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1 Garrett Watson, Resisting the Allure of Gross Receipts Taxes: An Assessment of Their Costs and Consequences 1 (2019)

handle is hein.taxfoundation/rslarx0001 and id is 1 raw text is: Resisting the Allure of Gross Receipts Taxes: An Assessment of Their Costs FISCAL FACT No. 634 Feb. 2019 The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, and local levels. We are a 501(c)(3) nonprofit organization. ©2019 Tax Foundation Distributed under Creative Commons CC BY NC 4.0 Editor, Rachel Shuster Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 taxfoundation.org and Consequences Garrett Watson Special Projects Manager Key Findings Gross receipts taxes, also known as turnover taxes, have returned as a revenue option for policymakers after being dismissed for decades as inefficient and unsound tax policy. Their appeal comes as many states are looking to replace revenue lost by eroding corporate income tax bases and as a way to limit revenue volatility. Taxes on gross receipts are enticing to policymakers because the broad tax base brings a large, stable source of revenue to state governments. Proponents argue that gross receipts taxes are simpler to administer and calculate than corporate income taxes. Business-to-business transactions are not exempt from gross receipts taxes, which creates tax pyramiding. The same economic value is taxed multiple times-once during each transaction through the stages of production-which compounds the tax's negative economic effects. Gross receipts taxes impact firms with low profit margins and high production volumes, as the tax does not account for a business' costs of production. Startups and entrepreneurs, who typically post losses in early years, may have difficulty paying their tax liability. Gross receipts taxes impose costs on consumers, workers, and shareholders. Prices rise as the tax is shifted onto consumers, impacting those with lower incomes the most. Some firms may lower wages to accommodate the tax, reducing incomes. Efforts to mitigate the negative effects of gross receipts taxes, such as creating multiple rates for different industries, often increase the tax's complexity, negating one of the primary reasons given to enact the tax. States should consider alternatives to gross receipts taxes given their economic distortions, their opacity, and their complexity in practice. Well-structured sales taxes can provide reliable revenue with fewer economic costs.

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