National Retail Sales Tax: What is it?
The national retail sales tax is a proposed fundamental tax reform that would replace the income tax system with a consumption tax, to be collected by levying a flat-rate tax on all retail sales from businesses to households.
- Retail sales occur when businesses sell goods or services to households. Neither business-to business nor household-to-household transactions are retail sales. For example, the sale of a newly constructed home to a family that will occupy it is a retail sale. But the sale of that same newly constructed home to a business that intends to rent it to others is not a retail sale, nor is the sale of an existing home from one occupant to another.
- A pure national retail sales tax would represent a sharp break from the current tax system. The tax base would shift from income to consumption. Rates would be flat. All special exemptions, deductions, and credits would be eliminated. Tax administration, enforcement, and points of collection would be radically altered.
- No country in the history of the world has enacted a retail sales tax at anywhere near the rates that would be required to replace the U.S. tax system. Whether such a tax could be implemented effectively is therefore an open question.