The Fair Tax Act of 2005, Part V
We continue with definitions from Sec. 2:
`(9) REGISTERED SELLER- The term `registered seller’ means a person registered pursuant to section 502.
This is something we’ll cover later, but essentially means any business that will collect sales tax.
`(10) SALES TAX ADMINISTERING AUTHORITY- The term `sales tax administering authority’ means–
`(A) the State agency designated to collect and administer the sales tax imposed by this subtitle, in an administering State, or
`(B) the Secretary, in a State that is neither–
`(i) an administering State, nor
`(ii) a State that has elected to have its sales tax administered by an administering State.
`(11) SECRETARY- The term `Secretary’ means the Secretary of the Treasury.
This part is interesting to me. It defines who will administer the tax in a state. It will either be a state agency (presumably one of many state treasury/revenue departments), or the Secretary (the Secretary of the Treasury of the Federal Government). In these cases, the Federal government can administer the tax if the state elects not to administer the tax for the Feds.
In addition, another administering state can run state taxes for a state that allows it. So if Louisiana didn’t want to run a sales tax agency, it could have Texas handle the administration for Louisiana. Or the Feds. I could see states that have no sales tax today perhaps pursuing this in a pinch, until they could run things themselves.
`(12) TAXABLE EMPLOYER-
`(A) IN GENERAL- The term `taxable employer’ includes–
`(i) any household employing domestic servants, and
`(ii) any government except for government enterprises (as defined in section 704).
`(B) EXCEPTIONS- The term `taxable employer’ does not include any employer which is–
`(i) engaged in a trade or business,
`(ii) a not-for-profit organization (as defined in section 706), or
`(iii) a government enterprise (as defined in section 704).
`(C) CROSS REFERENCE- For rules relating to collection and remittance of tax on wages by taxable employers, see section 103(b)(2).
Now this is a controversial portion of the bill. This portion defines employers who must pay FairTax on the wages of their employees. It is a pretty strict definition. Any government or employer of domestic servants must pay FairTax on the wages paid to their employees. This is included to prevent a tax loophole by ‘employing’ servants rather than paying for their services as you would if they worked for a maid service or something. It also makes sure governments, state, local, and federal, do not become tax-advantaged ways of doing business relative to using private industries and services. It may also increase the cost of local and state government a bit, hence raising local and state tax rates.
Note this does not include any legitimate business, non-profit organization, or government enterprise (such as the USPS).
This has been commented on recently by a lot of us here on this blog, but feel free to discuss this if you wish.
I’m sorry James but your statement that “it may also increase the cost of local and state government a bit” is hopelessly understated. In the first place, (and I may be getting ahead of your review), wages are defined in HR25 as the burdened amount including benefits, perks, etc. I estimate that the burdened cost is roughly 150% of the actual payroll, and will be very difficult to compute. If I’m right, taxing burdened wages as well as the purchase of goods and contract services will add $300 billion annually to the cost of state/local government. And the revenue can only come from all of us through major increases in sales, property, and income taxes. This significant cost impact on state/local governments is what forms the basis for my contention that the states will challenge the constitutionality of HR25 should it ever become law. How the Supreme Court might rule is not clear, but the doctrine of intergovernmental tax immunity has been adhered to by the Court over many years dating back to the early 1800’s.
This is good, that we have something to discuss after 5 posts on the bill.
Now Hank, I already responded to this criticism at this link.
But, I think we will have to disagree on this one, as it seems to be a matter of perspective. I see an increase in my state/local tax burden as being a relatively minor thing to taxpayers relative to the savings on effective Federal tax rates. You see the increase in costs to state governments as being very significant and so you think (dare I say hope) that they would object.
Your objection is certainly worth noting, however. If anyone knows of any state governors who have an opinion on the subject I would like to know, as they would be the ones making the decisions to object to the bill on such a basis.
I would invite anyone who wishes to chime in on this issue to comment here, as I have had my say. I will be moving along to the next portion of the bill here shortly.
You are right, James. It is a matter of perspective, and I suspect you are a younger member of the working class and I am retired. After doing an analysis of effective tax rates for a number of representative family sizes, work status, and incomes, I can report that most retirees would have a lower effective tax rate under the income tax. (Retirees don’t pay payroll taxes). Glad to put up the details if anyone cares to debate this issue.
I would dearly love to find a state Governor or Treasurer willing to get into the details. But why not simply try a mayor or treasurer at the local level? Might have better luck getting some valid input? Doesn’t anyone know a local official who might look at the numbers?
By the way, I have been unsuccessful so far in getting in touch with General Schmitz re the constitutionality issue. Still trying, but as I said earlier, he assumed there would be no financial impact based on his understanding of the Fairtax at the time.
Keep going, James- I think there are more issues of concern lying in wait.
[...] This item we have covered before in Part V. Basically governments and employers of domestic servants must pay FairTax on the wages they provide to their employees. [...]