Gross receipts taxes have returned as a revenue option for policymakers after being dismissed for decades as inefficient and unsound tax policy.
Sometimes referred to as “turnover taxes,” 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. For business, it may be time to consider bringing in the Avengers (Okay, so this author is a bit of an Endgame fan … and, well, since the heroes did crash the ISRI Board Meeting in Los Angeles, the not-so-subtle references help make the point.)
- What is this? Our initial research reveals that five or six states impose gross receipts taxes statewide, while eight more considered proposals to enact a gross receipts tax over the past two years. Unlike a retail sales tax that is assessed only on the final consumer purchase of a product, a gross receipts tax is assessed at every stage of production. Gross receipts taxes also exist at the municipal and county levels. These local-level gross receipts taxes are often framed as a business license tax, such as Virginia’s local-option Business, Professional, and Occupational Licenses (BPOL) tax.
- Why it is important: Scrap recycling recently became the target of such a tax and this should be setting off any recycler’s “Spidey Senses” for potential danger. Gross receipts taxes usually apply to C corporations, but some, such as Texas’ Margin Tax, apply to C corporations and pass-through firms such as LLCs and S corporations. The recent proposal on scrap recycling is within a city trying to impose a five percent gross receipts tax on metal recycling, including collection, processing and sales within the city boundary. Ironman beware. Depending on how the city would apply the “gross receipts” term, this could mean a small recycling yard with $5 million in sales would have to pay $250,000 a year! Do you feel the Hulk coming on yet?
- What Does this Mean? Gross receipts taxes are applied to receipts from a firm’s total sales. The taxes diverge from sales taxes by levying a tax on each transaction at each stage of production, which impact firms with low profit margins and high production volumes, as the tax does not account for a business’ costs of production. Unlike a corporate income tax, these taxes apply to the firm’s sales without deductions for a firm’s costs. They are not adjusted for a business’ profit levels or expenses and apply to all transactions a business makes. Unlike a sales tax, gross receipts taxes apply to business-to-business transactions in addition to final consumer purchases.
- What Happens Next? States have been down this road before and many have designated multiple rates and exemptions, typically by industry, to mitigate some of the economic costs associated with taxes on gross receipts. For instance, manufacturers might be exempt in some jurisdictions. If that is the case, ISRI's advocacy agenda encouraging manufacturing sales tax exemptions may tie in with this issue. As Steve Rogers might say, it is time for all commodities within the recycling industry to assemble with a united message: scrap recycling needs to be exempt from gross receipt taxes. It is time for state and local policymakers to help save the planet … literally … by encouraging and not taxing recycling to death.
For more information contact Danielle Waterfield