is refunded.''.
    (39) Section 6651(a)(1) is amended by striking ``subchapter A of 
chapter 61 (other than part III thereof),''.
    (40) Section 6652 (relating to failure to file certain information 
returns) is hereby repealed.
    (41) Sections 6654 and 6655 (relating to failure to payment 
estimated income tax) are hereby repealed.
    (42) Section 6656(c) (relating to deposit of employment taxes) is 
hereby repealed and subsection (d) of section 6656 is redesignated as 
subsection (c).
    (43) Section 6662 (relating to penalties) is hereby repealed.
    (44) Section 6663(c) (relating joint returns) is hereby repealed.
    (45) Paragraphs (2) and (3) of section 6664(c) are hereby repealed 
and Section 6664(c)(1) is amended by striking ``(1) In General''.
    (46) Sections 6677 through 6711 (relating to income tax related 
penalties) are hereby repealed.
    (47) Part II of subchapter B of chapter 68 (relating to certain 
information returns) is hereby repealed.
    (48) Part I of subchapter A of chapter 70 (relating to termination 
of taxable year) is hereby repealed.
    (49) Section 6864 (relating to certain carrybacks) is hereby 
repealed.
    (50) Subchapter A of chapter 72 (relating to licensing) is hereby 
repealed and chapter 72 is amended by striking ``Subchapter B.--
Registration''.
    (51) Section 7103 (relating to cross references) is hereby 
repealed.
    (52) Section 7211 (relating certain statements) is hereby repealed.
    (53) Section 7231 (relating to failure to obtain certain licenses) 
is hereby repealed.
    (54) Section 7270 (relating to insurance policies) is hereby 
repealed.
    (55) Section 7404 (relating to estate taxes) is hereby repealed.
    (56) Section 7407 (relating to income tax preparers) is hereby 
repealed.
    (57) Section 7408 (relating to income tax shelters) is hereby 
repealed.
    (58) Section 7409 (relating to 501(c)(3) organizations) is hereby 
repealed.
    (59) Sections 7422(h) and 7422(i) are hereby repealed.
    (60) Section 7427 (relating to income tax preparers) is hereby 
repealed.
    (61) Section 7428 (relating to 501(c)(3) organizations) is hereby 
repealed.
    (62) Section 7451 is amended to read as follows:

``SEC. 7451. FEE FOR FILING PETITION.

    ``The Tax Court is authorized to impose a fee in an amount not in 
excess of $60 to be fixed by the Tax Court for the filing of any 
petition for the redetermination of a deficiency.''.
    (63) Subsection (b) of section 7454 (relating to foundation 
managers) is hereby repealed and subsection (c) is redesignated as 
subsection (b).
    (64) Paragraph (2) (relating to estate taxes) and paragraph (3) 
(relating to gift taxes) of subsection 7463(a) are hereby repealed.
    (65) Paragraph (4) of subsection 7463(a) is redesignated as 
paragraph (2) and such paragraph (4) is amended by striking ``D'' and 
inserting ``B''.
    (66) Section 7463(c) is amended by striking ``sections 6214(a) 
and'' and inserting ``section''.
    (67) Section 7463(e) is amended by striking ``, to the extent that 
the procedures described in subchapter B of chapter 63 apply''.
    (68) Section 7476 (relating to declaratory judgments relating to 
retirement plans) is hereby repealed.
    (69) Section 7478 (relating to declaratory judgments relating to 
certain tax-exempt obligations) is hereby repealed.
    (70) Section 7481(d) (relating to estate taxes) is hereby repealed.
    (71) Section 7508 (relating to postponing time for certain actions 
required by the income, estate, and gift tax) is hereby repealed.
    (72) Section 7517 (relating to estate and gift tax evaluation) is 
hereby repealed.
    (73) Section 7518 (relating to Merchant Marine tax incentives) is 
hereby repealed.
    (74) Section 7519 (relating to taxable years) is hereby repealed.
    (75) Section 7520 (relating to insurance and annuity valuation 
tables) is hereby repealed.
    (76) Section 7523 (relating to reporting Federal income and outlays 
on Form 1040s) is hereby repealed.
    (77) Section 7608 is amended by striking ``subtitle E'' each place 
it appears and inserting ``subtitle C''.
    (78) Section 7611 (relating to church income tax exemptions and 
church unrelated business income tax inquiries) is hereby repealed.
    (79) Section 7654 (relating to possessions' income taxes) is hereby 
repealed.
    (80) Section 7655 (relating to cross references) is hereby 
repealed.
    (81) Section 7701(a)(16) is hereby repealed.
    (82) Section 7701(a)(19) is hereby repealed.
    (83) Section 7701(a)(20) is hereby repealed.
    (84) Section 7701(a)(29) is amended by striking ``1986'' and 
inserting ``1998''.
    (85) Paragraphs (32) through (38) of subsection 7701(a) are hereby 
repealed.
    (86) Paragraphs (41) through (46) of subsection 7701(a) are hereby 
repealed.
    (87) Section 7701(b) is hereby repealed.
    (88) Sections 7701(e) through 7701(m) are hereby repealed.
    (89) Section 7702 (relating to life insurance contracts) is hereby 
repealed.
    (90) Section 7702A (relating to modified endowment contracts) is 
hereby repealed.
    (91) Section 7702B (relating to long-term care insurance) is hereby 
repealed.
    (92) Section 7703 (relating to the determination of marital status) 
is hereby repealed.
    (93) Section 7704 (relating to publicly traded partnerships) is 
hereby repealed.
    (94) Section 7804 is hereby repealed.
    (95) Section 7805 is hereby repealed.
    (96) Section 7809(c)(1) and 7809(c)(4) are hereby repealed and 
paragraphs (2) and (3) of section 7809(c) are redesignated as 
paragraphs (1) and (2), respectively.
    (97) Section 7851 is hereby repealed.
    (98) Sections 7871(a)(1) and 7871(a)(3) through 7871(a)(6) are 
hereby repealed.
    (99) Section 7871(c) is hereby repealed.
    (100) Section 7872 is hereby repealed.
    (101) Section 7873 is hereby repealed.
    (102) Section 8021(a) is hereby repealed and subsections (b) 
through (d) are redesignated as subsection (a) through (c), 
respectively.
    (103) Section 8022(2)(A) is amended by striking ``, particularly 
the income tax''.
    (104) Section 8023 is amended by striking ``Internal Revenue 
Service'' each place it appears and inserting ``Treasury Department''.
    (105) Section 9501(b)(2) is amended by striking ``described in 
section 501(c)(21)''.
    (106) Section 9702(a)(4) is hereby repealed.
    (107) Section 9705(a)(4) is hereby repealed.
    (108) Section 9706(d)(2) is amended by striking ``, including 
section 6103''.
    (109) Section 9706(g) is amended by striking ``6103'' and inserting 
``605(f)''.
    (110) Section 9707(f) is hereby repealed.
    (111) Section 9712(d)(5) is hereby repealed.
    (112) Section 9803(a) is amended by striking ``(as defined in 
section 414(f))''.
    (113) Section 1441 is amended to read as follows:

``SEC. 1441. WITHHOLDING OF TAX ON NONRESIDENT ALIENS AND FOREIGN 
              CORPORATIONS.

    ``(a) In General.--All persons, in whatever capacity acting 
(including lessees or mortgagors or real or personal property, 
fiduciaries, employers, and all officers and employees of the United 
States), having control, receipt, custody, disposal, or payment of any 
income to the extent such income constitute gross income from sources 
within the United States of any nonresident alien individual, foreign 
partnership, or foreign corporation shall deduct and withhold from that 
income a tax equal to 16.4 percent thereof.
    ``(b) Exception.--No tax shall be required to be deducted from 
interest on portfolio debt investments.
    ``(c) Treaty Countries.--In the case of payments to nonresident 
alien individuals, foreign partnerships or foreign corporations that 
have a residence in (or the nationality of a country) that has entered 
into a tax treaty with the United States, then the rate of withholding 
tax prescribed by the treaty shall govern.''.

               TITLE VII--INDIVIDUAL DEVELOPMENT ACCOUNTS

SEC. 701. SHORT TITLE.

    This title may be cited as the ``Savings for Working Families Act 
of 2005''.

SEC. 702. PURPOSES.

    The purposes of this title are to provide for the establishment of 
individual development account programs that will--
            (1) provide individuals and families with limited means an 
        opportunity to accumulate assets and to enter the financial 
        mainstream,
            (2) promote education, homeownership, and the development 
        of small businesses,
            (3) stabilize families and build communities, and
            (4) support continued United States economic expansion.

SEC. 703. DEFINITIONS.

    As used in this title:
            (1) Eligible individual.--The term ``eligible individual'' 
        means, with respect to any calendar year, an individual if--
                    (A) such individual is a member of a qualified 
                family (as defined in section 302 of the Internal 
                Revenue Code of 2005) who is entitled to a rebate under 
                section 301 of such Code for any month of such year,
                    (B) the income of such family for the immediately 
                preceding calendar year does not exceed an amount equal 
                to twice the poverty level, and
                    (C) such individual is designated under section 304 
                to receive the rebate payment under section 301 for 
                such family.
            (2) Individual development account.--The term ``Individual 
        Development Account'' means an account established for an 
        eligible individual as part of a qualified individual 
        development account program, but only if the written governing 
        instrument creating the account meets the following 
        requirements:
                    (A) The owner of the account is the individual for 
                whom the account was established.
                    (B) No contribution will be accepted unless it is 
                in cash.
                    (C) The trustee of the account is a qualified 
                financial institution.
                    (D) The assets of the account will not be 
                commingled with other property except in a common trust 
                fund or common investment fund.
                    (E) Except as provided in section 707(b), any 
                amount in the account may be paid out only for the 
                purpose of paying the qualified expenses of the account 
                owner.
            (3) Parallel account.--The term ``parallel account'' means 
        a separate, parallel individual or pooled account for all 
        matching funds and earnings dedicated to an Individual 
        Development Account owner as part of a qualified individual 
        development account program, the trustee of which is a 
        qualified financial institution.
            (4) Qualified financial institution.--
                    (A) In general.--The term ``qualified financial 
                institution'' means a bank or such other person who 
                demonstrates to the satisfaction of the Secretary that 
                the manner in which such other person will administer 
                the trust will be consistent with the requirements of 
                this section.
                    (B) Bank.--For purposes of subparagraph (A), the 
                term ``bank'' means--
                            (i) any bank (as defined in section 581),
                            (ii) an insured credit union (within the 
                        meaning of section 101(6) of the Federal Credit 
                        Union Act), or
                            (iii) a corporation which, under the laws 
                        of the State of its incorporation, is subject 
                        to supervision and examination by the 
                        Commissioner of Banking or other officer of 
                        such State in charge of the administration of 
                        the banking laws of such State.
            (5) Qualified individual development account program.--The 
        term ``qualified individual development account program'' means 
        a program established upon approval of the Secretary under 
        section 704 after December 31, 2005, under which--
                    (A) Individual Development Accounts and parallel 
                accounts are held in trust by a qualified financial 
                institution, and
                    (B) additional activities determined by the 
                Secretary, in consultation with the Secretary of Health 
                and Human Services, as necessary to responsibly develop 
                and administer accounts, including recruiting, 
                providing financial education and other training to 
                Account owners, and regular program monitoring, are 
                carried out by the qualified financial institution.
            (6) Qualified expense distribution.--
                    (A) In general.--The term ``qualified expense 
                distribution'' means any amount paid (including through 
                electronic payments) or distributed out of an 
                Individual Development Account or a parallel account 
                established for an eligible individual if such amount--
                            (i) is used exclusively to pay the 
                        qualified expenses of the Individual 
                        Development Account owner or such owner's 
                        spouse or dependents,
                            (ii) is paid by the qualified financial 
                        institution--
                                    (I) except as otherwise provided in 
                                this clause, directly to the unrelated 
                                third party to whom the amount is due,
                                    (II) in the case of any qualified 
                                rollover, directly to another 
                                Individual Development Account and 
                                parallel account, or
                                    (III) in the case of a qualified 
                                final distribution, directly to the 
                                spouse, dependent, or other named 
                                beneficiary of the deceased Account 
                                owner, and
                            (iii) is paid after the Account owner has 
                        completed a financial education course if 
                        required under section 705(b).
                    (B) Qualified expenses.--
                            (i) In general.--The term ``qualified 
                        expenses'' means any of the following expenses 
                        approved by the qualified financial 
                        institution:
                                    (I) Qualified higher education 
                                expenses.
                                    (II) Qualified first-time homebuyer 
                                costs.
                                    (III) Qualified business 
                                capitalization or expansion costs.
                                    (IV) Qualified rollovers.
                                    (V) Qualified final distribution.
                            (ii) Qualified higher education expenses.--
                                    (I) In general.--The term 
                                ``qualified higher education expenses'' 
                                means--
                                            (aa) tuition, fees, books, 
                                        supplies, and equipment 
                                        required for the enrollment or 
                                        attendance of the designated 
                                        individual or a family member 
                                        at an eligible educational 
                                        institution, and
                                            (bb) in the case of a 
                                        special needs beneficiary, 
                                        expenses for special needs 
                                        services which are incurred in 
                                        connection with such enrollment 
                                        or attendance.
                                    (II) Room and board included for 
                                students who are at least half-time.--
                                            (aa) In general.--In the 
                                        case of an individual who is an 
                                        eligible student for any 
                                        academic period, such term 
                                        shall also include reasonable 
                                        costs for such period (as 
                                        determined under the qualified 
                                        tuition program) incurred by 
                                        the designated beneficiary for 
                                        room and board while attending 
                                        such institution.
                                            (bb) Limitation.--The 
                                        amount treated as qualified 
                                        higher education expenses by 
                                        reason of this subclause shall 
                                        not exceed the allowance 
                                        (applicable to the student) for 
                                        room and board included in the 
                                        cost of attendance (as defined 
                                        in section 472 of the Higher 
                                        Education Act of 1965 (20 
                                        U.S.C. 1087ll), as in effect on 
                                        the date of the enactment of 
                                        the Economic Growth and Tax 
                                        Relief Reconciliation Act of 
                                        2001) as determined by the 
                                        eligible educational 
                                        institution for such period, 
                                        or, if greater, the actual 
                                        invoice amount the student 
                                        residing in housing owned or 
                                        operated by the eligible 
                                        educational institution is 
                                        charged by such institution for 
                                        room and board costs for such 
                                        period.
                                            (cc) Eligible student.--For 
                                        purposes of this subclause, the 
                                        term ``eligible student'' 
                                        means, with respect to any 
                                        academic period, a student who 
                                        meets the requirements of 
                                        section 484(a)(1) of the Higher 
                                        Education Act of 1965 (20 
                                        U.S.C. 1091(a)(1)), as in 
                                        effect on the date of the 
                                        enactment of this section, and 
                                        is carrying at least 1/2 the 
                                        normal full-time work load for 
                                        the course of study the student 
                                        is pursuing.
                            (iii) Qualified first-time homebuyer 
                        costs.--
                                    (I) In general.--The term 
                                ``qualified first-time homebuyer 
                                costs'' means qualified acquisition 
                                costs with respect to a principal 
                                residence for a qualified first-time 
                                homebuyer.
                                    (II) Qualified acquisition costs.-- 
                                For purposes of this clause, the term 
                                ``qualified acquisition costs'' means 
                                the costs of acquiring, constructing, 
                                or reconstructing a residence. Such 
                                term includes any usual or reasonable 
                                settlement, financing, or other closing 
                                costs.
                                    (III) First-time homebuyer.--For 
                                purposes of this clause, the term 
                                ``first-time homebuyer'' means any 
                                individual if--
                                            (aa) such individual (and 
                                        if married, such individual's 
                                        spouse) had no present 
                                        ownership interest in a 
                                        principal residence during the 
                                        2-year period ending on the 
                                        date of acquisition of the 
                                        principal residence to which 
                                        this paragraph applies, and
                                            (bb) subsection (h) or (k) 
                                        of section 1034 (as in effect 
                                        on the day before the date of 
                                        the enactment of this section) 
                                        did not suspend the running of 
                                        any period of time specified in 
                                        section 1034 (as so in effect) 
                                        with respect to such individual 
                                        on the day before the date the 
                                        distribution is applied 
                                        pursuant to subparagraph (A).
                                    (IV) Date of acquisition.--The term 
                                ``date of acquisition'' means the 
                                date--
                                            (aa) on which a binding 
                                        contract to acquire the 
                                        principal residence to which 
                                        subparagraph (A) applies is 
                                        entered into, or
                                            (bb) on which construction 
                                        or reconstruction of such a 
                                        principal residence is 
                                        commenced.
                                    (V) Special rule where delay in 
                                acquisition.--If any distribution fails 
                                to meet the requirements of subclause 
                                (I) solely by reason of a delay or 
                                cancellation of the purchase or 
                                construction of the residence, the 
                                amount of the distribution may be 
                                recontributed to an Individual 
                                Development Account of the individual.
                            (iv) Qualified business capitalization or 
                        expansion costs.--
                                    (I) In general.--The term 
                                ``qualified business capitalization or 
                                expansion costs'' means qualified 
                                expenditures for the capitalization or 
                                expansion of a qualified business 
                                pursuant to a qualified business plan.
                                    (II) Qualified expenditures.--The 
                                term ``qualified expenditures'' means 
                                expenditures normally associated with 
                                starting or expanding a business and 
                                included in a qualified business plan, 
                                including costs for capital, plant, and 
                                equipment, inventory expenses, and 
                                attorney and accounting fees.
                                    (III) Qualified business.--The term 
                                ``qualified business'' means any 
                                business that does not contravene any 
                                law.
                                    (IV) Qualified business plan.--The 
                                term ``qualified business plan'' means 
                                a business plan which has been approved 
                                by the qualified financial institution 
                                and which meets such requirements as 
                                the Secretary may specify.
                            (v) Qualified rollovers.--The term 
                        ``qualified rollover'' means the complete 
                        distribution of the amounts in an Individual 
                        Development Account and parallel account to 
                        another Individual Development Account and 
                        parallel account established in another 
                        qualified financial institution for the benefit 
                        of the Account owner.
                            (vi) Qualified final distribution.--The 
                        term ``qualified final distribution'' means, in 
                        the case of a deceased Account owner, the 
                        complete distribution of the amounts in the 
                        Individual Development Account and parallel 
                        account directly to the spouse, any dependent, 
                        or other named beneficiary of the deceased.
            (7) Secretary.--The term ``Secretary'' means the Secretary 
        of the Treasury.

SEC. 704. STRUCTURE AND ADMINISTRATION OF QUALIFIED INDIVIDUAL 
              DEVELOPMENT ACCOUNT PROGRAMS.

    (a) Establishment of Qualified Individual Development Account 
Programs.--Any qualified financial institution may apply to the 
Secretary for approval to establish 1 or more qualified individual 
development account programs which meet the requirements of this title 
and for payments under section 711.
    (b) Basic Program Structure.--
            (1) In general.--All qualified individual development 
        account programs shall consist of the following 2 components 
        for each participant:
                    (A) An Individual Development Account to which an 
                eligible individual may contribute cash in accordance 
                with section 705.
                    (B) A parallel account to which all matching funds 
                shall be deposited in accordance with section 706.
            (2) Tailored ida programs.--A qualified financial 
        institution may tailor its qualified individual development 
        account program to allow matching funds to be spent on 1 or 
        more of the categories of qualified expenses.
    (c) Coordination With Public Housing Agency Individual Savings 
Accounts.--Section 3(e)(2) of the United States Housing Act of 1937 (42 
U.S.C. 1437a(e)(2)) is amended by inserting ``or in any Individual 
Development Account established under the Savings for Working Families 
Act of 2005'' after ``subsection''.

SEC. 705. PROCEDURES FOR OPENING AND MAINTAINING AN INDIVIDUAL 
              DEVELOPMENT ACCOUNT AND QUALIFYING FOR MATCHING FUNDS.

    (a) Opening an Account.--An eligible individual may open an 
Individual Development Account with a qualified financial institution 
upon certification that such individual has never maintained any other 
Individual Development Account (other than an Individual Development 
Account to be terminated by a qualified rollover).
    (b) Required Completion of Financial Education Course.--
            (1) In general.--Before becoming eligible to withdraw funds 
        to pay for qualified expenses, owners of Individual Development 
        Accounts must complete 1 or more financial education courses 
        specified in the qualified individual development account 
        program.
            (2) Standard and applicability of course.--The Secretary, 
        in consultation with representatives of qualified individual 
        development account programs and financial educators, shall, 
        not later than January 1, 2007, establish minimum quality 
        standards for the contents of financial education courses and 
        providers of such courses described in paragraph (1) and a 
        protocol to exempt individuals from the requirement under 
        paragraph (1) in the case of hardship, lack of need, or a 
        qualified final distribution.
    (c) Proof of Status as an Eligible Individual.--Any evidence of 
eligibility which may be required by a qualified financial institution 
shall be presented to such institution at the time of the establishment 
of the Individual Development Account and in any calendar year in which 
contributions are made to the Account to qualify for matching funds 
under section 706(b)(1)(A).

SEC. 706. DEPOSITS BY QUALIFIED INDIVIDUAL DEVELOPMENT ACCOUNT 
              PROGRAMS.

    (a) Parallel Accounts.--The qualified financial institution shall 
deposit all matching funds for each Individual Development Account into 
a parallel account at a qualified financial institution.
    (b) Regular Deposits of Matching Funds.--
            (1) In general.--Subject to paragraph (2), the qualified 
        financial institution shall deposit into the parallel account 
        with respect to each eligible individual the following amounts:
                    (A) A dollar-for-dollar match for the first $500 
                contributed by the eligible individual into an 
                Individual Development Account with respect to any 
                calendar year of such individual.
                    (B) Any matching funds provided by State, local, or 
                private sources in accordance with the matching ratio 
                set by those sources.
            (2) Timing of deposits.--A deposit of the amounts described 
        in paragraph (1) shall be made into a parallel account--
                    (A) in the case of amounts described in paragraph 
                (1)(A), not later than 30 days after the end of the 
                calendar quarter during which the contribution 
                described in such paragraph was made, and
                    (B) in the case of amounts described in paragraph 
                (1)(B), not later than 2 business days after such 
                amounts were provided.
    (c) Uniform Accounting Regulations.--To ensure proper recordkeeping 
and determination of the payments under section 711, the Secretary 
shall prescribe regulations with respect to accounting for matching 
funds in the parallel accounts.
    (d) Regular Reporting of Accounts.--Any qualified financial 
institution shall report the balances in any Individual Development 
Account and parallel account of an individual on not less than an 
annual basis to such individual.

SEC. 707. WITHDRAWAL PROCEDURES.

    (a) Withdrawals for Qualified Expenses.--
            (1) In general.--An Individual Development Account owner 
        may withdraw funds in order to pay qualified expense 
        distributions from such individual's--
                    (A) Individual Development Account, but only from 
                funds which have been on deposit in such Account for at 
                least 1 year, and
                    (B) parallel account, but only--
                            (i) from matching funds which have been on 
                        deposit in such parallel account for at least 1 
                        year,
                            (ii) from earnings in such parallel 
                        account, after all matching funds described in 
                        clause (i) have been withdrawn, and
                            (iii) to the extent such withdrawal does 
                        not result in a remaining balance in such 
                        parallel account which is less than the 
                        remaining balance in the Individual Development 
                        Account after such withdrawal.
            (2) Procedure.--Upon receipt of a withdrawal request which 
        meets the requirements of paragraph (1), the qualified 
        financial institution shall directly transfer the funds 
        electronically to the distributees described in section 
        703(6)(A)(ii). If a distributee is not equipped to receive 
        funds electronically, the qualified financial institution may 
        issue such funds by paper check to the distributee.
    (b) Withdrawals for Nonqualified Expenses.--An Individual 
Development Account owner may withdraw any amount of funds from the 
Individual Development Account for purposes other than to pay qualified 
expense distributions, but if, after such withdrawal, the amount in the 
parallel account of such owner (excluding earnings on matching funds) 
exceeds the amount remaining in such Individual Development Account, 
then such owner shall forfeit to the United States from the parallel 
account the lesser of such excess or the amount withdrawn.
    (c) Withdrawals From Accounts of Noneligible Individuals.--If the 
individual for whose benefit an Individual Development Account is 
established ceases to be an eligible individual, such account shall 
remain an Individual Development Account, but such individual shall not 
be eligible for any further matching funds under section 706(b)(1)(A) 
for contributions which are made to the Account during any calendar 
year when such individual is not an eligible individual.
    (d) Effect of Pledging Account as Security.--If, during any 
calendar year of the individual for whose benefit an Individual 
Development Account is established, that individual uses the Account, 
the individual's parallel account, or any portion thereof as security 
for a loan, the portion so used shall be treated as a withdrawal of 
such portion from the Individual Development Account for purposes other 
than to pay qualified expenses.

SEC. 708. CERTIFICATION AND TERMINATION OF QUALIFIED INDIVIDUAL 
              DEVELOPMENT ACCOUNT PROGRAMS.

    (a) Certification Procedures.--Upon establishing a qualified 
individual development account program under section 704, a qualified 
financial institution shall certify to the Secretary at such time and 
in such manner as may be prescribed by the Secretary and accompanied by 
any documentation required by the Secretary, that--
            (1) the accounts described in subparagraphs (A) and (B) of 
        section 704(b)(1) are operating pursuant to all the provisions 
        of this title, and
            (2) the qualified financial institution agrees to implement 
        an information system necessary to monitor the cost and 
        outcomes of the qualified individual development account 
        program.
    (b) Authority To Terminate Qualified IDA Program.--If the Secretary 
determines that a qualified financial institution under this title is 
not operating a qualified individual development account program in 
accordance with the requirements of this title (and has not implemented 
any corrective recommendations directed by the Secretary), the 
Secretary shall terminate such institution's authority to conduct the 
program. If the Secretary is unable to identify a qualified financial 
institution to assume the authority to conduct such program, then any 
funds in a parallel account established for the benefit of any 
individual under such program shall be deposited into the Individual 
Development Account of such individual as of the first day of such 
termination.

SEC. 709. REPORTING, MONITORING, AND EVALUATION.

    (a) Responsibilities of Qualified Financial Institutions.--
            (1) In general.--Each qualified financial institution that 
        operates a qualified individual development account program 
        under section 704 shall report annually to the Secretary within 
        90 days after the end of each calendar year on--
                    (A) the number of individuals making contributions 
                into Individual Development Accounts and the amounts 
                contributed,
                    (B) the amounts contributed into Individual 
                Development Accounts by eligible individuals and the 
                amounts deposited into parallel accounts for matching 
                funds,
                    (C) the amounts withdrawn from Individual 
                Development Accounts and parallel accounts, and the 
                purposes for which such amounts were withdrawn,
                    (D) the balances remaining in Individual 
                Development Accounts and parallel accounts, and
                    (E) such other information needed to help the 
                Secretary monitor the effectiveness of the qualified 
                individual development account program (provided in a 
                nonindividually-identifiable manner).
            (2) Additional reporting requirements.--Each qualified 
        financial institution that operates a qualified individual 
        development account program under section 704 shall report at 
        such time and in such manner as the Secretary may prescribe any 
        additional information that the Secretary requires to be 
        provided for purposes of administering and supervising the 
        qualified individual development account program. This 
        additional data may include, without limitation, identifying 
        information about Individual Development Account owners, their 
        Accounts, additions to the Accounts, and withdrawals from the 
        Accounts.
    (b) Responsibilities of the Secretary.--
            (1) Monitoring protocol.--Not later than 12 months after 
        the date of the enactment of this Act, the Secretary, in 
        consultation with the Secretary of Health and Human Services, 
        shall develop and implement a protocol and process to monitor 
        the cost and outcomes of the qualified individual development 
        account programs established under section 704.
            (2) Annual reports.--For each year after 2006, the 
        Secretary shall submit a progress report to Congress on the 
        status of such qualified individual development account 
        programs. Such report shall, to the extent data are available, 
        include from a representative sample of qualified individual 
        development account programs information on--
                    (A) the characteristics of participants, including 
                age, gender, marital status, number of children, 
                employment status, and monthly income,
                    (B) deposits, withdrawals, balances, uses of 
                Individual Development Accounts, and participant 
                characteristics,
                    (C) the characteristics of qualified individual 
                development account programs, including match rate, 
                economic education requirements, permissible uses of 
                accounts, staffing of programs in full-time employees, 
                and the total costs of programs, and
                    (D) process information on program implementation 
                and administration, especially on problems encountered 
                and how problems were solved.
            (3) Reauthorization report on cost and outcomes of idas.--
                    (A) In general.--Not later than July 1, 2011, the 
                Secretary of the Treasury shall submit a report to 
                Congress and the chairmen and ranking members of the 
                Committee on Finance, the Committee on Banking, 
                Housing, and Urban Affairs, and the Committee on 
                Health, Education, Labor, and Pensions of the Senate 
                and the Committee on Ways and Means, the Committee on 
                Banking and Financial Services, and the Committee on 
                Education and the Workforce of the House of 
                Representatives, in which the Secretary shall--
                            (i) summarize the previously submitted 
                        annual reports required under paragraph (2),
                            (ii) from a representative sample of 
                        qualified individual development account 
                        programs, include an analysis of--
                                    (I) the economic, social, and 
                                behavioral outcomes,
                                    (II) the changes in savings rates, 
                                asset holdings, and household debt, and 
                                overall changes in economic stability,
                                    (III) the changes in outlooks, 
                                attitudes, and behavior regarding 
                                savings strategies, investment, 
                                education, and family,
                                    (IV) the integration into the 
                                financial mainstream, including 
                                decreased reliance on alternative 
                                financial services and increase in 
                                acquisition of mainstream financial 
                                products, and
                                    (V) the involvement in civic 
                                affairs, including neighborhood schools 
                                and associations,
                        associated with participation in qualified 
                        individual development account programs,
                            (iii) from a representative sample of 
                        qualified individual development account 
                        programs, include a comparison of outcomes 
                        associated with such programs with outcomes 
                        associated with other Federal Government social 
                        and economic development programs, including 
                        asset building programs, and
                            (iv) make recommendations regarding the 
                        reauthorization of the qualified individual 
                        development account programs, including--
                                    (I) recommendations regarding 
                                reforms that will improve the cost and 
                                outcomes of the such programs, 
                                including the ability to help low-
                                income families save and accumulate 
                                productive assets,
                                    (II) recommendations regarding the 
                                appropriate levels of subsidies to 
                                provide effective incentives to 
                                financial institutions and Account 
                                owners under such programs, and
                                    (III) recommendations regarding how 
                                such programs should be integrated into 
                                other Federal poverty reduction, asset 
                                building, and community development 
                                policies and programs.
                    (B) Authorization.--There is authorized to be 
                appropriated $2,500,000, for carrying out the purposes 
                of this paragraph.
            (4) Use of accounts in rural areas encouraged.--The 
        Secretary shall develop methods to encourage the use of 
        Individual Development Accounts in rural areas.

SEC. 710. AUTHORIZATION OF APPROPRIATIONS.

    There is authorized to be appropriated to the Secretary such sums 
as may be necessary for the purposes of implementing this title, 
including the reporting, monitoring, and evaluation required under 
section 709, to remain available until expended.

SEC. 711. MATCHING FUNDS FOR INDIVIDUAL DEVELOPMENT ACCOUNTS PROVIDED 
              FOR QUALIFIED FINANCIAL INSTITUTIONS.

    (a) In General.--Each qualified financial institution shall be 
entitled, for each calendar year, to a payment from the Secretary in an 
amount equal to the individual development account investment provided 
by such institution during such year under an individual development 
account program established under section 704.
    (b) Individual Development Account Investment.--For purposes of 
this section, the term ``individual development account investment'' 
means, with respect to an individual development account program in any 
calendar year, an amount equal to the sum of--
            (1) the aggregate amount of dollar-for-dollar matches under 
        such program under section 706(b)(1)(A) for such calendar year, 
        plus
            (2) $50 with respect to each Individual Development Account 
        maintained as of the end of such calendar year, with a balance 
        of not less than $100 (other than the calendar year in which 
        such Account is opened).
    (c) Regulations.--The Secretary may prescribe such regulations as 
may be necessary or appropriate to carry out this section, including 
regulations providing for a repayment of any amount paid under this 
section (notwithstanding any termination date described in subsection 
(d)) in cases where there is a forfeiture under section 707(b) in a 
subsequent calendar year of any amount which was taken into account in 
determining the amount of such payment.
    (d) Application of Section.--This section shall apply to any 
expenditure made in calendar years after 2005.
                                 <all>