The Fair Tax Act of 2005, Part VI
Continuing on with some more definitions:
`(13) TAX INCLUSIVE FAIR MARKET VALUE- The term `tax inclusive fair market value’ means the fair market value of taxable property or services plus the tax imposed by this subtitle.
This is pretty straightforward. The FairTax assumes that when items are sold the tax is included in the price a la concessions at the movie theatre. Therefore, this bill uses this term rather than simply ‘fair market value’.
`(14) TAXABLE PROPERTY OR SERVICE-
`(A) GENERAL RULE- The term `taxable property or service’ means–
`(i) any property (including leaseholds of any term or rents with respect to such property) but excluding–
`(I) intangible property, and
`(II) used property, and
`(ii) any service (including any financial intermediation services as determined by section 801).
Just want to pause for a second and state that the FairTax will apply to leases and rents of real estate and other property (like temporarily leasing a car for example, or renting an apartment). But it does not apply to intangible property described here, nor to used property (like previously owned homes, cars and whatever else). We’ll get into financial intermediation much later. But on to services:
`(B) SERVICE- For purposes of subparagraph (A), the term `service’–
‘(i) shall include any service performed by an employee for which the employee is paid wages or a salary by a taxable employer, and
‘(ii) shall not include any service performed by an employee for which the employee is paid wages or a salary–
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‘(I) by an employer in the regular course of the employer’s trade or business,
`(II) by an employer that is a not-for-profit organization (as defined in section 706),
`(III) by an employer that is a government enterprise (as defined in section 704), and
`(IV) by taxable employers to employees directly providing education and training.
This part is interesting as well. It works with earlier definitions to define what is taxable for a taxable employer (generally, any wages or salary). Regular businesses, government enterprises, and non-profit organizations do not pay taxes on their employees’ wages at all. Also notable (and I didn’t know this part until now) is that taxable employers (mostly governments) do not have to pay tax on wages for employees providing education and training (like government trainers and virtually anyone working in the public school system).
I suppose this exempts domestic tutors and other in-house educators, too.
James, I suppose this will sound picky, but your statement quoted below is somewhat misleading.
“But it does not apply to intangible property described here, nor to used property (like previously owned homes, cars and whatever else).”
Wouldn’t it be more accurate to say that the Fairtax doesn’t apply to property for which the tax has previously been paid or is exempt under the law? What I have in mind is a scenario where you purchase a used fleet car from Avis. Your statement suggests there would be no tax, which is incorrect. The terms “new” and “used” are confusing to the general public when trying to explain what is to be taxed. The important point to stress is that the tax is paid only once!
Well that is covered in greater detail later in the bill, and I was trying to stay pretty focused on the basics of the definitions at hand without going beyond the language used in the portion above.
I also left out a hyperlink (which I’ll edit in in a sec) pointing back to a previous definition of intangible property.
However, for the sake of the ‘general public’ who might be judging the bill on this narrow portion presented, I will detail a bit more.
The bill states early in its purposes that its goal is to tax all goods and services without exception, but only once. This means (in general) that if you ever purchase any good or service, the tax is paid one time only for that good or service.
Now services can’t be resold, but goods can. A good that has been purchased at retail has had the tax paid on it once. If it is later sold, it is sold tax-free under this legislation.
Businesses can purchase many goods tax-free for business use. However, the have to remit tax on the fair-market value of the goods if they resell them later. This is covered later on in the bill, as are the mechanics of how it is done, record keeping and so forth. In Hank’s rental fleet example, Avis would purchase a set of cars tax-free and rent them out. Avis would be charging and remitting the FairTax as they rented the cars. In addition, at the end of the year, when Avis sells the cars at the used car dealership, the FairTax will be taken out of whatever price the cars happen to sell for (AKA fair market value = whatever you can get someone to pay for it).
Anyway ‘used property’ will be defined in the next section.
{Edit} Sorry to sound testy here. This comment caught me after I had an argument with a telemarketer.
Good call Hank.
The fair tax would be incredible! I’ve had people say things like “well what about all the jobs that would be lost by disassembling the IRS (cause we woudn’t need one) and by removing the need of accountants!!” That is absolutely rediculous. That’s like saying cars were bad because all buggy whip makers were out of a job!!
Scott
http://www.accelerateyourtraining.com