FairTax FAQ's / Retail Industry

How will the FairTax be collected and how will that affect the retail industry?

Retail businesses will collect the tax from the consumer—45 states already have a sales tax system, and the FairTax will simply be an additional line on the current sales tax reporting form. In rare cases, businesses that produce products or services that are not currently taxed under state sales tax codes will have to begin collecting the FairTax for the first time.

Businesses will simply collect the tax and send it to the state taxing authority. All businesses serving as collection agents will receive a fee for collection services, and the states themselves will also be paid a collection fee. The tax revenues from the states will then be sent to the U.S. Treasury. State participation in the FairTax collection system is voluntary and states can choose to outsource their collections to another state.

The retail industry will significantly save money from reduced compliance costs under the FairTax. Retail businesses, along with other businesses, are already tax collectors today. They are required to withhold income and payroll taxes from their employees. Moreover, the vast majority of retail businesses currently operating in states with a sales tax (45 states currently use a sales tax) are already sales tax collectors.

Under the FairTax, retailers would have the responsibility to collect and submit the tax. Those five states who do not have a sales tax will find the FairTax easier and much less expensive than the current confusing and cumbersome tax code. In addition, retailers would be paid a fee equal to one-quarter of one percent of the federal sales taxes they collect and remit. Retailers would no longer need to bear the cost of complying with the income tax, including the uniform capitalization requirements, the various depreciation schemes and employee benefit and pension rules.

The beneficial effects of eliminating income tax compliance costs, no income taxes, and a reasonable fee for collecting the FairTax, will ensure that retailers will do quite well.

 

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