Part II. National Sales and Use Tax

Explanation and Details
 

The most important action Congress can take to put America on the road to recovery is to replace the federal income tax with a uniform excise tax on consumption. Only one myth stands in the way—the misconception that a national retail sales tax is always regressive, that it falls hardest on those who must spend most of the money they earn out of necessity, not choice. Discrediting that myth destroys the income tax.

Consider the fabled poor family of four. At a minimum wage of $5.15/hour, two full-time wage earners provide an annual income of $21,424, (2 workers×$5.15/hour×40 hours/week×52 weeks/year = $21,424).

According to the March 1999 Current Population Survey by the U.S. Census Bureau, this annual salary places the family in the Second Quintile ($12,040 to $25,560) of income, and provides only $4,724 more than the $16,700 Poverty Guideline set by the U.S. Department of Health and Human Services for 1999.

This hard-working family’s income is only 28% above the poverty level. With careful money management the family members squeeze by each year, living modestly day-to-day. For them real middle-class status is a distant dream. Yet, millions of Americans earning less envy this family as does most of the rest of the world earning much less.

With standard deductions, filing jointly, and standard child care credit, this family pays no federal income tax.

Suppose Congress replaces the income tax with a 14% national sales and use tax; but exempts the necessities of life such as groceries, rents or leases of real estate, insurance, and medical items and services. Unlike other families earning a higher income, abolishing the federal income tax immediately adds no extra income to this family’s monthly income.

Of course, this family will be affected by the new federal retail sales and use tax. If 90% of the family’s income is spent on necessities—nontaxable items, a reasonable figure for a poor family, the taxes actually paid becomes 14% of the remainder, or $299.94 ($21,424×10%×14%).

At first glance, this appears to be an annual net loss of $299.94, making a national sales tax a bad choice, but what about those hidden embedded income taxes and the cost of collection?

When spending money for necessities the family pays directly for the goods and services received, and pays indirectly all of the hidden embedded costs of the income tax. The hidden embedded cost of the income tax affects all purchases. Assuming the national sales tax system is a mere 2.5% more efficient than the current income tax system (a conservative estimate), this family will avoid an additional $535.60 of hidden embedded taxes (2.5%×$21,424), providing an annual net savings of $235.66 per year (–$299.94 + $535.6).

As does every family and person, people near or below the poverty line, about 14% of the nation, daily pay income taxes and their associated collection costs hidden in the price of necessities. Eliminating these hidden embedded costs effectively increases everyone’s standard of living by at least 2.5%.

Furthermore, replacing the current income tax with a 14% national sales and use tax provides an approximate 4.85% rise in true purchasing power for every additional quarter per hour earned by workers. For purposes of discussion, ignore for the moment the hidden embedded effects of the income tax. If the two wage earners of the family earn only $6.07/hour, this family starts paying a federal income tax. With a 14% national sales and use tax, the two wage earners in the fabled family of four need earn only $6.61/hour each to see the sales tax directly offset current federal income taxes and realize a rise in effective purchasing power.

The hidden embedded effects of the income tax cannot be ignored. Therefore, in addition to a true rise in purchasing power caused by the higher wage, a minimal 2.5% rise in purchasing power is caused by only 2.5% improved efficiency in the tax system. A higher efficiency causes an even higher rise in purchasing power.

Regardless of the wage earned when the fabled family of four starts paying a federal income tax, converting instead to a national sales tax causes purchasing power to rise significantly.

Remember that the primary purpose of the 1942 Victory Tax was to control consumption, not to raise revenue efficiently. The tax evolved into a potent tool for political power brokers. Their power rests on their ability to manipulate the system, to give special favors to their supporters and contributors. Thus, politicians have an overriding vested interest in maintaining the current system even at the cost of a reduced standard of living for the American people. A national sales and use tax is a moral tax because political lobbyists and power brokers cannot as easily manipulate the revenue collection and spending schemes.

Another proposal for protecting lower income groups is with a periodic cash allotment. A payment of $500 per year to every man, woman and child comprising the lowest 20 percent of the nation’s income distribution would cost the government $26 billion annually, roughly the amount of the food stamp program. Under this plan a poor family of four receives cash payments of $2,000 per year.

That $26 billion seems like a large sum until compared to an estimated cost of $100 billion just to collect the corporate income tax. Abolish all income taxes, pay the allotment and the nation nets a $74 billion reduction in hidden corporate tax collection costs.

Increasing the efficiency of the tax collection system reduces everyone’s burden. Think of the income tax system as an ordinary job such as digging a ditch. Because of some silly bureaucratic rule, the first hour every morning is spent throwing dirt into the ditch. The rest of the day you work to remove that dirt and continue digging. Each day you follow the same procedure, wasting your efforts the first hour plus working an additional hour to recover.

In frustration you might decide to skip work for the first two hours every day. At the end of each day the net gain in length of the ditch remains the same. A more ingenious plan is to report for work every day one hour late, avoiding the bureaucrat’s silly rule. The result is higher efficiency, digging more ditch with less work.
 

Obviously, even old familiar things are not always what they seem. Conventional wisdom is based on perspective. In this light the definitions in Section 1 of Part II, National Sales and Use Tax give explicit legal meaning to some selected prosaic words. Notice the complexities of seemingly simple words like “groceries” and “sale.”

Do all items of food and drink marketed for human consumption qualify as groceries? Not necessarily. If you select and purchase an assortment of doughnuts over the counter at a bakery or delicatessen, even if the facility is located within a grocery store, you pay a national sales tax. Buy similar prepackaged items from the shelves of a grocery store and you avoid the tax. The distinction exists in intent. When a facility acts as a manufacturer, selling its food or drink products for human consumption through a grocery store, no national sales tax is imposed.

Is a sale always a sale—in every exchange of property for a valuable consideration? One might be inclined to think so until learning that some courts have held that love and affection can be a valuable consideration. It is not the intent of NESARA to tax noncommercial transactions even when they have the appearance of being a sale. Typical examples include property exchanged between family members, as when parents ‘sell’ the old family car to one of their children. The same idea extends in principle to the ‘legal families’ of partnerships and corporations. In both cases the offer is never made to the public nor with a motive of profit. These types of transactions are not considered sales unless they are contrived or structured for the purpose of avoiding the tax.

The word “coin” provides another good example of viewpoint. Although used as a noun in both Parts I and II of the bill, its definition changes with circumstances. The monetary considerations of Part I call for emphasizing its self-identifying intrinsic value and current use as a medium of exchange. Part II expands this definition in the time domain and deletes all self-identifying requirements. Here the definition easily recognizes the coins of antiquity, modern coinage, or any future coins, provided they are of metal and during any period were officially sanctioned by some nation as a medium of exchange.
 

Section 2 of Part II lists some probable Congressional findings, several being intuitively obvious to the most casual observer. They boil down to a stern criticism of the nation’s so-called progressive income tax system. By almost any measure it is an appalling failure. Any one of its counterproductive features supplies ample justification for its elimination.

One item is conspicuously absent from the list—the fact that nobody understands the eight volumes of fine print comprising the Internal Revenue Code, including its authors, the Congress. And it is unlikely that they will care to note that less than two dozen pages of simple rules replaces and outperforms their incomprehensible tax system.
 

Section 3 of Part II abolishes the national income tax as of 12 o’clock midnight on the date the Act becomes law. Expect the vested interests, primarily the lawyer-politicians and tax lobbyists who derive power and make a living from tax law manipulation, to complain that this action is too sudden, to demand a transition period. They will fight a holding action, insisting on phasing out the income tax as if flogging you a little bit less each day is somehow better for you than just quitting. Their actual intention emulates a pattern set in Europe—reduce the income tax, add consumption taxes, then raise the income tax, ending with both.

All income tax liabilities that were not due and payable when the Act becomes law vanish. Technically, millions of people owe taxes on gains they supposedly made when selling property or on deferred income, perhaps invested in retirement accounts. Taxes on those paper gains, gains that were largely imaginary because of inflation, are abolished. On the other hand, any taxes due and payable on a specific date before the Act becomes law are still due and payable.
 

Section 4 of Part II places responsibility for reorganization of the Internal Revenue Service as the National Tax Service with the Secretary of the Treasury. Congress directs the Secretary to structure the National Tax Service along recognized state and territory boundaries and to create any rules, regulations and procedures required for efficient collection of the national sales and use tax. Districts are also organized according to Congressional districts, thereby providing more accountability of District Directors to representatives. A practical approach makes use of existing state sales tax systems where available and keeps paperwork to a minimum.

Cost being relatively unimportant, this project has no detailed budget. By the time the bean counters could generate an accurate estimate the job will be complete. The situation is akin to having a bursting appendix. America needs an appendicitis operation this afternoon—discussions of costs, if any, will come later. Congress allocates initial funding for the project equal to actual expenditures for federal revenue collection in the previous year.

During the first year after the Act becomes law, the Internal Revenue Service continues to function, closing the books on outstanding income tax liabilities. Any that cannot be cost-effectively collected within that year will be discharged by writing them off.

This reverses the standard IRS policy that cost is never a consideration in collection efforts. The only purpose for spending large sums in attempts to collect small sums was public intimidation. Americans were annually treated to well-publicized examples of what could happen to them if they failed to pay their taxes voluntarily. Morality aside, the policy might have been justified if it worked. It failed, and in the process drove a significant portion of the economy underground. With the abolishment of the income tax system it goes into history’s trash can, exactly where it belongs.
 

Section 5 of Part II imposes a national sales and use tax of 14 percent on the retail sale or use of all property, both domestic and foreign, exchanged in commerce by any person within the jurisdiction of the United States. The first requirement of this tax is that it replaces dollar for dollar all revenue lost with the demise of the income tax.

Congress must set the actual tax rate, 14 percent being a judicious suggestion based on computer simulations of the national economy. With the anticipated increase in economic productivity and tender hopes for prudent government, that initial rate drops. After a few years one estimate puts it as low as 7 percent, others at around 9 percent. All estimates are established on various assumptions for many factors. Experts argue over the validity of their assumptions and the impacts of numerous factors in their economic models. Most agree on one thing—the size of a uniform tax rate generating a given amount of revenue depends on the volume of taxable sales.

Secondary sales of securities are taxed at 10 percent of the full sales tax rate. Within the philosophy of a sales tax, taxing secondary stock sales is fair, largely paid by wealthy people just relieved of income and capital gains taxes. The tax is low enough to prevent capital flight from the country and high enough to raise substantial amounts of revenue. More importantly, this tax discourages market speculation, the constant moving of money to make money in the short run rather than into long-term productive investments. Long-term investors are largely unaffected by this tax.

NESARA distinguishes between initial public offerings and secondary transfers of stock. NESARA encourages new commercial investment because initial issues of stocks and bonds are not subject to the national sales tax, only trades in the secondary market. Initial investments build businesses; secondary trades merely swap ownership. Stock certificates are property and proof of company ownership. Whereas initial stock purchases capitalize a new venture, secondary exchanges are really nothing more than property sales in the commercial retail market and thus subject to any sales tax.

Exemptions are fun. Eliminating many of life’s necessities from the national tax base nullifies much of the argument that a sales tax is always regressive. It gives Congress opportunities to tinker with tax law, one of its favorite pastimes. But it also puts Congress on the horns of a dilemma—with sales volume a constant, every item deleted from the tax base means that it must raise the tax rate or settle for less revenue. Hold revenue constant and the delight of tax exemptions comes with the distress of higher tax rates, a very visible tax that the public pays each day of the year.

Why not exempt everything? A radical thought but perhaps not unreasonable. Abolish all income taxes, forget replacing them with a national sales tax, and the nation still has an annual income of over $570 billion from other sources. That amount covers every penny spent by the federal government in 1979 and leaves a $67 billion surplus. In other words, all federal income taxes now collected, an amount equal to 54 percent of the annual budget, pays only the extra cost heaped on the public by Congress in the last 17 years. Do not hold your breath in expectation. The facts merely show how far and fast the nation slipped downhill and the potential for improvement.

NESARA imposes a tax of 8 percent on the gross profits of gaming sponsors, that is, 8 percent of gross gaming receipts less total gaming payoffs to chance purchasers and government entities. Some people would argue that this is an income tax (receipts - payoffs = gross income) and not a one-time excise in the nature of a retail sales tax. A reasonable argument except that the nature of gaming is different in that the activity is considered illegal unless licensed by the government and the government always claims its share of the take as a “partner” in any licensed activity. Taxing the sale of chances when initially purchased would treat the exchange more like a retail event and would answer the objection, but then the government would receive all of that revenue plus its share of the take as a “partner,” that is, double taxation.

Currently, gaming payoffs to individuals are taxable income when in excess of gaming losses so, under NESARA, the government would lose that source of revenue. The new provision recovers that revenue without double taxation and individuals still get a better deal with the elimination of the personal income tax and the need to keep records.

Sales to federal, state and local government agencies, when acting in their official capacities, are not taxable transactions. Neither are sales of licenses, permits, passports, visas and all charges for public services or user fees made by these agencies. If raising additional revenue is the intent, charges for each item can be increased. Without competitive alternatives the public has no choice but to pay. Other types of sales by government agencies, such as the disposal of surpluses at an auction, are taxable unless excluded by further exemptions.

Under NESARA, all sales of precious metal bullion, coins and currency are untaxed. Taxing these exchanges skews the monetary system by degrading the standards. Imagine going into a bank with two $5 bills to ‘buy’ a $10 roll of quarters and being charged a national sales tax on the transaction. The same principle applies to exchanges involving treasury credit-notes, precious metal bullion, silver dollars, and eagles, and equally to trades in international currencies. Congress has a constitutional responsibility to set standards and regulate values but must be careful not to pollute its own efforts.

Sales made to or by charitable organizations in the conduct of their regular activities or charitable functions are normally exempt from the tax. They must not be for profit or unduly competitive with sales made by others subject to the tax. A church engaged in charitable activities might legitimately raise funds to support those activities with an occasional fair or carnival, no taxes due. It cannot open an amusement park in competition with one across town and claim exemption because of its charitable status, even if every penny collected goes to its charitable efforts. The same reasoning applies to nonprofit schools. Government’s genuine interest in supporting such organizations does not extend to encouraging their unfair participation in the realm of commerce. 

Exempting several categories of life’s necessities—groceries, insurance, qualified rents or leases of real estate, and medical items and services—converts a regressive tax into a progressive one. Under this system poor people, spending most of their money for the essentials, pay little if any tax while the rich pay lots of tax.

Some argue that the rich spend more money on food so they get an excessive benefit from that exemption. Not necessarily true. No matter how rich you are, the amount of food that you can eat is limited. Rich people eat out more and in fancy restaurants where they pay the tax. Even when they buy expensive groceries and eat at home that money is not lost to the tax system. It continues to circulate in the economy and is inevitably used to buy taxable items.

One dollar taxed at 14 percent and circulated through the economy ten times provides the government with $1.40 in revenue. That seems strange. How can the amount of revenue exceed the taxable base? Simple. There are no limits on total revenues when the government constantly spends those tax dollars back into circulation maintaining the base. With a fixed uniform tax rate the important consideration is dynamic, that is, the speed at which a given volume of money circulates through taxable items. Do not be concerned if the government fails to tax a few transactions. This is a rigged game and it is going to win. Tax rates are adjusted so that the government always get its share.

Rents or leases of real estate for periods longer than 60 days are excluded from the national sales tax for some of the same reasons that groceries were eliminated. Rich people own their homes. Poor people are more likely to rent or lease. The same relationship presumably exists between many small businesses and their larger, richer competitors. Failure to eliminate this category of taxable items discriminates against the poor.

Exempting qualified medical items and the professional services of licensed medical personnel from the national sales tax benefits both rich and poor. An argument that the rich gain more than the poor is no reason to penalize the poor. Taxing anything discourages its consumption to some extent, though it affects some items more than others. If the post office doubles the cost of stamps few people will reduce their volume of mailings by half to break even.

Poor people often have considerable difficulty affording adequate health care. NESARA provides two kinds of relief—elimination of the income tax and an exemption from the national sales tax. Without the income tax, the working poor have more money. Moreover, prices of medical items and services decrease compared with other goods and services as competition removes previously hidden costs. A sales tax exemption adds frosting to the cake.

Incidental or occasional sales, when the primary motive is not profit, are not taxable transactions. The federal government has no interest in your yard or garage sale if you are not actively engaged in commerce. It does encourage recycling materials. This justifies a 50 percent tax break on retail sales of used tangible property—used cars or equipment, parts acquired at scrap yards, merchandise from secondhand stores, etc.—excluding remanufactured items sold with warranties longer than 90 days. The latter are treated as new items and taxed at the full rate.

NESARA treats sales of insurance or surety bonds as necessities, exempting them from the national sales tax. Poor people frequently have greater needs for insurance than do the rich. Secondary sales of commercial investment securities in the stock and bond markets are another matter. These transactions are taxable.

By taxing only 10 percent of the purchase price paid for stocks and bonds at the uniform national sales tax rate of 14 percent, the effective tax rate is reduced to 1.4 percent. This is a fair tax, largely paid by wealthy people just relieved of income and capital gains taxes. It is low enough to prevent capital flight from the country and high enough to raise substantial amounts of revenue. Also, this tax discourages market speculation, the constant moving of money to make money in the short run rather than into long-term productive investments.

NESARA encourages new commercial investment because initial issues of stocks and bonds are not subject to the national sales tax, only trades in the secondary market. Initial investments build businesses; secondary trades simply swap ownership. Securities of the United States government and all its political subdivisions are never taxed even in the secondary market. This gives them a slight advantage over commercial investments, restoring some of their competitive edge lost with the abolishment of the income tax. Income from all investment securities, government and private alike, is now tax free.

Meals provided by employers to employees at their places of employment at no charge or at reduced charges are not subject to the national sales tax. They were often considered as partial compensation for labor, once taxed as income, now abolished. Of course, if the employees will not eat there, maybe you should go somewhere else too.

NESARA exempts the identified and segregated labor portion of written retail contracts, such as professional service, construction, maintenance and service industry contracts, from the national sales tax. Technical consultants, lawyers, accountants, engineers, surveyors and architects normally sell their labor. Taxable material costs for such things as copies of blueprints and specifications are often inconsequential when compared to the total charge. When these services are supplied to industry, the labor costs pass through into the price of the final product. Taxing that product effectively taxes the original labor. Taxing both the service and the final product amounts to double taxation.

This exemption could be applied to certain categories of maintenance and repair bills with large labor components that can be easily identified and segregated—for instance, having your carpet cleaned or taking your car to a shop for repair. You pay the tax on materials but not on direct labor. Rent a limousine and pay the tax on the rental but not on the driver’s labor identified and billed separately. Buy an airline ticket; pay the tax. The pilot’s labor can be identified but not segregated because total ticket sales are unpredictable. What if you rent a taxi? Pay the full tax—no written contract. Decisions are not difficult if you know and follow the rules. In these cases the objective is simply to give the taxpaying public a break on designated expenditures, not to avoid double taxation.

Labor is property. When sold directly into commerce at retail it is a legitimate subject of sales taxation. Many services have high direct labor components—beauty salons, barber shops, dance instruction, dry cleaners, pet grooming, and tattooing just to name a few—all subject to the full tax. In the coming battle over exemptions, direct retail labor exclusions will likely be an early casualty. Fortunately, as the taxable base increases, Congress can cut the uniform tax rate and still raise the same amount of revenue. Either way the public wins.

Real estate sales are taxable but credit is allowed for taxes paid on previous retail transactions or for taxes that would have been paid had NESARA been in force. A home purchased for $100,000 several years ago and sold for $150,000 after NESARA becomes law has a $50,000 taxable base. If it sold for less than $100,000 no national sales tax would be due. For purposes of establishing an initial taxable base, transactions in progress when the Act becomes law may be considered as completed.

Under NESARA, new real estate developments suddenly become more expensive, older properties more valuable. This inevitably slows the mad dash to abandon existing property. A new $200,000 suburban home carries a $28,000 national sales tax burden. Many people could achieve the same increase in standard of living, spend less money and avoid most of these taxes by playing This Old House with an older property. The net effect revitalizes inner cities and older neighborhoods at little or no cost to the government. In fact, federal, state and local governments all collect revenue from these activities while avoiding the expense of supporting new expansion projects. Taxpayers win by spending less, avoiding some sales tax, but also with lower property taxes due to more efficient use of the existing infrastructure.

NESARA continues the longstanding government policy of exempting from sales taxes qualified sales of printed periodical materials such as newspapers, magazines, news letters, directories and sales catalogs. To qualify, they must be nonprofit or contribute in some way to raising revenue.

Intangible things such as name, image, endorsements, annuities, stocks, shares, patents, copyrights, etc., when exchanged in commerce, are taxable. An exemption for compensation paid for celebrity endorsements to the extent that they are personally promoting or autographing their own products or talents is fair because it encourages individual creativity, personal advancement and the dissemination new ideas, artistic and literary works. However, mass personal endorsements or mass reproduced stamped or printed autographs on unrelated commercial products, as when a celebrity participates in an advertisement endorsing a particular product, are simply transactions in commerce. Typically, an agent sells that endorsement to the highest bidder. The celebrity, or his agent, doesn’t pay the sales tax due but is responsible for collecting it from the buyer and remitting it to the government.

In a similar manner, excluding from the sales tax the compensation paid for the domestic sale, use or licensing of patents, copyrights, or processes in domestic production provides the nation with identifiable benefits within our economy. Foreign sales of these items tend to promote foreign economies. While these sales would indirectly benefit our economy, a healthy self-interest dictates a direct rather than an indirect benefit.

Taxes on taxable transactions in commerce where the tax has already been paid permits any premiums, benefits, or alternate currencies, for example, “coupons” or a “free” airline ticket based on “frequent flyer miles,” to be issued without additional national sales taxes imposed. This avoids double taxation of the original qualifying transaction. Notice that the exemption only applies to “taxable transactions in commerce where the tax was paid.” Any premiums, benefits, or alternate currencies issued on the basis of nontaxable transactions in commerce are still subject to the national sales tax when used to purchase taxable items. Example: If you receive a “coupon” worth $50 toward the purchase of a taxable item, say luggage, by purchasing nontaxable items such as groceries, then the tax applies to the total price of the taxable item (luggage) including the value of the “coupon.”
 

Section 6 of Part II attaches the liability for payment of the national sales and use tax to every purchaser and for its collection and remittance to every seller. The mere act of initiating a taxable sale in commerce within the jurisdiction of the United States makes one an agent for the National Tax Service. There are no forms to fill out or sign, no coupons to clip or box tops to send in. Getting into this game is ridiculously easy.

To get out, remit the tax due in full at any authorized federal depository on or before the tenth day of the month following the month in which the taxable sale was made and do not initiate any more taxable sales. Keep the receipt. That piece of paperwork is all that is necessary to prove the seller’s liability was discharged. The same holds true for the purchaser’s receipt from the seller.

Obviously, the tax bureaucrats will insist on standard forms and taxpayer identification numbers. But these items are only for the convenience of maintaining auditable records. They have nothing at all to do with establishing or discharging one’s liability under the law. The burden of proving that liability falls on the National Tax Service.

Three elements prove a government tax case—a taxable sale occurred; it was within the government’s jurisdiction; and you participated. The government need only establish liability, avoiding any requirement to prove a negative, that is, to produce a witness that will swear he saw you not pay or remit the tax. You evade the charge by defeating any element in the government’s case. Prove that the sale was exempt from the tax or that it was not within the government’s jurisdiction or that you were neither a seller nor a purchaser in the transaction. Failing that, you had better have a receipt.

Governments take few chances on collecting their money. Taxes on credit sales of moveable property are payable in full at the time of the sale. Taxes on immovable property paid for in installments are due as the seller receives each installment. If a seller disposes of an account receivable, the balance of the tax is immediately due.

There are no limits to the number of times a particular article may be subject to the national sales or use tax if it returns to the stream of commerce. Each time the purchaser must pay and the seller must collect and remit the tax unless the sale is exempt. But taxes are collected at the retail, end or final transaction and not from wholesalers, or from intermediate sales of items directly used for or incorporated into the manufacture of a product to be ultimately sold at retail. Maintenance tools and office supplies purchased by a chemical manufacturer are taxable even if bought from a recognized wholesale dealer. Pipe, valves, pumps, catalyst and solvents directly used in its processes to make chemicals are exempt. Electric power to its office buildings or to run its pumps is taxable but power used directly in its industrial processes, such as electroplating and metals refining, is exempt.

Should a dispute occur between the purchaser and seller about whether any particular sale is exempt from the tax, the purchaser must pay it. The law provides ways to challenge that collection and, if successful, to get the money back plus interest. Excess taxes inadvertently collected must be remitted to the National Tax Service when not refundable.

NESARA abolishes the federal income tax and along with it tax policies that stimulated contributions to charitable organizations. It restores some of that loss by issuing Credit Certificates applicable to national sales and use tax liabilities for donations to qualified organizations. To obtain the certificates, worth 10 percent of all donations valued at $250 or more, the organization must be recognized and approved by the National Tax Service. It must also apply for each Credit Certificate in the donor’s name and certify the contribution. The Credit Certificates can be sold in commerce and will be accepted by the government for tax payments at full face value.

Summary documentation, also called returns or reports, of the seller’s monthly tax remittances may be voluntarily submitted to the National Tax Service. If timely, meaning within five working days after the tax due date, the seller may deduct 1 percent of their tax deposit to offset expenses for collection and keeping records. If everyone files, sellers will divide $6 billion annually. What at first seems like a lot of money comes to only $600 per year when split equally among 10 million sellers. Of course the big companies get most of it but they also do most of the work.

Failure to make tax deposits within the ten-day designated period can be costly. Penalties for late deposits are set at 2.5 percent per month and continue to accumulate each month for a maximum of six months or 15 percent. In addition, interest charges are added at the rate of 1 percent per month without an upper limit. Expect the government’s accountants to compound those interest charges. They really want tax money deposited on time. This tax system provides little enough forgiveness except for inadvertent clerical errors, which are subject to interest but not penalty charges, and unusual hardship circumstances. In the latter case, penalty or interest charges or any portion of either may be waived by the National Tax Service or by Executive Order of the President of the United States.

Sellers who go out of business must file a report with the National Tax Service within thirty days. Anyone acquiring the business or its stock of goods becomes liable for taxes due and not remitted unless the buyer has a receipt showing that the taxes were paid to the seller. By continuing in business new owners become liable for the collection and remittance of taxes on future sales.

Qualified and approved purchasers or sellers may apply for and obtain Certificates of National Sales and Use Tax Exemption from the National Tax Service. These certificates, valid for 12 months, are identified by serial number. Their use is voluntary—one can never be penalized for participating in an exempt transaction—but desirable because they simplify nontaxable commerce.

Revenuers appreciate Exemption Certificates because they make tracking nontaxable sales easier. When they are used in commerce, the seller becomes liable for maintaining sales records for two years from the date of the sale. To encourage their use and the reporting of exempt sales, the National Tax Service offers Credit Certificates applicable to tax liabilities equal to 0.15 percent of the total amount of exempt sales timely reported. This offer excludes sales made to the federal government; presumably records of these sales are already available to the National Tax Service.

Every month 15 percent of the national sales tax collected is deposited in the Treasury Reserve Account. These funds may not be used by the government without authorization of the Board of Governors of the Treasury Reserve System. The Treasury Reserve Account joins the Siamese twins of fiscal and monetary policy at the hip. They live in Washington, D.C., in a glass house, largely ignored during periods of good behavior while a thriving nation runs smoothly. But family squabbles upset the neighbors who are sure to notice and complain. Continued disruptions tempt them to become personally involved, a situation everyone finds distasteful.
 

Section 7 of Part II addresses occasions of negligence or refusal to pay, collect or remit the national sales and use tax as required by law. Conflicts will arise but should be minimal. Sellers have little reason not to collect the tax: A lawful statute, clearly worded and easily understood, requires that they collect it; Uniform taxes do not unduly affect their competitive position; They are not the ones paying the tax; and the government compensates them, at least in part, for obeying the law. Purchasers refusing to pay the tax are unlikely to obtain goods and services from sellers. No sale, no problem with the law.

Simple procedures handle the difficulties that do occur. Each step taken by the National Tax Service is explicitly marked by the title of the notification document: Assessment / Preliminary Notice of Deficiency, Preliminary Determination, Final Notice of Deficiency, Final Determination, and Notice of Levy. One or more remedies are available at every stage for an alleged delinquent taxpayer to challenge the government’s assertion.

Upon receiving either a Final Notice of Deficiency or a Final Determination, one may bypass the National Tax Service, placing the argument before a court of competent jurisdiction. The stakes get higher. Win, even partially, and the government must pay your legal fees plus twice the amount of tax relief ordered by the court. Lose and the court may order you to pay its costs and all legal fees in addition to the tax, penalties and interest.

A Notice of Levy cannot be issued more than two years after the date on which a tax was payable or due and it automatically expires three years after the tax due date. During that period the National Tax Service may agree to an Offer in Compromise in partial settlement of taxes due or by mutual agreement extend the limitation period in hopes that the taxpayer might acquire the money and pay the debt.

To avoid the many problems associated with collections under the current income tax system, NESARA clearly defines that a warrant of distraint be issued before continuing with any seizure. Additionally, because the national sales and use tax is collected only in activities of commerce, real and personal property is exempt from seizure and collections. Innocent third party owners of property are also protected, eliminating some of the repulsion with current asset forfeiture laws.

The government prefers to obtain something for taxes due rather than nothing. It is one thing to drill for oil, quite a different matter when you know it will be a duster. Revenuers cannot use the remedies of garnishment against a delinquent taxpayer while the taxpayer can declare bankruptcy any time. Better for everyone to make the best of a bad situation, reach a compromise settlement if possible and move on.
 

The provisions of Section 8 of Part II define four federal tax crimes and specify the punishment for convicted offenders. A seller who misrepresents or hides the national sales tax attempts to gain unfair competitive advantage or to defeat its visibility, a misdemeanor. Knowingly participating in a taxable transaction and willfully evading responsibility to pay, collect or remit the tax may be a misdemeanor or a felony depending on the amount of money involved. If the amount is over $100 but less than $1,000, the crime is a misdemeanor punishable by a fine of not more than $1,000 or a term of imprisonment of not more than six months, or both. For amounts over $1,000 the crime is a felony punishable by a fine of not more than $5,000 or a term of imprisonment of not more than two years, or both. Making or conspiring to make fraudulent use of a Certificate of National Sales and Use Tax Exemption is a felony. Conviction may subject you to either a fine of not more than $5,000 or a term of imprisonment of not more than two years, or both.

Rudimentary procedures are more than sufficient to enforce the federal sales and use tax laws. Simple, understandable tax law invites public participation. People know what goes on and some will tell. Sting operations by revenuers will be almost as easy as handing out traffic tickets. To catch the bad guys they need only make a purchase in a taxable sale from a careless or imprudent seller trying to beat the system. Anyone smart enough to contemplate evading the tax or defrauding the government is smart enough to recognize that the risk exceeds the potential gain.
 

Section 9 of Part II simply repeals all previous legislation or any parts of previous legislation inconsistent with the provisions of this part.