OUTLINE OF THE IMPORTANT DESIRABLE CHARACTERISTICS
OF A FEDERAL RETAIL SALES TAX 1. SCOPE
It is intended that a Federal retail sales tax apply
to all sales of tangible personal property to consumers
and to all services rendered to consumers, excepting
those specifically exempted. It is not intended that he
sales tax apply to tangible personal property and
services sold to business enterprises and used by them in
conducting their business operations. It is recognized
that some tangible personal property and services are
purchased both by consumer and business enterprises. In
these cases it is intended that such articles and
services be taxed only when sold to consumers and that
they be exempted when sold to business enterprises,
provided the firms prove to the satisfaction of the
Commissioner of Internal Revenue that such goods and
services are to be used only for business purposes.
It is intended that the tax shall apply to the sales
of second- hand or used articles when sold by dealers to
consumers. Incidental sales of used articles by one
individual to another are exempted.
2. TAXPAYERS
Taxpayers shall include all registered persons selling
and leasing tangible personal property and services at
retail to consumers. All firms making taxable sales will
be required to register. It is intended that the
registration be permanent and not annual. A nominal
registration fee will be charged to cover paper work. All
taxpayers will be required to make monthly tax returns.
Persons under contract to produce, install and deliver
goods and services to consumers shall be deemed to be
selling at retail, shall be registered, and shall be
liable for collection of tax on the fair sales price of
the goods and services.
3. TAX BASE
It is intended that the retail sales price of taxable
articles and services to which the tax attaches shall be
the full purchase price paid by the consumer, excluding
the amount of State and local retail sales tax when
stated as a separate charge. There shall also be excluded
from the sales price the Federal retail sales tax.
There shall be included in the sales price any charge
for coverings and containers of whatever nature and any
charge incident to placing the article in condition for
consumption, including charges for transportation,
delivery, financing, insurance, installation, or any
other charge by the vendor, his agents or affiliates
whether quoted separately or not from the sales price.
Installment and conditional sales shall be deemed
sales at retail, whether or not title passes, and the
full amount of the tax shall be collected at the time of
sale or delivery and not at the time of payment by the
consumer.
Leases shall be deemed sales at retail and tax shall
be paid on the basis of each payment.
The Commissioner shall determine the fair price in
those cases involving leases, trade-ins, production for
use and not for sale, and where sales are not at arm's
length or where there is no bona fide sale.
4. TAX RATES
It is not intended to introduce a system of
differential tax rates at this time, since there appear
to be no good fundamental principles for group tax rate
differentiation. The determination of differential tax
rates on groups of articles appears to rest largely on
political and social policies.
5. EXEMPTIONS
a. Articles sold to governments and their agencies.
b. Articles exported or sold for export.
c. Articles such as liquor and cigarettes already
subject to heavy excises. Some articles now subject to
excises, especially those whose production has been
terminated or drastically curtailed would be repealed,
but these articles would be subject to sales tax.
d. The services of banks, building and loan companies,
and insurance companies.
e. The services of domestic servants and labor
services performed for consumers by other than
established commercial enterprises. Thus the work of a
gardener would be exempted; the work of a firm engaged in
landscape architecture would be taxed.
f. Leases and rentals of houses, apartments, offices
and business properties not including charges made to
transient lodgers for hotel and tourist accommodations.
g. The services of dentists, doctors, including
specialized types of practices, nurses, and hospitals,
and specialized equipment made for and intended for use
by dentists, doctors, and hospitals.
h. Services rendered by ministers, and instructors of
regularly organized classes, and by educational
institutions.
i. Charges for transportation services rendered by
local mass- transportation systems within a city and
surrounding suburban territory, including commutation
tickets issued by railways and bus lines. Taxicab
services are not exempt.
j. Incidental sales of taxable articles and services
by unregistered individuals not in the business of
selling at retail.
k. Sales of articles and services to business firms
for use in the operation of the business. The purchaser
must provide satisfactory proof that the articles and
services are to be used exclusively for business
purposes.
NOTE 1: Exemption of foods, clothing, and medicines
would render the tax less regressive but would cut the
yield substantially. No recommendation is made at this
time as to whether or not any of these articles should be
excluded. Factors to be mentioned in regard to the
desirability of these exemptions are: whether or not a
withholding tax or compulsory savings program is
introduced, whether or not the social security taxes are
extended in scope and raised in rate, and the extent to
which income tax exemptions are lowered.
There are certain specific recommendations to make,
however:
a: If, for example, foods as a group are exempted, the
term "food" should be defined carefully to
exclude borderline cases such as carbonated beverages and
candy. An alternative approach is to specify exactly
which foods are to be exempted.
b. If, in addition, medicines are exempted, the
exemption should apply to prescriptions only, not to
patent medicines.
NOTE 2: Administrative exemptions such as those
excluding firms doing business under a certain amount are
not recommended.
6. PROVISIONS RELATING TO SHIFTING a. The
taxpayers must quote the tax to consumers separately from
the price of articles and services and also show the tax
separately on invoices.
b. The Treasury shall issue tokens, out of plastic, to
be used in payment of tax involving fractions of a cent.
Paper may be used if suitable plastics are scarce.
c. It is recommended that no provision be made to
require the taxpayer to shift the burden of the tax to
consumers.
7. REFUNDS AND CREDITS
Tax refunds and credits shall be allowed only for
refunded articles and not for repossessions. The amount
of refund or credit shall be computed on the actual value
or amount of refund allowed the final consumer.
8. DEDUCTIONS
The sales tax shall be deductible by licensed
taxpayers in determining income and excess profits tax
liability only when the amount of tax collected and paid
to the Federal Government is included as gross income.
|