What is a Gross Receipts Tax?
A gross receipts tax is imposed on a business’s total income, regardless of source. Favored by politicians because it will usually raise significant amounts of revenue at apparently low rates, it’s criticized by economists and policy analysts because it exerts a great influence on the marketplace, it is not transparent, and it will ultimately shift a disproportionate amount of the tax burden to high-volume, low-profit companies. In the United States, few states impose this tax, but the concept is periodically revived and reviewed by states seeking to enhance their revenues. In those states that do impose it, the tax rate is below 1% except in New Mexico, where the gross receipts tax, at 5%, functions as the state’s sales tax as well. Most jurisdictions permit few, if any, deductions or other adjustments to gross receipts taxes due.
