The Fair Tax Act of 2005, Part X
Continuing on in our series now that I am back from a business trip:
`SEC. 103. RULES RELATING TO COLLECTION AND REMITTANCE OF TAX.
`(a) Liability for Collection and Remittance of the Tax- Except as provided otherwise by this section, any tax imposed by this subtitle shall be collected and remitted by the seller of taxable property or services (including financial intermediation services).
This makes sellers of goods and providers of services the primary remitters of tax, except in certain situations.
`(b) Tax to Be Remitted by Purchaser in Certain Circumstances-
`(1) IN GENERAL- In the case of taxable property or services purchased outside of the United States and imported into the United States for use or consumption in the United States, the purchaser shall remit the tax imposed by section 101.
This generally means mail-order and Internet or catalog sales (not easily enforced, either), but can also mean a sort of ‘duty’ upon bringing in goods from other countries into the USA. Now I understand that this is greatly dependent on tax treaties with other countries on a one-for-one basis, so the effect this would have on you when you travel is something for further research.
`(2) CERTAIN WAGES OR SALARY- In the case of wages or salary paid by a taxable employer which are taxable services, the employer shall remit the tax imposed by section 101.
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.
`(c) Conversion of Business or Export Property or Services- Property or services purchased for a business purpose in a trade or business or for export (sold untaxed pursuant to section 102(a)) that is subsequently converted to personal use shall be deemed purchased at the time of conversion and shall be subject to the tax imposed by section 101 at the fair market value of the converted property as of the date of conversion. The tax shall be due as if the property had been sold at the fair market value during the month of conversion. The person using or consuming the converted property is liable for and shall remit the tax.
This is included to avoid business abuse of tax-free status. If you purchase something for business use and then decide to use it for personal use, you have to pay tax on its fair market value when you decide to take it home.
`(d) Seller Relieved of Liability in Certain Cases- In the case of any taxable property or service which is sold untaxed pursuant to section 102(a), the seller shall be relieved of the duty to collect and remit the tax imposed under section 101 on such purchase if the seller–
`(1) received in good faith, and retains on file for the period set forth in section 509, a copy of a registration certificate from the purchaser, and
`(2) did not, at the time of sale, have reasonable cause to believe that the buyer was not registered pursuant to section 502.
`(e) Purchaser Liable to Collect and Remit in Certain Cases- In the case of any taxable property or service which is sold untaxed pursuant to section 102, if the seller is relieved by reason of subsection (d) of the duty to collect and remit the tax imposed by section 101, then the duty to pay any tax due shall rest with the purchaser.
Basically if you are a seller you can sell tax-free to other registered businesses if they provide you a copy of their registration. Otherwise, you should include tax. If you have purchased something tax-free as a business, you must pay the tax yourself or charge it later when you sell it, as it becomes your responsibility.
`(f) Barter Transactions- If gross payment for taxable property or services is made in other than money, then the person responsible for collecting and remitting the tax shall remit the tax to the sales tax administering authority in money as if gross payment had been made in money at the tax inclusive fair market value of the taxable property or services purchased.
So tax has to be paid even on barter transactions. This seems to primarily be a tax-avoidance countermeasure.
`(g) Intercompany Sales- Firms that make purchases from affiliated firms that are untaxed pursuant to section 102, or make sales to affiliated firms that are untaxed pursuant to section 102, shall not need to comply with the requirements of subsection (d) (relating to certificates) for said purchases or sales to remain untaxed.
Affiliated firms are firms with parent-child company relationships. They are treated as one entity under the FairTax, with one registration certificate, and do not have to maintain multiple registrations or files on their sub-companies.
I’m really puzzled about how Sec. 103(b) is going to work. I’ve never received a package from overseas, so am completely ignorant about how the Post Office and Customs Service coordinate their responsibilities. Lets say I travel in Europe and purchase a $50,000 diamond. The small box is then shipped to my home here in the states. Does the Customs Service examine every package coming in from overseas so the appropriate duty can be collected, or is the duty collected at the point of sale per tax/trade treaties. If the foreign seller is responsible to collect and remit the customs duty, then does it follow that the seller will also collect the 31% national sales tax? Or, if Customs does examine the package, will they assess the tax and duty together?? Or, are we good, honest citizens going to have to send the state collection agency the check for the $15,500 tax???
As you can tell, I don’t get it, and the opportunity for tax fraud seems to me to be pretty great. Help!!
According to the Fair Tax Act Plain English Summary:
‘A consumer who directly imports taxable property into the U.S. is required to pay the tax
(together with any customs duties), since the seller is outside of the U.S.’
So this would apparently mean that (tax treaties aside) you would have to pay tax on items you bring into the U.S. when you declare them at customs. There is certainly some opportunity for fraud (people attempt to avoid duties pretty regularly) but the Customs folks seem pretty well-equipped to handle the job.
I would imagine therefore that in your example, you would have to pay the tax on the diamond at customs when you bring it into the country.
This would undoubtedly make shopping abroad significantly more expensive for a consumer, but shouldn’t hurt a business. A business involved in a trade can be granted exemption from or credit for the tax on such imports, if they are used for resale or trade. This should make things more friendly for domestic sales businesses than attempting to import directly from overseas, which may have some economic benefits.
Again, though I must make this clear: I think that tax treaties could almost CERTAINLY change this. If the government wishes to, it can grant tax exemptions or differing rates of tax for imports from different countries on a one-for-one basis.
I think you missed my point. I’m not talking about bringing goods back to the US personally and clearing customs. No question that I’d have to pay both the customs duty and the sales tax at that time.
My question has to do with whether or not all packages mailed to this country also pass through customs, and, if so, how do they know what is in the box, and what the price was? And do you believe that customs would hold the package until the sales tax is paid by the addressee?? What is the relationship between the Postal Service and Customs? Is this an opportunity for tax evasion or even fraud?
Any item shipped to this country by any means has to go through Customs and Border Patrol, although by no means is ALL of it checked by hand. They use sampling to determine if bundles of items are good to go, and more extensive searches of one-off items.
Items shipped to the U.S. typically have a declared value, and that would be the basis for tax. The declared value is on all the paperwork for shipping internationally to the USA. You would have to pay your tax and duties, based on the declared value, at the USPS, FedEx, UPS, or whatever shipper was used before they will give it to you (you’d get a notice in the mail that a package was waiting for you and they hold it until you show up and pay).
For some info on this click here:
http://www.cbp.gov/xp/cgov/import/infrequent_importer_info/internet_purchases.xml
Now ‘declared value’ is very arbitrary. You can declare an item to have any value you wish, but the CBP can reject your declared value if they deem it to be too low and use a value similar to a like item in the USA. People do attempt to under-declare items frequently, but attempting to defraud the CBP in this way is illegal and gets enforced regularly, as duties and tariffs are levied on many routine imports every day.
So is it an opporunity for fraud? Perhaps. But it is a pathway for fraud that is not new and is currently regulated by existing agencies.
Also to clarify, the seller of an item is the one who declares the value of an item to be shipped.
So, like most other sales situations, two parties have to lie to avoid taxes. The seller would have to under-declare the item’s value when he shipped it, at no benefit to himself, to help the buyer in the USA avoid the taxes (or most of them, anyway).