Explanation of national consumption tax: Main differences from income tax
In the United States, sales tax is levied in the form of retail sales tax, excise tax, and customs duty.
Some US states have sales tax rates as high as 10%. Other states impose no sales tax at all.
Sales tax, the category that includes sales tax, is often listed as a footnote at the end of your receipt, but it can still impact your wallet.
Customs duties are also consumption taxes. And thanks to President Donald Trump’s ongoing import tax campaign, tariffs are becoming much more accessible to American taxpayers.
Lawmakers are making great efforts to expand the consumption tax. The FairTax Act of 2025 was the latest bill to abolish the Internal Revenue Service and replace income taxes and other levies with a national sales tax. The bill has not yet been voted on in the House or Senate.
As tax season draws to a close, here’s everything you need to know about the country’s sales tax.
What is the national consumption tax?
Consumption tax is a tax on goods and services, that is, on what you spend, not what you earn. In the United States, sales taxes are levied in the form of retail sales taxes and excise taxes (taxes levied on certain products and activities, such as alcohol and fuel), as well as the aforementioned duties.
A national sales tax would create a federal tax on consumer goods, perhaps outweighing (or replacing) income and payroll taxes.
Does the United States have a national sales tax?
The United States currently does not have a national sales tax. Similar measures are taken in other countries, including Japan, where the standard tax rate is 7.8% and the reduced tax rate is 6.24% on items such as food, beverages, and some newspapers. More than 175 countries, including all of Europe, impose a value-added tax on goods and services at each stage of production.
Sales tax in the United States is determined by state. Almost every state imposes a sales tax, with the exception of Alaska, Delaware, Montana, New Hampshire, and Oregon, which instead allow cities to impose local sales taxes. California has the highest state sales tax rate in the country at 7.25%.
The FairTax Act would eliminate most current federal taxes and introduce a 23% federal sales tax. Tax experts have warned that the bill would primarily benefit the wealthy, who would receive significant tax cuts.
What will happen to the national consumption tax in the future?
According to the nonpartisan Tax Policy Center, the Fair Tax was first introduced in Congress in 1999 and has been reintroduced in each Congress since then. In other words, we can probably expect fairer tax laws in the future.
