A gross receipts tax or gross excise tax is a tax 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.[1]

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.[2]

Criticism

Economists have criticized gross receipts taxes for encouraging vertical integration among companies and imposing different effective tax rates across different industries.[3]

United States

Several states in the United States have imposed gross receipts taxes.

In addition to these states, Texas has a "margin tax" on certain corporate net revenues.

See also

Notes

  1. ^ "Gross Receipts Tax". AIA Kansas. 1995-11-17. Archived from the original on 2006-09-29. Retrieved 2007-02-04.
  2. ^ a b State of Hawaii, Department of Taxation (March 2020). "Tax Facts 37-1: General Excise Tax" (PDF). Honolulu. p. 1, fn. 3. Retrieved 19 December 2020. 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."
  3. ^ Chamberlain, Andrew; Fleenor, Patrick (2006-12-01). "Tax Pyramiding: The Economic Consequences of Gross Receipts Taxes" (PDF). Tax Foundation. Retrieved 2007-02-21.
  4. ^ "Alabama Code - Article 3: UTILITY GROSS RECEIPTS TAX". State of Alabama.
  5. ^ "Gross Receipts Taxes". State of Delaware. 2006-06-14. Archived from the original on 2007-02-25. Retrieved 2007-02-04.
  6. ^ "Florida Dept. Of Revenue - Florida Dept. Of Revenue". Florida Dept of Revenue. Retrieved 2013-12-14.
  7. ^ "The war of the 'woulds'". Chicago Tribune. 2007-02-09. Retrieved 2007-02-12.
  8. ^ "Nevada Approves Commerce Tax, A New Tax on Business Gross Receipts - Tax Foundation". Tax Foundation. 2015-06-08. Retrieved 2017-02-17.
  9. ^ "Gross Receipts Taxes" (PDF). State of New Mexico. Archived from the original (PDF) on 2007-03-31. Retrieved 2007-02-04.
  10. ^ "State of Oregon: Businesses - Corporate Activity Tax (CAT)". www.oregon.gov. Retrieved 2022-11-16.
  11. ^ "Commercial Activity Tax (CAT): Table of Contents". Ohio Department of Taxation. Retrieved 16 November 2022.
  12. ^ "Revenue: Gross Receipts Tax". Pennsylvania Department of Revenue. 2005-02-15. Archived from the original on August 11, 2007. Retrieved 2009-05-18.
  13. ^ City of Philadelphia. "Business Income and Receipts Tax (BIRT)". Retrieved 6 December 2018.