1. THE GROSS RECEIPTS TAX AND ITS IMPACT ON BUSINESS
2017 SEATA Annual Conference
Rob Wollfarth

2. Introduction of Topics
Brief history of the gross receipts tax.
What is a gross receipts tax.
Which states impose the gross receipts tax.
Which states are considering moving to a gross receipts tax.
How the gross receipts tax differs among the states that impose it.
How businesses are impacted by the gross receipts tax versus sales and/or income taxes.
How to plan for the gross receipts tax versus the other taxes.

3. Ruins of the Gross Receipts Tax

4. What is a Gross Receipts Tax
Also called a “turnover tax.” It is a tax on the receipts of a business rather than on its income or profits.
Varies by state, but usually little to no allowance for costs that the business has incurred to generate the receipts.

5. Gross Receipts Tax Across the U.S.

6. Texas Gross Receipts Tax
Tax Base. It is a franchise tax imposed on the taxpayer’s margin:
total revenue times 70%;
total revenue minus cost of goods sold;
total revenue minus compensation; or
total revenue minus $1.110 million (effective Jan. 1, 2014).
Tax Rates.
.375% (retail or wholesale businesses)
.75% (other than retail or wholesale businesses)
.331% ($20 million or less of total revenue)
Taxable Persons.
Almost all commonly-formed business entities are subject to the tax including: C corporations, LLCs, S corporations, partnerships (except general partnerships when direct ownership is composed entirely of natural persons), trusts and joint ventures, but not sole proprietorships.
Other Unique Features.
Total revenue is determined from revenue amounts reported for federal income tax minus statutory exclusions for certain dividends and interest and other industry-specific exclusions.
Service companies are generally not eligible to subtract cost of goods sold.
Cost of goods sold generally not the same as that computed for Federal income tax purposes.
Deductible compensation includes both wages and benefits.

7. Ohio Gross Receipts Tax
Tax Base. It is a commercial activities tax imposed on the taxpayer’s total amount realized, without deduction for cost of goods sold or other expenses, that contributes to the production of the person’s Ohio gross income, including the fair market value of any property and services received, and debt transferred or forgiven as consideration.
Tax Rates.
$150 ($1 million or less of taxable gross receipts)
.26% (more than $1 million of taxable gross receipts)
$800 min. for taxable gross receipts of < or = $2 million
$2100 min. for taxable gross receipts > $2 million but < or = $4 million
$2600 min. for taxable gross receipts > $4 million
Taxable Persons.
All the commonly-formed business entities and also individuals.
Other Unique Features.
Generally, items treated as gross receipts for Federal income tax purposes are treated as gross receipts for Ohio gross receipts tax purposes.
There is no deduction for cost of goods sold or compensation, but there is a long list of items excluded from gross receipts including: all interest (except for interest credit sales), distributions from corporations and pass-through entities and gross receipts from the sale of capital assets.

8. Nevada Gross Receipts Tax
Tax Base. It is a commerce tax imposed on the taxpayer’s Nevada gross revenue. “Gross revenue" is generally defined to mean the total amount realized by a business entity from engaging in a business in Nevada, without deduction for the cost of goods sold or other expenses incurred, that contributes to the production of gross income, including the fair market value of any property and any services received, and any debt transferred or forgiven as consideration.
Tax Rates. The commerce tax rates vary (ranging from 0.051% to 0.331%), depending on the industry in which the entity is primarily engaged. The tax is equal to the amount obtained by subtracting $4 million from the business entity’s Nevada gross revenue for the taxable year and multiplying that amount by the applicable rate.
Taxable Persons. "Business entity" are subject to the tax which generally means a corporation, S corporation, partnership, proprietorship, LLC, business association, joint venture, LLP, business trust, professional association, joint stock company, holding company, and any other person engaged in a business.
Other Unique Features.
Among the allowed deductions are the following: gross revenue attributable to dividends and interest on any bonds or securities of the federal government, the state of Nevada, or a political subdivision of Nevada; the amount of gross proceeds used to determine the amount of tax on the net proceeds from mineral extraction; dividends and distributions from corporations, distributive or proportionate shares of receipts and income from a pass-through entity; bad debts expensed for federal income tax purposes; and returns and refunds to customers.
Exclusions from gross receipts include among others: amounts from the sale of intellectual property, cash discounts, complimentary goods and services, and amounts realized in certain tax-free transactions.

9. Negative Impact of Gross Receipts Tax on Business
Creates a tax pyramid
Reduces competitiveness
Applies inequitably
Lacks transparency

10. Minimizing the Gross Receipts Tax
Choosing the right source state for business inputs.
Internalizing the production of inputs.
Going lien on the cost of production to keep consumer prices low.
Who then really then bears the burden of the gross receipts tax?

11. Baker Donelson Footprint

12. Final Thoughts and Questions
Rob Wollfarth
New Orleans