S. 112

War Financing Act of 2003

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        [Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[S. 112 Introduced in Senate (IS)]

108th CONGRESS
1st Session
S. 112

To amend the Internal Revenue Code of 1986 to impose a value added tax
and to use the receipts from the tax to fund America's war effort.

_______________________________________________________________________

IN THE SENATE OF THE UNITED STATES

January 9, 2003

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

_______________________________________________________________________

A BILL

To amend the Internal Revenue Code of 1986 to impose a value added tax
and to use the receipts from the tax to fund America's war effort.

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

SECTION 1. SHORT TITLE.

This Act may be cited as the ``War Financing Act of 2003''.

SEC. 2. AMENDMENT OF 1986 CODE.

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

TITLE I--VALUE ADDED TAX

SEC. 101. IMPOSITION OF TAX.

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

``CHAPTER 30--VALUE ADDED TAX

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

``Subchapter A--Imposition of Tax

``Sec. 3901. Imposition of tax.

``SEC. 3901. IMPOSITION OF TAX.

``(a) General Rule.--A tax is hereby imposed on each taxable
transaction.
``(b) Amount of Tax.--Except as otherwise provided in this chapter,
the amount of the tax shall be 1 percent of the taxable amount.

``Subchapter B--Taxable Transaction

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

``SEC. 3903. TAXABLE TRANSACTIONS.

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

``For other transactions specifically
treated as taxable transactions, see sections 3933, 3936, and 3937.

``SEC. 3904. NONTAXABLE TRANSACTION.

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

``SEC. 3905. TAXABLE PERSON.

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

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

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

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

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

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

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

``SEC. 3911. TAXABLE AMOUNT.

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

``SEC. 3912. ZERO RATED EXPORTS.

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

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

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

``SEC. 3914. CREDIT AGAINST TAX.

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

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

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

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

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

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

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

``Subchapter D--Administration

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

``SEC. 3921. SELLER LIABLE FOR TAX.

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

``SEC. 3922. TAX INVOICES.

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

``SEC. 3923. DE MINIMIS EXEMPTION.

``(a) In General.--A person whose aggregate taxable transactions--
``(1) do not exceed $5,000 for the calendar year, and
``(2) can reasonably be expected not to exceed such amount
for the next calendar year,
may elect to be treated as a person who is not a taxable person for the
next calendar year,
``(b) Exceptions.--Subsection (a) does not apply--
``(1) to taxable transactions described in section
5903(a)(3), or
``(2) to any import of property or services.
``(c) Termination of Election.--An election under subsection (a)
shall be terminated on the last day of--
``(1) the first calendar quarter of any year for which such
election is made if the aggregate taxable transactions for such
quarter exceed $2,500,
``(2) the second of any 2 consecutive calendar quarters of
any such year if the aggregate taxable transactions for such
quarters exceed $3,000, or
``(3) the third of any 3 consecutive calendar quarters of
any such year if the aggregate taxable transactions for such
quarters exceed $4,000.
``(d) Calculation of Taxable Transactions.--For purposes of this
section--
``(1) the taxable amount of any zero-rated transaction
shall be treated as zero, and
``(2) the term `taxable transaction' does not include a
transaction which is treated as a taxable transaction solely by
reason of paragraph (3) of section 5903(a).
``(e) Inflation Adjustment.--
``(1) In general.--For calendar years beginning after 2004,
the dollar amounts set forth in subsections (a) and (b) shall
be increased by an amount equal to--
``(A) such dollar amount, multiplied by
``(B) the cost-of-living adjustment for the
calendar year.
``(2) Computational rules.--The cost-of-living adjustment
is the percentage (if any) by which the consumer price index
determined under section 1(f)(5) for the preceding calendar
year exceeds the Consumer Price Index for the second preceding
calendar year. If the amount determined under paragraph (1) is
not a multiple of $100, then such increase shall be rounded to
the nearest multiple of $100.

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

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

``SEC. 3925. TREATMENT OF RELATED BUSINESSES.

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

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

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

``SEC. 3927. REGULATIONS.

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

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

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

``SEC. 3931. DEFINITIONS.

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

``SEC. 3932. SPECIAL RULES.

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

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

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

``SEC. 3934. FINANCIAL SERVICES.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TITLE II--SURPLUS REVENUES

SEC. 201. REVENUES FROM VALUE ADDED TAX TO BE USED TO FUND AMERICA'S
WAR EFFORT.

(a) In General.--Subchapter I of chapter 31 of title 31, United
States Code, is amended by adding at the end the following new section:
``Sec. 3114. Certain proceeds of value added tax to fund America's war
effort
``(a) There is established in the Treasury of the United States a
trust fund to be known as the `War Financing Trust Fund'.
``(b)(1) There is appropriated to the War Financing Trust Fund
amounts equivalent to amounts received in the Treasury from the tax
imposed under section 3901 of the Internal Revenue Code of 1986
(relating to the value added tax).
``(2) The amounts appropriated by paragraph (1) shall be
transferred at least monthly from the General Fund in the Treasury to
the War Financing Trust Fund on the basis of estimates made by the
Secretary of the Treasury of the amounts referred to in paragraph (1).
Proper adjustments shall be made in amounts subsequently transferred to
the extent prior estimates were in excess of or less than the amounts
required to be transferred.
``(c)(1) The Secretary of the Treasury shall use the money in the
War Financing Trust Fund to pay for any administrative costs in
collecting the tax imposed under section 3901 of the Internal Revenue
Code of 1986 or in operating the War Financing Trust Fund.
``(2) The moneys remaining in the Trust Fund after payment of costs
under paragraph (1), shall be available, as provided by appropriation
Acts, for making expenditures to meet those obligations of the United
States heretofore or hereafter incurred with respect to any case in
which United States Armed Forces are introduced into hostilities or
into situations where imminent involvement in hostilities is clearly
indicated by the circumstances.''.
(b) Conforming Amendment.--The table of sections for subchapter I
of chapter 31 of title 31, United States Code, is amended by adding at
the end the following new item:

``3114. Certain proceeds of value added tax to fund America's war
effort.''.
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