National Retail Sales Tax

William G. Gale
William G. Gale The Arjay and Frances Fearing Miller Chair in Federal Economic Policy, Senior Fellow - Economic Studies, Co-Director - Urban-Brookings Tax Policy Center

September 1, 2004

A proposal for 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 sales from businesses to


One proposal for fundamental tax reform is to replace part or all of the current tax system with a
national retail sales tax (NRST). The NRST is one potential form of a consumption tax.

Retail sales occur when businesses sell goods or services to households. Neither business-tobusiness
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 is planning on renting it to others is not a retail sale. Nor is a
sale of an already existing home from one occupant to another.

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