First, the prebate is paid out to everyone who is a legal resident of the State of Michigan, no bureaucracy involved.  If you're an adult legal resident of this state, then you get the check every month; otherwise, not.

Who fact checks the residency?  How about all of those dead residents who vote.  How about residents who don't vote or have a driver's license?  Set up a tax; set up a bureaucracy.  Axiomatic.

Second, you pay taxes on food and services right now, even though you clearly don't realize it.  Every business (including grocery stores and service providers) has to pass on all of its costs (including tax liability) in order to stay profitable.  Thus, the taxation that you pay is currently hidden from your view.

I agree, many businesses will replace paying taxes only to becoming tax collectors... a small price to pay if they can be more competitive.

The National FairTax will replace only the federal tax structure, each state is free to set up its own state tax structure, in whatever form suits it.  That, like it or not, is the beauty of a free country.  Yes, the states will have to compete with each other . . . that is the beauty of the Founders' design.

You've conveniently avoided the issue of no-taxation on online purchases, but I'll presume you believe that the out-of-state businesses will be less competitive so the avoidance of nearly 10% of the purchase price is a wash.