How does the FairTax affect border issues like "shopping across the border" in Canada or Mexico?
It is unlikely that shopping across the border will have many real advantages for most Americans beyond what the current system offers. Due to the repeal of US corporate taxes and all the costly effort required to pay them, under the FairTax, American businesses will be able to sell their products for less when foreign businesses still have corporate taxes.
Further, you must have a passport to drive across the border into Canada or Mexico. Every time you cross the border the passport will be scanned. State sales tax authorities would be able to use that data to collect any tax from consumers coming back to the US bringing in goods. Trucks must have a bill of lading listing the contents of the truck and taxes are collected when the border is crossed.
There are provisions in the FairTax relating to buying goods outside the country as well. If something is purchased outside the country for use in the United States then it is taxable under the FairTax. When any good is brought into the US, the FairTax will be collected along with all applicable customs duties by customs officials as is done today.
This issue is already being routinely addressed in countries with a Value Added Tax (VAT) which, like the FairTax, taxes final consumption. Here is how it works. Let’s say, for example, a US citizen spends the summer teaching at Oxford in England and his wife ships him a DVD player via FedEx. The FedEx delivery person presents the man with an invoice from the government for the VAT tax on that DVD player. Final consumption occurred in England so the VAT is due. This same process would be used to collect the FairTax. Customs services and shippers like UPS and FedEx already have automated processes in place to collect such taxes.
And if you are making an Internet purchase, it is very likely that there will be a credit card transaction to trace if need be. Also, under these conditions, you would not declare a value for the item, just present the sales receipt.