What Is a Gross Receipts Tax (GRT)?

Definition

A gross receipts tax (GRT) is a state tax on the gross sales of a business. States often impose gross receipt taxes in lieu of a corporate tax or sales tax.

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Key Takeaways

  • A gross receipt tax (GRT) is a state tax on the gross sales of a business.
  • States often impose a gross receipts tax in lieu of a corporate income tax or sales tax.
  • Not all states have GRT, and the tax does not apply to all types of businesses.
  • Because of the way GRT is calculated, it can lead to tax pyramiding and cost a lot of money.

How Does a Gross Receipts Tax (GRT) Work?

It's sometimes referred to as a gross excise tax and it's usually passed through to the consumer in the way of higher prices. When a retailer knows this tax is looming on the horizon, a $6 bag of coffee might be priced at $6.25. 

Gross receipts taxes might look like sales taxes at first glance, but they tax the sellers, not the retail buyers, at least directly. They're imposed at several levels and even between businesses in the purchase of raw materials, supplies, and transportation. 

The Tax Foundation has said that these taxes "create an extra layer of taxation at each stage of production that sales and other taxes do not—something economists call 'tax pyramiding'.”

Gross Receipts Taxes vs. Value-Added Taxes

You might have heard of the value-added (VAT) tax that can be imposed on all the steps in the process of making, distributing, and selling a product. The consumer pays the VAT tax but the businesses along the way can get their portion of the tax refunded. So, unlike the gross receipts tax, the VAT tax isn't really a tax on businesses but on consumers.

Gross Receipts Taxes vs. Income or Franchise Taxes 

Some states tax the incomes of businesses, but in most cases that taxable income is net income—sales minus expenses. The gross receipts tax doesn't deduct expenses. Other states have franchise taxes, which are similar to income taxes, but they only apply to franchise businesses.

States With Gross Receipts Taxes

Delaware, Ohio, Washington state, Oregon, Tennessee, Nevada, Texas, and New Mexico all have a state GRT of some sort. But nearly all states have some sort of GRT, maybe just not at the state level. These could be taxes based on county or municipality and apply to certain businesses.

Each state that has a GRT decides individually what receipts are included or not included in the calculation. Here are some examples from a few of the states that have a gross receipts tax or similar tax:

Delaware

The Division of Revenue imposes a gross receipts tax on the total receipts of a business, regardless of where the money came from. Delaware's gross receipts tax rates range from .0945% to .7468%, as of September 2022.

New Mexico

New Mexico does not have a sales tax, but instead, it has a gross receipts tax. The state taxes gross receipts that generate sales from selling property in the state, leasing or licensing property employed in the state, granting the right to franchise in the state, performing services in the state, and selling research and development services performed outside of the state.

Ohio

The Commercial Activity Tax, which is basically a gross receipts tax on all businesses, is an annual minimum tax based on the amount of taxable gross receipts. Businesses in Ohio must pay this tax if they have total gross receipts of $150,000 or more per year. The state issues a long, detailed list of receipts that are and aren't included, but basically taxable gross receipts include sales of property—including intellectual property—as well as the performance of services and rents. 

Note

Some states allow some deductions from the gross receipts tax and some types of businesses may be exempt from these taxes. Check your state's Department of Revenue for more information about your particular state, including pending and passed legislation. 

Frequently Asked Questions (FAQs)

How do you calculate gross receipts for taxes?

The gross receipts tax (GRT) is a percentage and it's applied to your business' total gross sales. For example, Washington’s Business and Occupation Tax has a high GRT of 3.3%. While that is only applied to certain businesses that dispose of low-level radioactive waste, if it applied to your business, which, say, brought in $1 million last year in sales, that tax could cost a pretty penny: $33,000.

What is not included in gross receipts?

Gross receipts tax (GRT) includes all gross sales—both from business-to-business transactions and customer sales. It's calculated before costs and expenses are subtracted from gross sales. GRT also doe not include taxes collected and remitted to a tax authority, money collected for someone else by a third party, like a travel agent or real estate agent, or proceeds from transactions between a concern and its domestic or foreign affiliates.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Tax Foundation. "Does Your State Have a Gross Receipts Tax?"

  2. Tax Foundation. "Value-Added Tax (VAT)."

  3. Comptroller.Texas.gov. "Franchise Tax."

  4. Tax Foundation. "Gross Receipts Tax (GRT)."

  5. Delaware Division of Revenue. "Gross Receipts Tax FAQs."

  6. Taxation Revenue and New Mexico. "Gross Receipts Tax."

  7. Ohio Department of Taxation. "Commercial Activity Tax (CAT)."

  8. Georgia State University. "Alternative State Business Tax Systems."

  9. Cornell Law School Legal Information Institute. "13 CFR § 121.104 - How Does SBA Calculate Annual Receipts?"

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