A consumption tax is a tax whose base is spending on goods and services, rather than income earned or wealth held, so the same dollar is reached when it is spent instead of when it is earned. Income that is set aside is not reached by the charge until it is spent. The phrase names a base rather than a single charge, and several charges share it.
The Congressional Research Service defines that base as all money spent on goods and services. Under a consumption tax, a taxpayer who makes $100,000 and saves $10,000 a year would only pay taxes on the $90,000 that was spent, while an income tax would reach the full $100,000 (CRS Report R44342, Consumption Taxes: An Overview, updated January 24, 2023).
Which Consumption Taxes a US Firm Meets
The United States levies no broad federal consumption tax. Among countries in the Organisation for Economic Co-operation and Development it is the only one without a broad-based national-level consumption tax (CRS Report R44342). A value added tax is one form of that base, and a US firm meets it on the buy side rather than on a US return, on invoices from vendors abroad, with its stage-by-stage credit machinery worked through in value added tax.
State and local charges come in a pair. A retail sales tax is charged on sales of goods and certain services to the end user, and a use tax reaches goods used in the state when sales tax was not paid, so an item is subject to one or the other and not both (Washington Department of Revenue, Retail sales tax and Use tax).
The federal charges are narrow. Excise taxes on particular goods and services sit in Subtitle D of the Internal Revenue Code, Miscellaneous Excise Taxes, which opens with Chapter 31, Retail Excise Taxes, and Chapter 32, Manufacturers Excise Taxes (26 U.S.C. Subtitle D). Many of them are reported on Form 720, the Quarterly Federal Excise Tax Return, which carries the fuel taxes and a retail tax on truck, trailer and semitrailer chassis and bodies (IRS, Form 720, Rev. June 2026).
Who Remits and Who Bears
Under a sales tax imposed on the buyer, the buyer pays and the seller collects and remits. Washington’s statute is a clean worked case. The tax must be paid by the buyer to the seller, the seller must collect the full amount payable on each taxable sale, and what is collected is deemed to be held in trust until paid to the state department of revenue. Except as that section provides otherwise, a seller who fails to collect it, or collects it and then fails to pay it over, is personally liable to the state for the amount (RCW 82.08.050).
In Washington that exposure can follow individuals out of a closed business. Once a warrant has issued for unpaid trust fund taxes, meaning taxes collected from purchasers and held in trust, against a limited liability business entity that is terminated, dissolved, abandoned or insolvent, that department may pursue responsible individuals, a defined group reaching current and former officers, managers, members and partners. A chief executive or chief financial officer, current or former, is liable regardless of fault, while any other responsible individual is liable only on a willful failure to pay (RCW 82.32.145).
Whether the collected tax is the seller’s own revenue is not automatic. On the return it turns on which party the tax is imposed on rather than on who hands the money to the state (IRS, Instructions for Schedule C (Form 1040), 2025, line 23), and on the books it follows the revenue standard instead, a split worked through in gross sales.
What Consumption Tax Gets Confused With
Consumption answers what is taxed. Direct and indirect answer who ends up out of pocket, and a consumption tax sits on the indirect side (direct tax). Progressive, proportional and regressive answer what the rate does as the base grows (proportional tax). A charge fixed by quantity rather than by value, such as a per-gallon fuel tax, is a specific excise rather than an ad valorem tax (ad valorem tax).
Common Questions
There is no clean synonym, because the phrase names a base and not a charge. In US practice the charges keep their own names, sales tax, use tax and excise tax. The broad international form is the value added tax, which the OECD calls a tax on final consumption and the main consumption tax worldwide (OECD, Consumption taxes).
The main criticism follows from the base, and it turns on how the burden is measured. Against annual income a consumption tax tends to be regressive, since higher-income individuals tend to save a greater proportion of their income, so a larger portion of income from lower-income individuals would be subject to the tax. Against lifetime income it generally approaches proportionality, because lifetime consumption tends to approximate lifetime income (CRS Report R44342).
Accountably places trained offshore accountants and tax preparers inside US CPA and EA firms, and a firm can put a block of its own sales tax and compliance work through a trial task before a client file depends on it.
