In this paper, we study optimal tax and auditing policy in an economy where consumers play a role in enforcing compliance with the tax code on the part of the firms. In particular, we model an environment where firms can evade retail sales tax, the government can engage in standard auditing and enforcement procedures as well as reward households for a role of individual tax enforcers. Upon the purchase of goods and services agents have to decide whether or not they will request a receipt for their purchase. This request is costly in terms of time and consumers might decide not to engage in such activity, which we denote individual auditing. We characterize optimal sales taxes, auditing probabilities (executed by tax authorities) and optimal rebates for the consumers. We show that the optimal tax rebate rate is in general positive and higher than the audit probability. If the unit cost of audit is zero, the government will set the retail sales tax and the audit probability such that the expected penalty for tax evasion is equal to the retail tax. If a consumer spends a fixed amount of his time regardless the proportion of his purchases he asks for a receipt, the optimal tax rebate rate is zero. Finally, we show that the rate of substitution between audit probability and rebate rate should be equal to marginal rate of substitution (utility constant) and that the distortion on optimal quantities should be lower the larger is the effect of the policy on tax revenues comparatively to prices.