Introduction

The tax levied by the states on the gross sales or receipts on a business is a gross receipts tax and is different from a normal corporate tax which is sometimes also called a gross excise tax and the producer passes it to the consumer. When compared to other types of taxes the gross receipts tax are not directly added to the listed-price of the good and they are not a markup-factor or profit on sales, means, they are not adjusted according to the margin between the cost and price of the product.

The gross receipts taxes are criticized by the economists for, promoting vertical integration among organizations and imposing diverse rates of effective-tax for different industries. In vertical integration companies are united by a common owner in a supply chain. Partial exemptions from the gross receipts tax is allowed by some of the states in the US and some businesses enjoy exemption, as well. The states of Arizona, Delaware, Hawaii, Illinois, Mississippi, New-Mexico, Ohio, Pennsylvania, West-Virginia and Washington impose some types of gross receipts tax.

States in US levying Gross receipt tax

The state of Arizona levies transaction privilege tax (TPT) is a kind of gross receipts tax, for doing business in the state which is somewhat different from an ordinary sales tax imposed by the other states of the country because it aims the seller rather than a purchaser. The gross receipts taxes on the business and occupations in the state of Delaware are from 0.096 percent to 1.92 percent, depending on the level of economic activity.

The General Excise Tax (GET) is around 4 percent in Hawaii and uses the gross income of businesses to decide the actual amount. Illinois is planning to increase its gross receipts tax by 1 percent to improve the condition of its education-system. Mississippi uses a 3.5 percent contractor’s tax on all constructions, residential and non-residential, on the total amount of the contract. In New-Mexico, the gross receipt tax ranges from 5.125 percent to 7.875 percent. Commercial Activity Tax (CAT) is popular in Ohio. In Pennsylvania the tax is 5 or 5.9 percent. Washington and West-Virginia applies Business and Occupation Tax (BOT).

Consequences

Generally, the gross receipts taxes are very simple in their structure because they are directed to transactions for which they are compared to taxes on retail sales, but that’s only partially true. As opposed to sales taxes which aim final sales, the gross receipts is for all transactions, from raw materials to intermediate goods to equipments, which results in taxes at every level of production, different from sales and other taxes.

The ease in administering them and their proper by the companies are often counted as its merits against the corporate income tax. More, the tax base offered by the gross receipts taxes, without exerting the tax payer much is more striking from the point of view of revenue generation which makes it a favorite of policy-makers and politicians. But the shortcomings of the gross receipt taxes, discussed in the economic literature, suggest that they are too good from the point of their structure.