The Center for Tax and Budget Accountability (CTBA) has put out a “Fact Sheet” on the Gross Receipts Tax.
Here are some additional facts to consider.
CTBA Fact: “Research shows that new firms pay a much higher effective tax rate than established firms, no matter what the industry.” The Washington State Tax Structure Study Report is cited as the source.
Additional Fact: Analyzing 10 different sectors, the Washington study found that the average difference in effective tax rates between new and established firms within a sector from all state business taxes was 0.69 percent. The property tax accounted for 92 percent of the difference, while the gross receipts tax accounted for only 7 percent of the difference. The average mean difference in effective gross receipts tax rates within a sector between new and established firms was only 0.05 percent, or five hundredths of one percent of gross revenue – hardly “much higher”.
CTBA Fact: “Experts also acknowledge that GRTs do not treat all taxpayers equally.”
Additional Fact: No tax treats all taxpayers equally.
CTBA Fact: “GRTs are regressive for business.”
Additional Fact: The Washington State study found that the property tax was far more regressive for businesses than the GRT – in the neighborhood of 10 times more regressive.
CTBA Fact: GRTs are regressive for consumers, because business might pass on the tax to the final purchaser.
Additional Fact: The CTBA would rather tax the consumer directly by increasing the personal income tax and adding a 5% sales tax to haircuts, laundry, and funerals.
CTBA Fact: Research finds that tax pyramiding leads to tax evasion since businesses use strategies to avoid the tax. (Again, the Washington study is cited as the source.)
Additional Facts: The Washington study cited several examples of tax avoidance but avoidance was not described as a major problem. Only 8 percent of businesses in Washington say the tax system has “a negative effect on the ability to conduct business.”
Tax avoidance has been described as a major problem with the corporate income tax. Robert Tannenwald, Assistant Vice President of the Federal Reserve Bank in Boston, notes that since 1980 the ratio of state corporate income tax collections to corporate income has declined almost 50 percent and state tax departments are “increasingly outgunned” in collecting the corporate income tax. In large part, Ohio, Texas and Kentucky have adopted gross receipts taxes in recent years because their corporate income taxes were no longer effective in an economy characterized by globalization.
CTBA Fact: The GRT is not “transparent” because consumers don’t know how much of the price of the product they buy went to pay the company’s gross receipts tax.
Additional Fact: The customer also doesn’t know how much went to pay for the company’s corporate income, property, utility, social security, or unemployment taxes.
CTBA Fact: The GRT is not related to a company’s profit.
Additional Fact: Neither is any other tax (property, net worth, severance, utility, gasoline, social security, unemployment, worker’s compensation, etc.,) except the corporate income tax. The gross receipts tax does have the advantage that many other taxes do not; it is tied to a stream of revenue from which the tax can be paid.