Replies

Here is a question about depreciation/embedded costs.

I work for a large corporation. Here is how the current system affects our decisions.

We own 3000 acres with several buildings/roads used for research. From what the accountants have shown, our biggest portion of our capital budget is the depreciation of this land. Why do we have to "PAY" twice for the land (or any capital item). We could cut our costs for each test almost in half if we didn't have to depreciate all of our capital. We even started leasing vehicles so we wouldn't have to depreciate them. The fair tax would allow us to buy the equipment outright instead of leasing it.

Under the Fair Tax, all of this depreciation would go away correct? Allowing us to make decisions that most benefit our company, instead of avoiding the current tax code.

Another thought, this might encourage our headquarters in europe to send more business to us since it would be cheaper than in europe.

Under the Fair Tax, all of this depreciation would go away correct?

Correct!! Purchases for business use are not taxed under the FairTax legislation.

Only purchases for final consumption are subject to the retail sales tax implemented under HR25, business purchases are expressly exempted:

H.R.25

Fair Tax Act of 2005 (Introduced in House)
http://thomas.loc.gov/cgi-bin/query/z?c109:H.R.25:

`SEC. 102. INTERMEDIATE AND EXPORT SALES.

`(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.

`(c) Investment Purposes- For purposes of this section, the term `purchased for an investment purpose' means property purchased exclusively for purposes of appreciation or the production of income but not entailing more than minor personal efforts.

Another thought, this might encourage our headquarters in europe to send more business to us since it would be cheaper than in europe.

Actually it is highly likely to see European and Japanese businesses relocating here for the international trade advantages of a retail sales tax only system. With no federal tax levied on upstream manufacturers or suppliers U.S. exports become more competitive on foreign markets, as well as being a taxhaven for manufactures in the U.S.

Chairman of the House Ways and Means Committee,
Rep. Bill Archer (R-TX)
August 12, 1996

"A recent survey was done, in Europe and Japan, of the major corporations and I was astounded at the results. They were asked, 'If the US abolished its income tax and went to a sales tax, would that have any impact on your decisions?' Eighty percent of the corporations said they would build their factories in the United States of America. Twenty percent said they would move their international headquarters to the United States of America."