Gross Receipts Taxes: The Bad & The Ugly

Overview
Overview of Gross Receipts Taxes
GRTs & Illinois’ Business Tax Burden
GRTs in Other States

Characteristics of Gross Receipts Taxes
Base: Broader Than Economy
Rate: 2-300% Higher Than Stated
Interferes With Market Decisions
Affects different types of businesses differently
Pyramiding encourages vertical integration
Hinders Competitiveness
Increases cost of inputs sourced in-state
Discourages capital investment

State & Local Tax Burden in Illinois
Illinois Businesses Paid $26.7B in FY06
48% of All State/Local Taxes (US Avg. 45%)
Represents 5.3% of GSP (US Avg. 5.1%)
FY02-06:
Business taxes up 37%
53% of all new revenue from business

“Traditional” GRT States
Delaware: 1913 to ?
No sales tax
Frequent rate reductions / exemptions added
West Virginia: 1921 to 1987
Indiana: 1933 to 2002
Washington: 1933 to ?
No income tax
Study committee called for elimination

New Jersey Alternative Minimum Assessment (AMA)
Adopted in 2002
Pay Higher of Income Tax or AMA
Rates:
0.3% “gross receipts”
0.6% “gross profits”
Revenues 40+% Higher Than Projected
Eliminated in 2006

Kentucky Alternative Minimum Calculation (AMC)
Adopted in 2005
License Tax Repealed, CIT Rate Reduction
Nearly Identical to New Jersey AMA
Revenues 90+% Above Projection
Ongoing Reform
Tripled exemption in 2006
Businesses, many Rs, Ds want repeal

Ohio Commercial Activity Tax (CAT)
Adopted in 2005
Franchise & Personal Property Tax Repeal
“ Pure” Gross Receipts Tax
0.26% Rate, Automatic Adjustment
Revenues 27.5% Higher Than Projected
Base Already Being Narrowed (trade ports, fuel, groceries, etc.)

Texas Margins Tax
Adopted in 2006
Part of Court Ordered Ed. Funding Reform
Property Tax Reduction
Gross Receipts Minus:
30% of gross receipts or
Compensation ($300k per employee limit) or
Cost of goods sold
0.5% for Retail/Wholesale, 1% Otherwise

Questions?
Joseph R. Crosby
Legislative Director
202/484-5225
[email_address]

Gross Receipts Taxes: The Bad & The Ugly

by largesttaxincreaseever on Mar 09, 2007

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