New Report on the Flaws of Gross Receipts Taxes
January 31, 2007
We have co-published a paper with the Council on State Taxation (COST) on the many problems of gross receipts taxes. The in-depth paper is written by Professor John Mikesell of Indiana University and echoes the arguments we put forth against gross receipts taxation in a recent Special Report.
One of the arguments covered in the paper is the unreasonably large base of this type of tax:
A gross receipts tax applies on each business transaction. It encompasses the entire market productionof the state and includes intermediate transactions leading up to the final product. The base is thus larger than the gross state product because it includes both the final value of product and the value of transactions leading up to that final production.
The total base of the Washington State Business and Occupation tax, the most significant gross receipts tax remaining in the United States, was $474,813.8 million in calendar year 2005. Washington gross state product in that year was only $268,502 million. The tax base is 177 percent of the total economic product of the state because of taxation of intermediate transactions in the flow of production.