Which States Have a Gross Receipts Tax?

A gross receipts tax (GRT) is a business tax levied on a company’s total revenue from sales, without deductions for business expenses like cost of goods sold, compensation, or overhead. This differs significantly from taxes based on net income or profit. States implement these taxes as an alternative or supplement to other business taxes, aiming to capture revenue at various stages of the production process. The broad application of a GRT means that even businesses with low profit margins or those operating at a loss may still incur a tax liability.

States with Gross Receipts Taxes

Several states currently impose a statewide gross receipts tax, though they may go by different names and have unique applications. Delaware levies a Gross Receipts Tax on businesses selling goods or providing services within the state. Ohio implements a Commercial Activity Tax (CAT), which is an annual privilege tax measured by gross receipts from business activities in the state. Similarly, Washington imposes a Business and Occupation (B&O) Tax, measured on the value of products, gross proceeds of sale, or gross income of the business.

Nevada enacted a Commerce Tax, which applies to businesses with gross revenue exceeding a certain threshold within the state. Oregon introduced a Corporate Activity Tax (CAT), measured on a business’s commercial activity, or the total amount a business realizes from transactions and activity within Oregon. Texas imposes a Margin Tax, often considered a form of gross receipts tax, which is based on a taxable entity’s margin calculated from total revenue with certain deductions. Tennessee’s tax structure includes a business tax that has components based on gross receipts, although its primary business tax is the Franchise and Excise Tax based on net worth and net earnings.

Key Characteristics of Gross Receipts Taxes

Rates for gross receipts taxes can vary significantly, often depending on the industry or type of business activity. Some states apply different rates for retailing, wholesaling, manufacturing, or service activities. Many GRTs include thresholds below which businesses are exempt from filing or payment, providing relief for smaller enterprises. For example, some states may exempt businesses with annual gross receipts below several million dollars.

The concept of “nexus” is important for GRTs, determining what level of business activity triggers a tax obligation in a state. Economic nexus rules mean that businesses can be subject to GRT even without a physical presence, based on their revenue generated from transactions within the state. While certain exclusions or deductions might exist, such as for intercompany transactions or specific types of revenue, these are generally limited compared to income taxes.

Gross Receipts Tax Compared to Other Business Taxes

A gross receipts tax fundamentally differs from corporate income tax and sales tax due to its tax base. Corporate income tax is levied on a business’s net income or profit, meaning revenues minus allowable expenses. This structure allows businesses to deduct costs of doing business, such as wages, rent, and materials, before calculating their tax liability.

Sales tax, while also based on sales, is typically levied on the consumer at the point of sale and collected by the seller, who then remits it to the government. The sales tax applies to the final retail price of goods and services. A gross receipts tax, however, is a tax on the business itself, assessed on its total sales or commercial activity, and is not separately stated or collected from the customer. This distinction means GRTs can be imposed at multiple stages of the production and distribution chain, leading to a “tax pyramiding” effect where the tax burden compounds as goods move through the economy.