However, there is no such clause referring to primary residence. Except for exclusion of used property 'on which the tax imposed by section 101 has been collected' and 'was held other than for a business purpose', it sounds like a new home purchased for primary residence or a used home bought from a business (which was exempt from tax) would be subject to 23% sales tax.
They are.
But imagine a home doubling in value over 12 years (fairly typical) vs. a comparable new home. The used home has only paid half the amount in taxes, and therefore has a clear advantage in negotiating sale. Conversely, a new home bought from a business entity would be subject to tax at appraised value because the original owner was tax exempt. How is a business to sell a used property with this kind of disadvantage?
Used in the bill = taxes previously paid remember. If taxes are paid with no credit received to offset those prior taxes, no further NRST is to be collected. This is a one time tax on use and consumption, it is not a capital gains tax. Any gains realised as a consequence of legitimate appreciation of assets of residential property will have the NRST collected when spent for further use/consumption, or not turned to investment purposes.
I fail to see a disadvantage.
if the builders invest $60k, then take the same $26,200 profit, sells the house for $86,200, the buyer pays 23% or $19,826, and now has the same home for $106,026. Assuming the transactions cost less than $6,026, why wouldn't they?
You don't figure state retail sales and income tax administrators are blind to this kind of business use conversion? It happens under the current tax system in various forms to obscure and hide income or disguise income as capital. Guaranteed that state treasurers will be cognizant of transactions in property tax valuations and will be quite aware of corallary scams to evade/avoid the NRST.
Essentially you have a fraudulant conversion of business assets to evade taxes going on, covered in state laws currently, as well as the requirements of the NRST bill where such conversions are required to be dealt with.
The following are examples of empowering legislation under Sections 103& 705 which form the basis on which the provisions empowering the Secretary of the Treasury to formulate appropriate regulations will cover such obvious scams. When applied with Chapter 5 penalties for non remittance or payment of NRST owned you will find all that is actually necessary for the states to go after such practices where the rise to obvious actions to evade the NRST.
`(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).
*** snip ***
`(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.
`(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.
`(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.
`(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.
`(a) Mixed Use Property or Service-
`(1) MIXED USE PROPERTY OR SERVICE DEFINED- For purposes of this section, the term `mixed use property or service' is a taxable property or taxable service used for both taxable use or consumption and for a purpose that would not be subject to tax pursuant to section 102(a)(1).
`(2) TAXABLE THRESHOLD- Mixed use property or service shall be subject to tax notwithstanding section 102(a)(1) unless such property or service is used more than 95 percent for purposes that would give rise to an exemption pursuant to section 102(a)(1) during each calendar year (or portions thereof) it is owned.
`(3) MIXED USE PROPERTY OR SERVICES CREDIT- A person registered pursuant to section 502 is entitled to a business use conversion credit (pursuant to section 202) equal to the product of--
`(A) the mixed use property amount; and
`(B) the business use ratio; and
`(C) the rate of tax imposed by section 101.
`(4) MIXED USE PROPERTY AMOUNT- The mixed use property amount for each month (or fraction thereof) in which the property was owned shall be--
`(A) one-three-hundred-sixtieth of the gross payments for real property for 360 months or until the property is sold;
`(B) one-eighty-fourth of the gross payments for tangible personal property for 84 months or until the property is sold;
`(C) one-sixtieth of the gross payments for vehicles for 60 months or until the property is sold; or
`(D) for other types of taxable property or services, a reasonable amount or in accordance with regulations prescribed by the Secretary.
`(5) BUSINESS USE RATIO- For purposes of this section, the term `business use ratio' means the ratio of business use to total use for a particular calendar month (or portion thereof if the property was owned for only part of said calendar month). For vehicles, the business use ratio will be the ratio of business purpose miles to total miles in a particular calendar month. For real property, the business use ratio is the ratio of floor space used primarily for business purposes to total floor space in a particular calendar month. For tangible personal property (except for vehicles), the business use ratio is the ratio of total time used for business purposes to total time used in a particular calendar year. For other property or services, the business ratio shall be calculated using a reasonable method. Reasonable records must be maintained to support a person's business use of the mixed use property or service.
`(b) TIMING OF BUSINESS USE CONVERSION CREDIT ARISING OUT OF OWNERSHIP OF MIXED USE PROPERTY- A person entitled to a credit pursuant to subsection (a)(3) arising out of the ownership of mixed use property must account for the mixed use on a calendar year basis, and may file for the credit with respect to mixed use property in any month following the calendar year giving rise to the credit.
`(c) CROSS REFERENCE-
`For business use conversion credit, see section 202.
Help me out here Geez. I've done my homework, but I'm still seeing problems.
LOL, I'm not likely to be involved in such nefarious goings on however I'm definitely not too worried about government having to tighten its belt abit if that were a result. If you figure a county/state treasurer's office is not going to notice the fraudulant transactions in this kind of property scam, go for it.
OTOH, you would do well to recognize those state tax administrators are empowered by the bill and paid on the basis of total federal tax collections in their states and encouraged to go after such miscreants both for the sake of their own assessments as well as federal.
However philosophically and as importantly, Evasion and avoidence are more symptoms of an excess tax situation, Hamilton expresses it very well, and government is well advised to heed the sentiment:
"Imposts, excises, and, in general, all duties upon articles of consumption, may be compared to a fluid, which will, in time, find its level with the means of paying them. The amount to be contributed by each citizen will in a degree be at his own option, and can be regulated by an attention to his resources. The rich may be extravagant, the poor can be frugal; and private oppression may always be avoided by a judicious selection of objects proper for such impositions. "
"It is a signal advantage of taxes on articles of consumption that they contain in their own nature a security against excess.
They prescribe their own limit, which cannot be exceeded without defeating the end proposed - that is, an extension of the revenue."
When applied to this object, the saying is as just as it is witty that, "in political arithmetic, two and two do not always make four."
If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds.
This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them.
If this plan goes into effect I need to know what to do.
That's easy, collect the appropriate NRST on true market vale and quit trying to game the system.
Be assured the the US Treasury has the same empowerment to provide guiding regulation for state administrators to properly enforce the provisions of the legislation, where required, to assure compliance with the intent of Congress to collect the NRST once but only once on fair market price new goods and services, as it does today for the IRS in administering and enforcing the income/payroll tax system.
The main difference will be in the fact that only state administrators will be actually involved in the nuts and bolts of actual administration and implementation on the local level as regards those who hold the liability to remit the NRST. You only have to dodge one master instead of two. Though that one master is abit closer to what is going on locally that that distant Federal one will ever be.
. after the second sale, the buyers have a used home that has never been lived in that paid 16% tax instead of 23%.
I would point out that such being the case is clearly covered in the business purpose definitions and registration clauses.
That first sale was business to business, at the very least no NRST was to be collected by statute, The second sale establishes that a business purpose was involved (no one living in that home after the first transfer) the full NRST must be collected on that re-sale of business inventory the taxable property as defined in the statutes:
Chapter 1 defines business purpose and when the NRST cannot be collected as well as when it must be collected.
`(a) IN GENERAL- For purposes of this subtitle--
`(1) BUSINESS AND EXPORT PURPOSES- No tax shall be imposed under section 101 on any taxable property or service purchased for--
`(A) a business purpose in a trade or business, or
`(B) export from the United States for use or consumption outside the United States, if, the purchaser provided the seller with a registration certificate, and the seller was a wholesale seller.
`(2) INVESTMENT PURPOSE- No tax shall be imposed under section 101 on any taxable property or service purchased for an investment purpose and held exclusively for an investment purpose.
`(3) STATE GOVERNMENT FUNCTIONS- No tax shall be imposed under section 101 on State government functions that do not constitute the final consumption of property or services.
`(b) BUSINESS PURPOSES- For purposes of this section, the term `purchased for a business purpose in a trade or business' means purchased by a person engaged in a trade or business and used in that trade or business--
`(1) for resale,
`(2) to produce, provide, render, or sell taxable property or services, or
`(3) in furtherance of other bona fide business purposes.
Chapter 5 covers the requirements for certification of businesses, and covers the penalties for those involved in business to final consumer sales that do so without certification collecting and remitting that full NRST required.
`(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.
`(a) FAILURE TO REGISTER- Each person who is required to register pursuant to section 502 but fails to do so prior to notification by the sales tax administering authority shall be liable for a penalty of $500.
`(b) Reckless or Willful Failure To Collect Tax-
`(1) CIVIL PENALTY; FRAUD- Each person who is required to and recklessly or willfully fails to collect taxes imposed by this subtitle shall be liable for a penalty equal to the greater of $500 or 20 percent of tax not collected.
`(2) CRIMINAL PENALTY- Each person who is required to and willfully fails as part of a trade or business to collect taxes imposed by this subtitle may be fined an amount up to the amount determined in accordance with paragraph (1) or imprisoned for a period of not more than 1 year or both.
`(c) Reckless or Willful Assertion of Invalid Exemption-
`(1) CIVIL PENALTY; FRAUD- Each person who recklessly or willfully asserts an invalid intermediate or export sales exemption from the taxes imposed by this subtitle shall be liable for a penalty equal to the greater of $500 or 20 percent of the tax not collected or remitted.
`(2) CRIMINAL PENALTY- Each person who willfully asserts an invalid intermediate or export sales exemption from the taxes imposed by this subtitle may be fined an amount up to the amount determined in accordance with paragraph (1) or imprisoned for a period of not more than 1 year or both.
`(d) Reckless or Willful Failure To Remit Tax Collected-
`(1) CIVIL PENALTY; FRAUD- Each person who is required to and recklessly or willfully fails to remit taxes imposed by this subtitle and collected from purchasers shall be liable for a penalty equal to the greater of $1,000 or 50 percent of the tax not remitted.
`(2) CRIMINAL PENALTY- Each person who willfully fails to remit taxes imposed by this subtitle and collected from purchasers may be fined an amount up to the amount determined in accordance with paragraph (1) or imprisoned for a period of not more than 2 years or both.
`(e) RECKLESS OR WILLFUL FAILURE TO PAY TAX- Each person who is required to and recklessly or willfully fails to pay taxes imposed by this subtitle shall be liable for a penalty equal to the greater of $500 or 20 percent of the tax not paid.
Hi guys. Seems like old times again. Just thought I'd weigh in with a couple of observations. (Since I'm snowed in here in upstate NY today anyway). This discussion about taxing new houses under NRST points up a principle virtue of APT in that it is spread so wide and so thin as to virtually eliminate all such economic distortions. And another thought on the principle highlighted in Federalist 21 advancing that consumption taxes in effect seek their own level. By extension, with the 20th Century Keynesian practices and central banking, as well as global competition, the total percent of taxation is also natually limited, which is why supply-side tax cuts are used to ultimately increase and optimize the absolute amount of revenue. And as long as you have government with taxing authority, this natural limit is the only limit that will ultimately be adhered to.