When I first read the report about the Fair Tax proposal, I was impressed, except for the Prebate. The prebate requires that the Government keep records of every citizen, at least residence, in order to send the check. Not a comforting thought for the Libertarian in me. Also, the paperwork could be damaging for the small business man, my good friend, for example. He runs a small lawn care business. So far, so good, but occasionally he has to buy things for his customers, fertilizer, or lawn seed for example. I can see the fair tax paperwork costing him more than his profits on these items, plus what he may be able to deduct for expenses (gas, oil, trimmer string, etc.)
I can imagine it would be similar in any small business.