A gross receipt tax (GRT) is a state tax on the gross revenues of a business. Gross receipts tax is similar with sales tax, but the two are inherently different.
Sales tax is paid by the consumer based on the amount purchased. This is not an expense to the business owner because the amount owed to the taxing authority is no more than what the customer has paid. On the other hand, the gross receipts tax is a percentage of revenue received. Although some states do not charge sales tax on services rendered, you still must pay gross receipts taxes on the amount that you collect for those services.
Gross receipts tax impact firms with low profit margins and high production volumes, as the tax does not account for a business’ costs of production, as a corporate income tax would.
Each state that has the authority to decide individually what receipts are included or not included in the GRT calculation. The followings are some examples that have a gross receipt or similar tax.
Delaware: Delaware does not impose a state or local sales tax but does impose a gross receipts tax on the “gross receipts” of a business received from goods sold and services rendered in the State. There are no deductions for the cost of goods or property sold, labor costs, interest expense, discount paid, delivery costs, state or federal taxes, or any other expenses allowed. The gross receipts tax rates range from 0.0945% to 1.9914%, depending on the business activity.
Washington: The state B&O tax is a gross receipts tax. Washington, unlike many other states, does not have an income tax. Washington’s B&O tax is calculated on the gross income from activities without deductions for labor, materials, taxes, or other costs of doing business.
Ohio: The commercial activity tax (CAT) is basically a gross receipts tax on all businesses in Ohio. Businesses with Ohio taxable gross receipts of $150,000 or more per calendar year must register for the CAT, file all the applicable returns, and make all corresponding payments.
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