The Fair Tax Act, Part XXXI
Section 502 covers some rules regarding the registration of businesses:
`SEC. 502. REGISTRATION.
`(a) In General- Any person liable to collect and remit taxes pursuant to section 103(a) who is engaged in a trade or business shall register as a seller with the sales tax administering authority administering the taxes imposed by this subtitle.
`(b) Affiliated Firms- Affiliated firms shall be treated as 1 person for purposes of this section. Affiliated firms may elect, upon giving notice to the Secretary in a form prescribed by the Secretary, to treat separate firms as separate persons for purposes of this subtitle.
`(c) Designation of Tax Matters Person- Every person registered pursuant to subsection (a) shall designate a tax matters person who shall be an individual whom the sales tax administering authority may contact regarding tax matters. Each person registered must provide notice of a change in the identity of the tax matters person within 30 days of said change.
`(d) Certificates of Registration- The sales tax administering authority shall provide certificates of registration to registered sellers.
`(e) Effect of Failure To Register- Any person that is required to register and who fails to do so is prohibited from selling taxable property or services. The Secretary or a sales tax administering authority may bring an action seeking a temporary restraining order, an injunction, or such other order as may be appropriate to enforce this section.
The only part of this that makes me a bit irritated is the notion that if I am not remitting taxes, I am not allowed to start up business. However, many states have this exact rule for giving you a business license or permit, so this may be inherited legalese. I also make note of needing a point of contact (tax matters person) and the fact that affiliated firms can remit separately if they wish.
Might as well include section 503 here, it is short:
`SEC. 503. ACCOUNTING.
`(a) Cash Method To Be Used Generally- Registered sellers and other persons shall report transactions using the cash method of accounting unless an election to use the accrual method of accounting is made pursuant to subsection (b).
`(b) Election To Use Accrual Method- A person may elect with respect to a calender year to remit taxes and report transactions with respect to the month where a sale was invoiced and accrued.
`(c) Cross Reference- See section 205 for rules relating to bad debts for sellers electing the accrual method
This seems like almost a guideline rather than a rule, preferring cash accrual method accounting. I don’t exactly know what impact this would have on a business, but it seems the bill allows either method (I don’t know of any other popular ones, but I only took one accounting class in college).
I’m not sure it’s entirely possible–practical might be more accurate–to run any sort of business right now without having an EIN/Tax ID, so I don’t know how the 502 registration requirement is really a big change from the status quo. It might possibly add some initial paperwork for a sole proprietorship or a small partnership that wasn’t required to register under state law before. Any form of corporation and many forms of partnerships are already going to have to register with the state and almost certainly will have a federal EIN already as well.
As for cash vs. accrual basis… That’s pretty much identical to the current setup. Cash basis with a calendar tax year is the default. You can elect either accrual basis or a different tax year. I guess the FairTax eliminates the ability to have a different tax year?
Incidentally, I believe that as an individual you can theoretically elect accrual basis and/or an off calendar tax year, but it’d have to be done with your first income tax filing. I imagine if there’s anyone who’s ever done it, it was a trust-fund baby who had a tax attorney on retainer at birth.
It appears throughout the bill that the notion of a tax year would go away and be replaced with monthly cycles and some history of the previous 12 months for determination of things like who is and is not a large seller, etc.
I suppose what accounting method you use is basically a matter of preference. It may affect when a particular transaction gets put on the books (and therefore, when tax is actually remitted) but should not create any problems.
It is good that the bill does not require the use of one or the other, which could create a lot of costs for a business to change their accounting practices (ala Sarbanes-Oxley).