Gross receipts taxes
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A gross receipts tax or gross excise tax is a
tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...
on the total gross revenues of a company, regardless of their source. A gross receipts tax is often compared to a sales tax; the difference is that a gross receipts tax is levied upon the seller of goods or services, while a sales tax is nominally levied upon the buyer (although both are usually collected and paid to the government by the seller). This is compared to other taxes listed as separate line items on billings, are not directly included in the listed price of the item, and are not a factor in markup or profit on company sales. A gross receipts tax has a pyramid effect that increases the actual taxable percentage as it passes through the product or service lifecycle. Another pyramid effect of the tax comes from the fact that such a tax by definition is levied against itself (in the sense that a business subject to a gross receipts tax will raise its prices to compensate, which in turn increases its gross revenue, which increases the tax owed, and so on in circles) and therefore amounts to a tax on tax. Thus, the actual tax rate of a gross receipts tax is always slightly higher than the nominal tax rate. This is easiest to discern in jurisdictions like Hawaii where businesses are allowed to visibly pass on gross excise tax to their customers. As this source explains: "The maximum rate is greater than the tax rate because businesses are taxed on their gross receipts including GET that is charged to customers. This rate allows businesses to cover their entire GET expense."


Criticism

Economists have criticized gross receipts taxes for encouraging
vertical integration In microeconomics, management and international political economy, vertical integration is a term that describes the arrangement in which the supply chain of a company is integrated and owned by that company. Usually each member of the suppl ...
among companies and imposing different effective tax rates across different industries.


United States

Several states in the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...
have imposed gross receipts taxes. *
Alabama (We dare defend our rights) , anthem = "Alabama" , image_map = Alabama in United States.svg , seat = Montgomery , LargestCity = Huntsville , LargestCounty = Baldwin County , LargestMetro = Greater Birmingham , area_total_km2 = 135,765 ...
- Per Article 3 of the code of Alabama, the state has imposed this type of tax on most utilities. *
Delaware Delaware ( ) is a state in the Mid-Atlantic region of the United States, bordering Maryland to its south and west; Pennsylvania to its north; and New Jersey and the Atlantic Ocean to its east. The state takes its name from the adjacent Del ...
- Business and occupational gross receipts tax rates range from 0.096% to 1.92%, depending on the business activity. *
Florida Florida is a state located in the Southeastern region of the United States. Florida is bordered to the west by the Gulf of Mexico, to the northwest by Alabama, to the north by Georgia, to the east by the Bahamas and Atlantic Ocean, and to ...
- A tax of 2.5% is imposed on "gross receipts from the sale, delivery, or transportation of natural gas, manufactured gas, or electricity to a retail consumer in Florida," referring to utility companies (suppliers of electrical power). *
Hawaii Hawaii ( ; haw, Hawaii or ) is a state in the Western United States, located in the Pacific Ocean about from the U.S. mainland. It is the only U.S. state outside North America, the only state that is an archipelago, and the only state ...
- Hawaii imposes its General Excise Tax (GET) as a gross receipts tax on all business done in Hawaii, at 0.5% for wholesaling and manufacturing, 0.15% for insurance commissions, and 4% (4.5% in
Honolulu County Honolulu County (officially known as the City and County of Honolulu, formerly Oahu County) is a consolidated city–county in the U.S. state of Hawaii. The city–county includes both the city of Honolulu (the state's capital and largest cit ...
) for all other activities. Businesses may pass on the GET as a sales-tax-like surcharge but are not required to do so. *
Illinois Illinois ( ) is a state in the Midwestern United States. Its largest metropolitan areas include the Chicago metropolitan area, and the Metro East section, of Greater St. Louis. Other smaller metropolitan areas include, Peoria and Rockf ...
- Illinois policy makers are considering a 1% gross receipts tax to increase the foundation level for Illinois public schools, as well as to fund a host of educational accountability initiatives. The tax is expected to generate enough revenue to replace the state share of the retail sales tax, corporate franchise taxes, and corporate income taxes. Proponents claim that it is simple for both the government and business to administer, easy for the public to understand, broad-based, stable, and progressive. An editorial article in the ''
Chicago Tribune The ''Chicago Tribune'' is a daily newspaper based in Chicago, Illinois, United States, owned by Tribune Publishing. Founded in 1847, and formerly self-styled as the "World's Greatest Newspaper" (a slogan for which WGN radio and television a ...
'' called it "the best idea" for education funding reform, but some statewide business leaders have rushed to condemn it. *
Nevada Nevada ( ; ) is a state in the Western region of the United States. It is bordered by Oregon to the northwest, Idaho to the northeast, California to the west, Arizona to the southeast, and Utah to the east. Nevada is the 7th-most extensive, ...
- Nevada adopted a Commerce Tax in 2015. Businesses are taxed on Nevada gross receipts in excess of $4 million at a rate varying from 0.051% to 0.331%, depending upon economic sector. *
New Mexico ) , population_demonym = New Mexican ( es, Neomexicano, Neomejicano, Nuevo Mexicano) , seat = Santa Fe , LargestCity = Albuquerque , LargestMetro = Tiguex , OfficialLang = None , Languages = English, Spanish ( New Mexican), Navajo, Ke ...
- The gross receipts tax rate varies throughout the state from 5.125% to 8.6875% with local option taxes imposed at the city and county levels, added to the statewide base tax rate of 5%. *
Oregon Oregon () is a state in the Pacific Northwest region of the Western United States. The Columbia River delineates much of Oregon's northern boundary with Washington, while the Snake River delineates much of its eastern boundary with Idaho. T ...
- Oregon levies a Commercial Activity Tax on businesses with more than $1 million of taxable revenue per year. This tax is equal to $250 plus 0.57% of the taxpayer's revenue. *
Ohio Ohio () is a state in the Midwestern region of the United States. Of the fifty U.S. states, it is the 34th-largest by area, and with a population of nearly 11.8 million, is the seventh-most populous and tenth-most densely populated. The sta ...
- Ohio imposes a Commercial Activity Tax on businesses with taxable gross receipts of $150,000 or more per year. *
Pennsylvania Pennsylvania (; ( Pennsylvania Dutch: )), officially the Commonwealth of Pennsylvania, is a state spanning the Mid-Atlantic, Northeastern, Appalachian, and Great Lakes regions of the United States. It borders Delaware to its southeast, ...
- Either 5% or 5.9% for most applicable industries. Tax stands at 1% for private bankers, and the tax on
natural gas Natural gas (also called fossil gas or simply gas) is a naturally occurring mixture of gaseous hydrocarbons consisting primarily of methane in addition to various smaller amounts of other higher alkanes. Low levels of trace gases like carbo ...
was repealed during the industry's deregulation. The City of
Philadelphia Philadelphia, often called Philly, is the List of municipalities in Pennsylvania#Municipalities, largest city in the Commonwealth (U.S. state), Commonwealth of Pennsylvania, the List of United States cities by population, sixth-largest city i ...
additionally imposes a Business Income and Receipts Tax, a portion of which is based on gross receipts.{{cite web , author1=City of Philadelphia , author-link1=Philadelphia , title=Business Income and Receipts Tax (BIRT) , url=https://www.phila.gov/services/business-self-employment/business-taxes/business-income-receipts-tax-birt/ , access-date=6 December 2018 *
Washington Washington commonly refers to: * Washington (state), United States * Washington, D.C., the capital of the United States ** A metonym for the federal government of the United States ** Washington metropolitan area, the metropolitan area centered o ...
- Business and Occupation Tax (B&O). In addition to these states,
Texas Texas (, ; Spanish: ''Texas'', ''Tejas'') is a state in the South Central region of the United States. At 268,596 square miles (695,662 km2), and with more than 29.1 million residents in 2020, it is the second-largest U.S. state by ...
has a " margin tax" on certain corporate net revenues.


See also

*
Sales taxes in the United States Sales taxes in the United States are taxes placed on the sale or lease of goods and services in the United States. Sales tax is governed at the state level and no national general sales tax exists. 45 states, the District of Columbia, the t ...
*
Turnover tax A turnover tax is similar to VAT, with the difference that it taxes intermediate and possibly capital goods. It is an indirect tax, typically on an ad valorem basis, applicable to a production process or stage. For example, when manufacturing act ...


Notes

Sales taxes Taxation in the United States