Key Points Summary – General #HR25 #S122 #FairTax Act of 2013

June 21st, 2014 by HR25 Fair Tax Review | 1 Comment

The FairTax is a proposed national sales tax introduced to the 113th Congress in companion bills HR 25 and S 122, short titled, the FairTax Act of 2013.
The sales tax will replace all Federal income, payroll, self-employment, alternative minimum, capital gains, estate, gift and corporate taxes.
USC Title 26 (Internal Revenue Code), Subtitle A (Income Taxes), Subtitle B (Estate and Gift Taxes), Subtitle C (Employment Taxes), and Subtitle H (Financing of Presidential Election Campaigns) are repealed and replaced with ‘Subtitle A – Sales Tax.’

The legislation does not eliminate other forms of Federal taxation (tariffs, duties, imposts, excises, etc.) nor direct any changes to Federal expenditures.
The sales tax would be assessed on the consumption (purchase) or use of all of taxable properties and services.
(Generally, new properties (products) and all services are taxable unless exempted as described herein, but, in every case, properties and services are assessed the Federal sales tax once and only once. This does not include the separate and additional tariffs, imposts, duties, and excises that may be inclusive to the product price. Property exempted from the sales tax when purchased new, such as purchases by businesses for business purposes, may subsequently be taxed at the fair market value when sold used to a private consumer.)

A used property is one for which the sales tax has been paid and no credit subsequently taken, or it can be any property purchased before the implementation of the sales tax and held for other than a business purpose.
The sales tax is a ‘destination principle’ tax, meaning that it will be collected by (or for) the State in which the goods or services are delivered, located or consumed.
The person purchasing a taxable property or service is liable for the sales tax, but that liability ceases when the sales tax is paid to the seller and the purchaser is provided a receipt indicating the payment.
Government entities not qualifying as a ‘government enterprise’ and households employing domestic servants are deemed ‘taxable employers’ and responsible for remitting the sales tax for the services rendered by their respective employees.
Tax liability for barter transactions remains the same as if the transaction had been made with money.
A sales tax rate has been selected that will produce, mathematically, a revenue neutral result; meaning it will collect a net revenue amount equal to the combined net result of those taxes it replaces.(The sales tax rate and revenue neutral result are based on existing economic data and do not reflect the projected increases in revenues that will occur as the economy favorably responds to the sales tax.)

The initial sales tax rate will be 23% inclusive which yields a 30% exclusive rate.(Inclusive Rate = Sales Tax / Property or Service Price + Sales Tax); Exclusive Rate = Sales Tax / Property or Service Price).(The ‘inclusive’ rate is used to maintain continuity with the rates applied to the taxes replaced by the sales tax; i.e., a 25% marginal income tax rate is an inclusive rate that yields a 33.3% exclusive rate.)(The term ‘gross amount’, when used in the bill, refers to the property or service price + the sales tax.),

The ‘Combined Federal Tax Rate Percentage’ will be sum of the general revenue rate (set at 14.91%), the Old Age Survivors and Disability Insurance (OASDI) rate (6.31%), and the Hospital Insurance (HI) rate (1.78%).(The sum of the General Fund rate, OASDI Fund rate and HI Fund rate equals the sales tax rate, 23% in this case. The OASDI and HI rates included in the sales tax will collect the same amount of revenues as currently collected though employee and employer payroll taxes, respectively 12.4% and 2.9 %.)

The sales tax revenues remitted to the U.S. Treasury will be allocated for tax year 2015 as follows: 64.83% General Fund; 27.43% OASDI; and 7.74% HI and Federal supplementary medical insurance.(For every $1 collected in sales tax revenues, approximately $.65 goes to the General fund, $.27 to Social Security (OASDI), and $.08 to Medicare (HI).)

The Internal Revenue Service will be eliminated within 3 years and replaced with a ‘Sales Tax Bureau’ responsible for administering the sales tax (as required) and to provide Federal oversight of the revenue system. An ‘excise tax bureau’ will also be included to administer excises not under the authority of the Bureau of Alcohol, Tobacco and Firearms.
The sales tax will be collected and enforced principally by State sales tax authorities that will subsequently remit the tax revenues to the U.S. Treasury. (See Administration section below for more details.)
The bill contains a ‘Sunset Clause’ mandating that all provisions of the act, and any subsequent amendments to it, will be eliminated if the 16th Amendment to the U.S. Constitution is not repealed by the 7th year after the date of enactment of the FairTax.

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