Let&#x27;s try on an example:  All revenue is taxed at 20%.  Now this will work for some businesses, as the cost to make the product is low enough, and the sale price high enough, that 20% can be paid and there is still profit left over.  But then there are very low margin, high volume businesses.  They may have only a marginal profit per unit sold due to the nature of what they are selling, leaving no room for 20% tax.<p>So we add in an exception that says &quot;You can deduct from revenue the cost of goods sold&quot; (i.e., tax on net instead of gross).  Now all the business has to do is find ways of hiding profit in the cost of goods sold.<p>Then there are products which contain materials that changed hands many times before it got to the final product.  So if a raw material (lets say, cotton) is the majority expense, it has to go to one company to refine it, a second company to turn it into thread, a third to add color, a fourth to make it into fabric, and finally a fifth company to make a shirt.  So that cotton gets taxed 5 times before it gets sold to the end consumer.<p>So let&#x27;s add another exception, that goods sold for use in making another product aren&#x27;t taxed -- that way, large businesses that produce the entire vertical stack in-house don&#x27;t have an unfair tax advantage against smaller companies.  Gee, now we have another loophole that can be creatively exploited.