H.R. 25 — FairTax Act of 2025

This section repeals subtitle C of the Internal Revenue Code of 1986 (i.e., provisions imposing payroll taxes under the Federal Insurance Contributions Act (FICA) for Social Security and Medicare, railroad retirement taxes, and related taxes, as well as wage income tax withholding requirements). It specifies that funding for the Social Security trust funds (i.e., Federal Old-Age and Survivors Insurance Trust Fund and Federal Disability Insurance Trust Fund) is provided from general revenues of the Treasury pursuant to section 201 of the Social Security Act (42 U.S.C. 401). (Thus, the existing appropriation to those trust funds of amounts equivalent to 100% of payroll taxes received is eliminated.)

This section strikes subtitle H of the Internal Revenue Code of 1986 (relating to financing of Presidential election campaigns) and redesignates subtitles D (miscellaneous excise taxes) as B, E (alcohol, tobacco, and certain other excise taxes) as C, F (procedure and administration) as D, G (Joint Committee on Taxation) as E, I (Trust Fund Code) as F, J (coal industry health benefits) as G, and K (group health plan portability, access, and renewability requirements) as H. It further authorizes citation of the Internal Revenue Code of 1986 as the Internal Revenue Code of 2025; directs conforming references in law, executive orders, and other documents; and specifies that amendments made by the Act take effect on January 1, 2027 (except as otherwise provided).

This section inserts a new subtitle A (“A Sales Tax”) before subtitle B (as redesignated) in the Internal Revenue Code of 2025, comprising nine chapters covering interpretation and definitions; imposition of tax; credits and refunds; family consumption allowance; federal and state cooperative tax administration; other administrative provisions; collections, appeals, and taxpayer rights; special rules; financial intermediation services; and additional matters. Sec. 1 requires courts, the Secretary, and sales tax administering authorities to interpret the subtitle primarily according to seven purposes: (1) raising federal revenue; (2) taxing all U.S. consumption of goods and services once without exception but only once; (3) preventing double, multiple, or cascading taxation; (4) simplifying tax law and reducing administration and compliance costs; (5) respecting privacy, due process, individual rights, presumption of innocence, and presumption of lawful behavior; (6) increasing states’ role in federal tax administration; and (7) enhancing cooperation among state and federal tax administrators consistent with intergovernmental tax immunity. As a secondary aid, it directs consideration of common law canons, pre-enactment Internal Revenue Code of 1986 concepts, and ambiguities favoring reserved state or people powers. Sec. 2 defines key terms, including “affiliated firms” (50% or more ownership); “conforming state sales tax” (state tax adopting federal definitions of taxable property and services); “designated commercial private courier service” (publicly available firm with electronic records and one year of operation); “education and training” (tuition for primary, secondary, postsecondary education, or job training, excluding room, board, sports, recreation, etc.); “gross payments” (payments for taxable property or services, including federal taxes); “intangible property” (copyrights, trademarks, patents, goodwill, financial instruments, etc., excluding tangible personal property, real property, and computer software); “person” (individuals and broad range of entities); and taxable property or services “used to produce, provide, render, or sell” other taxable property or services (covering business inputs, research and development, certain insurer purchases, and education and training).

This section repeals 66 provisions and subchapters of the Internal Revenue Code of 1986 (IRC), including (1) subchapters on information returns and tax treatment of partnership items; (2) sections on assessments (e.g., §§6201, 6205, 6207), collections (§6305), and liens for estate and gift taxes (§§6324, 6324A, 6324B); (3) sections on payments of repealed taxes (§§6314-6317); (4) carrybacks and overpayments (§§6411, 6425); (5) penalties for failures related to information returns, estimated income taxes, and other income tax matters (§§6652, 6654, 6655, 6662, 6677-6711); and (6) various procedural, definitional, and cross-reference provisions (e.g., §§7508, 7520, 7701(a)(16) and (19)-(20), 7701(b), 7701(e)-(m), 7702-7704). It also makes conforming amendments to other IRC sections, including (1) striking subsection (b) of §6151 and redesignating subsection (c) as (b); (2) revising §6161 to limit tax payment extensions to 6 months (12 months for taxpayers abroad); (3) amending §6211 to remove references to income, estate, and gift taxes and redefine "rebate" for chapters 41, 42, 43, and 44; (4) revising §6212(b) to specify addresses for deficiency notices under chapters 42, 43, and 44; (5) striking "21," from §6302(b), subsections (g) and (i) from §6302, and redesignating subsection (h) as (g). (Thus, these changes remove obsolete references to repealed income, estate, gift, and employment tax provisions.)

This section prohibits appropriations for any Internal Revenue Service (IRS) expenses related to taxes repealed by title I, including processing pre-repeal tax returns, revenue accounting, management, and transferring payroll and wage data to the Social Security Administration after FY2029. It further requires destruction of related federal records by the end of FY2029, except for records needed by the Social Security Administration to calculate benefits or retained for ongoing litigation until final resolution. Finally, it amends IRC §7802 (relating to IRS oversight) by striking subsections (a) and (b), redesignating the remaining subsections, replacing references to the "Internal Revenue Service" with "Department of the Treasury" and "Commissioner" with "Secretary," effective January 1, 2029.

This section establishes within the Department of the Treasury (1) an Excise Tax Bureau to administer excise taxes not administered by the Bureau of Alcohol, Tobacco, Firearms and Explosives; and (2) a Sales Tax Bureau to administer the national sales tax in states where required pursuant to section 404 and to perform related duties under sections 402, 403, and 405, with the Office of Revenue Allocation within the Sales Tax Bureau. This section further revises the authority of the Secretary of the Treasury to appoint, without regard to civil service laws, and fix the duties of not more than five assistant general counsels.

This section revises the definition of "CPI increase percentage" used to compute annual cost-of-living adjustments (COLAs) for Social Security benefits under the Social Security Act. (As background, COLAs increase benefits for retired, disabled, and surviving individuals by the percentage rise—rounded to the nearest 0.1%—in the Consumer Price Index for a cost-of-living quarter over the prior base quarter.) If the Consumer Price Index does not include the national sales tax paid, the increase percentage is instead calculated by multiplying the index by the national sales tax factor—equal to one plus the sales tax rate imposed by section 101 of the Internal Revenue Code of 2025 divided by one minus such rate—before measuring the rise over the prior quarter. (Thus, this adjustment effectively grosses up the index to reflect tax-inclusive prices.)

This section terminates all provisions of, and amendments made by, this Act—including the sales tax—for use or consumption in any year beginning after December 31 of the calendar year in which ends the 7-year period beginning on the date of enactment, if the Sixteenth Amendment (authorizing the federal income tax) is not repealed by the end of that period. (Thus, the Sales Tax Bureau of the Department of the Treasury continues operating for six months after that December 31.)