Some U.S. states have sales tax rates as high as 10%. Other states impose no sales tax at all.
Consumption tax, the category that includes sales tax, is often a footnote at the end of a receipt, but it can impact your wallet all the same.
A tariff is also a consumption tax. And tariffs are becoming quite familiar to American taxpayers, thanks to President Donald Trump’s ongoing campaign of import taxes.
Members of Congress make perennial efforts to expand consumption taxes. The FairTax Act of 2025 was the latest bid to abolish the Internal Revenue Service and replace income tax and other levies with a national sales tax. The measure has yet to reach a vote in the full House or Senate.
With tax season winding down, here’s everything you need to know about a national consumption tax.
What Is a National Consumption Tax?
Consumption tax is a tax on goods or services – what you spend, rather than what you earn. In the United States, consumption tax comes in the form of retail sales tax and excise tax (tax imposed on certain goods or activities, like alcohol or fuel), as well as the aforementioned tariffs.
A national consumption tax would create a federal tax on consumer goods, possibly to be emphasized over (or even replace) income tax and payroll tax.
Does the U.S. Have a National Consumption Tax?
The United States does not currently have a national consumption tax. Other countries do, including Japan, which has a 7.8% standard and 6.24% reduced tax rate for items like food, drink and some newspapers. More than 175 countries, including all of Europe, impose a Value-Added Tax, which taxes goods and services at each stage of production.
Consumption taxes in the United States are on a state-by-state basis. Almost every state imposes sales tax, except for Alaska, Delaware, Montana, New Hampshire, and Oregon, which instead allows cities to charge a local sales tax. California boasts the country’s highest state sales tax rate at 7.25%.
The FairTax Act would eliminate most current federal taxes in favor of a 23% federal sales tax. Tax experts have warned the act would mostly benefit the wealthy, who would see major tax cuts.
What Is the Future of the National Consumption Tax?
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. In other words, you can probably expect more Fair Tax legislation in the future.
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