Read #43 for a general answer.
To the specific situation, say for example a farmer sells a chunk of his land to purchase a new tractor. That tractor price has a lot of embedded taxes in it that were paid to produce it and are passed on to the buyer.
So the farmer is paying a price that has hidden taxes in it.
After the FairTax is passed, a new tractor won’t have those embedded taxes. The farmer can apply for exemption from FairTax by claiming and documenting that a pre-FairTax equity sale was used for the purchase.
After a number of years in transition from Income Tax to FairTax, these type situations will disappear.
If you got an itch to hate on the FairTax, read #22 above.
Have you really thought this through? Because it's not just the farmer, it's hundreds of millions of Americans with any savings or investments as of the date the new system is implemented.
As of that date and forevermore they're going to have to keep those funds separate from all other income, including income from those investments.
And every purchase made with those funds will have to be documented to the taxing authorities along with proof that no post tax funds were used.
For people with after-tax retirement accounts this will be necessary for the rest of their lives.
What size bureaucracy do you think will be necessary to verify all these purchases and distribute the refunds?
A brilliant scheme that can't be implemented in the real world isn't brilluant.
And transitioning/detransitioning every 7 years is the opposite of brilliant.