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Written by Karen Walby
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Thursday, 06 July 2006 |
The FairTax has a "de minimus" rule to determine if FairTax must be collected as part of the sale price. It also reviews the concepts of "consumption" and "used" as they pertain to the FairTax.
In order for “sales” to be exempt from the FairTax under the “de minimis” rule, two conditions must be met.
(1) The payments received for “sales” must not exceed $1,200 for the whole calendar year AND
(2) the payments received must NOT be in connection with a trade or business.
Exempt example: The neighborhood teenager doing odd jobs or occasional babysitting may receive payments of up to $1200 during the calendar year and not collect the FairTax on the services they “sold”.
This rule does NOT apply to anyone who receives payments in connection with a trade or business. Not exempt example: If a person starts a lawn care business in December and doesn’t exceed the $1200 in payments received, he still has to collect the FairTax on the sale of his services since the payments were made in connection with a trade or business.
Likewise, individuals may spend up to $400 of gross payments per year to purchase any taxable property or service imported into the United States for their own use. If the person purchases more than $400 on goods and services for their own use in the United States, the individual is required to pay FairTax on the total amount of such purchases. The individual is responsible for remitting the tax. It will be collected in conjunction with import duties.
That said, what about a tree sold for greater than $1,200? That is, what if the tree sold for more than the de minimis payment's maximum value? Must the homeowner collect the FairTax in this case? YES
The crucial consideration when determining whether FairTax must be collected in this case is whether the seed and the subsequent tree were 'consumed' by the homeowner. If the seed/tree was consumed then no FairTax need be collected. If the seed/tree was not consumed then FairTax must be collected. This is because the FairTax is a personal consumption tax.
What does 'personal consumption' commit the homeowner to do? Personal consumption requires the homeowner to personally use the good. For example, a new house that is purchased as rental property is not 'personally consumed' because the owner doesn't live there. A new house that is purchased and moved into is 'personally consumed' because the owner does live there.
Similarly, if the tree in question landscaped the homeowner's yard then this tree was 'personally consumed' by grace of being part of the house's landscaping and, consequently, is a 'used' tree.
There appears to be confusion regarding the terms “used” and “consumption”. The FairTax taxes consumption. What is consumption? It is spending on items that are utilized by the purchaser as opposed to investment items which are “purchases” made solely for the purpose of value appreciation – e.g. stock, coins, fine art, land. Everything that is not for an investment purpose or savings is consumption.
The term “used” has also been defined incorrectly. HR25 defines “used” as property that was in the possession of the owner before enactment of the FairTax OR property on which the FairTax has already been paid.
On the other hand, if the tree simply grew up in a grove of trees that were not part of the house's yard then that this tree was never 'personally consumed' and, consequently, is a 'new' tree. |
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Last Updated ( Thursday, 06 July 2006 )
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