You hear one person say the FairTax rate is 23%. Someone else says it is 30%. It sounds like a disagreement about the size of the tax. In this case, they are using different ways to describe the same purchase.
The easiest way to understand it is to look at a receipt.
One purchase, two ways to count
Imagine a purchase with a $100 total, including the proposed federal tax. The seller keeps $77 and the federal tax is $23.
Divide $23 by the $100 total and you get 23%. That is the tax-inclusive rate: the tax is part of the amount you are measuring.
Divide $23 by the $77 price before tax and you get about 29.87%, usually rounded to 30%. That is the tax-exclusive rate: you compare the tax with the price before adding it.
Neither calculation changes the $23 on the receipt. FairTax supporters use the first convention; most shoppers are used to the second when talking about sales tax. The national FairTax FAQ explains both conventions.
What if the price tag says $100 before tax?
That is a different example. If the seller needs to receive $100 before federal tax, the total would be about $129.87, including $29.87 in FairTax. These examples leave out Maine taxes and assume the seller’s price stays fixed.
That last assumption matters. Changing the federal tax system could change business costs and prices. A receipt example explains the rate; it cannot tell us what a particular store would charge after a transition.
The question behind the percentage
For a family planning its budget, the useful question is how much money leaves the household over a month or a year. That means looking at spending, the proposed prebate, and the federal income and payroll taxes the plan would replace.
It also means keeping state taxes in view. Maine’s general sales tax is currently 5.5%, with different rates for some purchases. Those are separate state rules, listed by Maine Revenue Services.
The FairTax is a proposal, so these are examples of how it would work if enacted. For your next conversation about the rate, ask a simple question: “Does that percentage include the tax, or add it to the price?”