Gross receipts taxes might look like sales taxes at first glance, but they tax the sellers, not the retail buyers, at least directly. They’re imposed at several levels and even between businesses in the purchase of raw materials, supplies, and transportation. The Tax Foundation has said that these taxes “create an extra layer of taxation at each stage of production that sales and other taxes do not—something economists call ’tax pyramiding’.”
Gross Receipts Taxes vs. Value-Added Taxes
You might have heard of the value-added (VAT) tax that can be imposed on all the steps in the process of making, distributing, and selling a product. The consumer pays the VAT tax but the businesses along the way can get their portion of the tax refunded. So, unlike the gross receipts tax, the VAT tax isn’t really a tax on businesses but on consumers.
Gross Receipts Taxes vs. Income or Franchise Taxes
Some states tax the incomes of businesses, but in most cases that taxable income is net income—sales minus expenses. The gross receipts tax doesn’t deduct expenses. Other states have franchise taxes, which are similar to income taxes, but they only apply to franchise businesses.
States With Gross Receipts Taxes
Delaware, Ohio, Washington state, Oregon, Tennessee, Nevada, Texas, and New Mexico all have a state GRT of some sort. But nearly all states have some sort of GRT, maybe just not at the state level. These could be taxes based on county or municipality and apply to certain businesses. Each state that has a GRT decides individually what receipts are included or not included in the calculation. Here are some examples from a few of the states that have a gross receipts tax or similar tax:
Delaware
The Division of Revenue imposes a gross receipts tax on the total receipts of a business, regardless of where the money came from. Delaware’s gross receipts tax rates range from .0945% to .7468%, as of September 2022.
New Mexico
New Mexico does not have a sales tax, but instead, it has a gross receipts tax. The state taxes gross receipts that generate sales from selling property in the state, leasing or licensing property employed in the state, granting the right to franchise in the state, performing services in the state, and selling research and development services performed outside of the state.
Ohio
The Commercial Activity Tax, which is basically a gross receipts tax on all businesses, is an annual minimum tax based on the amount of taxable gross receipts. Businesses in Ohio must pay this tax if they have total gross receipts of $150,000 or more per year. The state issues a long, detailed list of receipts that are and aren’t included, but basically taxable gross receipts include sales of property—including intellectual property—as well as the performance of services and rents.
