Home Consumption Taxes Gross Receipt Tax at a Glance

Gross Receipt Tax at a Glance

Gross Receipt Tax at a Glance

Gross Receipt Tax, also known as GRT, is a tax on the total income a business generates from its sales. GRT is based on the gross receipts of the business and is generally assessed as a percentage of the total receipts. Different states in the United States have their own laws and regulations regarding GRT, but this article focuses on the basics of this type of tax.

History of Gross Receipts Tax

Although GRT is commonly associated with state and local taxes, it was first used by the federal government during the Civil War. It was a means for the government to generate revenue to fund the war effort. At the time, the tax was levied on a variety of goods and services, such as tobacco, matches, and soap.

Over the years, the implementation of GRT has evolved. It has been adopted by many states and municipalities to raise revenue for public services, such as education, infrastructure, and public safety. Some states have even incorporated GRT into their tax structures as a primary source of revenue.

How Gross Receipts Tax Works

A gross receipts tax is levied on the total income a business earns from its sales. This includes all money collected from the sale of goods and services, as well as income generated by other means, such as rent, royalties, and interest.

The tax is calculated as a percentage of the total receipts, which can be different for each state. For example, New Mexico has a GRT rate of 5.125%, while Ohio has a GRT rate of 0.26%.

One key feature of GRT is that it is assessed on the gross receipts of a business, not its profits. This means that even if a business is not profitable, it may still owe GRT. This can be a challenge for small businesses, especially those that are just starting out.

For example, let’s say a small business earns $100,000 in revenue in a year. If the GRT rate is 5%, the business would owe $5,000 in GRT. Even if the business only made a $10,000 profit that year, it would still owe the full $5,000 in GRT.

Gross Receipts Tax vs. Sales Tax

GRT is often confused with sales tax, but there are some key differences between the two. Sales tax is assessed on the final sale of goods and services to consumers, while GRT is assessed on the total income a business generates from its sales.

This means that sales tax is only charged to the end consumer, while GRT is charged to all businesses that generate revenue. In addition, sales tax is usually a flat rate that is added to the price of the goods or services being sold. GRT, on the other hand, is calculated as a percentage of the total receipts.

Another key difference between GRT and sales tax is how the revenue is allocated. In most states, sales tax revenue is used to fund various public services, such as schools, roads, and public safety. GRT revenue, on the other hand, is often used to fund general government expenses, such as salaries, pensions, and debt service.

Pros and Cons of Gross Receipts Tax

GRT has both advantages and disadvantages for businesses and governments. Here are some of the pros and cons of this type of tax:


Broad-Based Revenue: GRT is assessed on the total income a business generates, regardless of the source of the revenue. This means that it can capture revenue from all types of businesses, including those that may not be subject to other types of taxes, such as income tax.

Stable Revenue Source: GRT is based on the total receipts a business generates, which means that it can be more stable and predictable than other types of taxes. This is because businesses are less likely to alter their behavior based on changes in the tax rate.

Simple and Efficient: GRT is a relatively simple tax to administer, as it is based on a single factor (total receipts) and is often collected along with other taxes, such as sales tax or use tax.


Burden on Small Businesses: GRT can be particularly challenging for small businesses, especially those that are just starting out and may not yet be profitable. This is because GRT is based on gross receipts, not profits, which means that even businesses that are not making money may still owe GRT.

Disincentive for Growth: GRT can also be a disincentive for businesses to grow and expand. This is because the tax is based on total receipts, which means that as a business grows and generates more revenue, it will also owe more in GRT.

Complexity of Rates: GRT rates can be complicated, especially for businesses that operate in multiple states or jurisdictions. This is because each state may have its own GRT rate, and businesses may need to keep track of different rates for different types of sales.

Gross Receipts Tax in the United States

Gross receipts taxes have been adopted by many states and municipalities throughout the United States. The following is an overview of GRT in some of the most populous states:


California does not have a statewide GRT. However, some cities and counties in California do have their own gross receipts tax. For example, San Francisco has a GRT that ranges from 0.16% to 0.65% depending on the type of business.


Florida has a GRT that is imposed on certain industries, such as retail sales, leases of commercial property, and the sale of taxable services. The tax rate varies by county and ranges from 0.5% to 2.5%.

New Mexico

New Mexico has a statewide GRT that is assessed on all businesses that generate revenue within the state. The tax rate varies by location and ranges from 5.125% to 8.6875%.


Ohio has a GRT called the Commercial Activity Tax (CAT), which is assessed on gross receipts of businesses that exceed $150,000 per year. The tax rate is 0.26% of the total receipts.


Texas has a statewide GRT that is called the Texas Margin Tax. The tax is assessed on all businesses that generate revenue in Texas, with some exemptions for small businesses. The tax rate varies by industry and ranges from 0.375% to 1%.


Gross receipts tax is a tax on the total income a business generates from its sales. It is assessed as a percentage of the total receipts and can be a source of revenue for state and local governments. While GRT has advantages, such as a broad-based revenue source and stability, it also has disadvantages, such as a burden on small businesses and a disincentive for growth. It is important for businesses and individuals to understand GRT and how it applies to their particular situation.

Gross receipt taxes are imposed on the total profit of any company. There are some companies, such as non profits, that are exempt form having to pay this tax. In non profits, any revenue, or profit, is poured back into the company, therefore there is no actual profit. A gross receipts tax is a form of sales tax that is imposed on the seller of good and services.

Generally, the seller will add to the cost of a product and pass those taxes onto the consumer. Consumers often end up shouldering the burden of the taxes on any item, which were likely imposed at several levels, without ever realizing it.

The gross receipts tax is only currently imposed in about ten states. The gross receipts tax includes taxes on all profit or revenue for any business, regardless of the source of that revenue. Gross receipts taxes are the burden of the business that sells an item to consumers. The tax is not the burden of those that purchase the item, but the cost of the tax is often added to goods and services.

This is done so that a business can recoup some of the money they spend on gross receipts taxes. The tax is  implicitly added to the cost of any item. In other words, the consumer will not see the tax listed on their receipt. Rather, the tax is included in the price of the item once it is in the hands of the consumer.

Generally, the gross receipts tax is imposed a different percentages, depending on the size, or profitability of a business. Smaller businesses are generally charged a lower percentage of their profit as a gross receipt tax. For example, Delaware imposes a gross receipts tax at a rate of less than one percent to businesses that have a profit below a certain threshold, whereas businesses with a higher profit are subject to a gross receipt tax of up to two percent.

Each state imposes its gross receipts tax differently. In Mississippi, there is a three and half percent gross receipt tax imposed on construction across the state. There are a variety of ways that a gross receipts tax can be imposed to businesses.

The Gross receipt tax has been the subject of controversy. No state is suppose to impose a tax that could have negative impact on business of the Nation as a whole. Some gross receipts taxes are in excess of five percent which could discourage a business from having a branch in a certain state. There have been challenges to the tax, because businesses have claimed that it unfairly places a burden on them.

However, the tax is generally added to the cost of products once they reach the consumer. While the consumer may not realize the increase in price is due to the gross receipts tax, the cost of products to consumers in certain states, is higher in proportion to the percentage of tax assessed by that state.