You can run a business at a loss and still owe this one. A gross receipts tax lands on what you sell, not what you keep, which makes it one of the more surprising bills a company can face. This guide explains what a gross receipts tax is, how it differs from a sales tax and income taxes, which states charge it, and why it hits some businesses harder than others.
A gross receipts tax is a tax on the total gross revenue of a business, calculated as a percentage of sales with little taken out. It is levied on the seller rather than the buyer, so the business itself owes it based on its total gross receipts, no matter how thin the margins are. People often shorten it to GRT.
That last point is what throws people. A gross receipts tax is a tax on activity, not profit, so it applies to your gross sales even in a year you lose money. Because it is paid by the seller of goods or services on total gross revenues, there is limited room to pass it straight to customers the way sales tax gets added at checkout. This form of taxation keeps the tax base broad on purpose, which lets states raise steady revenue at low rates.
It helps to line up the three taxes people mix up. A sales tax is charged to the buyer at the final sale and collected by the seller, and a use tax mirrors it for out-of-state purchases. A corporate income tax falls on net profit after expenses, a different animal entirely. A gross receipts tax sits apart from both.
Unlike a retail levy at checkout, a GRT is assessed on the business and applies at each transaction rather than only the final consumer sale. Unlike a corporate income tax, it ignores whether you made any money. That is why a state can skip a corporate profits levy and still collect plenty through this business tax, as Nevada and Washington do, and why the seller of goods or services carries the cost directly. Excise taxes, by contrast, hit specific goods like fuel or tobacco, so they are narrower still.
Here is the flaw economists point to most. Because a gross receipts tax applies at every step, the same economic value gets taxed again and again as a product moves through the stages of production. A supplier pays on its sale to a manufacturer, the manufacturer pays on its sale to a distributor, and so on. That compounding is called tax pyramiding.
The effect is uneven. A vertically integrated company that does more in-house has fewer taxable handoffs, while a small business that buys from many vendors racks up more tax exposure on the same final product. The result is different effective tax rates across industries and company sizes, even under one flat rate. Businesses with a high cost of goods sold feel it most, since the tax hits the full sale price rather than the slim margin left after paying for those goods.
This is the part that stings on the return. Most gross receipts taxes generally do not allow deductions for the cost of the inputs that go into what you sell. There is no broad write-off for business expenses, none for the costs of goods sold, and usually nothing for labor, interest, or overhead.
So the taxable gross receipts you report can look a lot like your top line with little taken out. A retailer buying inventory for 90 cents and selling it for a dollar is taxed on the full dollar, not the dime of gross profit. That is why the tax base stays wide and why low-margin businesses can owe a meaningful amount even when the actual profit is tiny. A handful of states carve out narrow exemptions or exclusions, but the general rule is a broad base with limited relief.
Seven states currently levy a gross receipts tax at the state level: Delaware, Nevada, Ohio, Oregon, Tennessee, Texas, and Washington. At the state and local level, many states go further: Pennsylvania, Virginia, West Virginia, and the District of Columbia let cities impose one locally without charging it across the state, all chasing stable tax revenue.
The names rarely say gross receipts tax, which is why businesses miss them. Ohio calls its version the commercial activity tax, Oregon runs a corporate activity tax, Washington uses the business and occupation tax, and Nevada labels its version the commerce tax. Texas folds a similar idea into its franchise tax. One of these states taxes gross receipts through occupational licenses. Each state runs its own version through its department of revenue, so the rules on nexus, thresholds, and filing differ across states even where the basic idea is the same.
The rates look tiny until you remember they apply to gross revenue. Ohio sits at a flat 0.26 percent, Oregon at 0.57 percent above a threshold, and a licensing state runs different rates by activity, from about 0.09 to 0.75 percent. Even a gross receipts tax rate near 0.5 percent adds up fast when it lands on every dollar of sales rather than on profit, because the tax is levied on the full amount.
Thresholds soften the edges for smaller companies. Ohio exempts businesses below 6 million dollars in Ohio receipts for 2025, Oregon starts its tax above 1 million dollars, and Nevada applies its commerce tax only above 4 million dollars in Nevada revenue. So the rate varies, the exemption levels vary, and the filing calendar year rules vary, which is why two similar companies can owe very different amounts depending on where their sales land.
The tax follows your footprint, not your headquarters. A business owes a gross receipts tax when it has enough connection to a state, whether through physical presence or a revenue threshold tied to sales into that state. That business activity is what creates the filing duty, so a company selling into Ohio or Washington can owe there without an office in either place.
Compliance means tracking sales by state, registering with each department of revenue, and filing a tax return on that state's schedule. For a specific business selling across state lines, the economic nexus rules that trigger a retail levy often flag gross receipts tax exposure too, so the two get reviewed together. Professional services firms, retailers, and manufacturers all face it differently, which is where an experienced tax advisor earns their keep.
Gross receipts taxes are easy to overlook and expensive to ignore, because the low rate hides a broad base and the names disguise the tax. Whether a given state reaches your sales, and how much you owe once it does, depends on your footprint, your margins, and each state's thresholds. Madras Accountancy supports US CPA firms and their clients on exactly this, from mapping where a business has nexus to calculating the tax liability and filing across states. You can read more on the tax policy behind these taxes at the Tax Foundation.
If gross receipts tax exposure is creeping up on you, you can reach out here. This is general information, not tax advice, so confirm the treatment for any specific business with its preparer.
1. What is a gross receipts tax? A gross receipts tax is a tax on a business's total gross revenue, calculated as a percentage of sales with few or no write-offs. It is levied on the seller and owed even when the business makes no profit.
2. Which states have a gross receipts tax? Seven states levy one at the state level: Delaware, Nevada, Ohio, Oregon, Tennessee, Texas, and Washington. Pennsylvania, Virginia, and West Virginia allow local versions in some cities.
3. How is a gross receipts tax different from a sales tax? A retail sales levy is paid by the buyer at the final sale and collected by the seller. A GRT is paid by the seller on total revenue and applies at every stage of production rather than only the final sale.
4. What is tax pyramiding? Tax pyramiding is when the same economic value is taxed repeatedly as a product moves through the stages of production. Because a the tax has no deduction for inputs, each sale in the chain gets taxed again.
5. Can you deduct expenses from a it? Usually not. Most states generally do not allow write-offs for business expenses or the cost of goods sold, so the taxable gross receipts are close to total sales rather than net profit.
6. What is the Ohio commercial activity tax? The Ohio commercial activity tax is that state's the GRT. It applies a flat 0.26 percent rate to Ohio-sourced receipts above the exemption threshold, which is 6 million dollars for 2025.
7. Who pays the the levy? The seller pays it. Unlike a retail tax added to the customer's bill, a GRT is levied on the seller of goods or services based on their total gross receipts.
8. What are typical it rates? Rates are low but apply to gross revenue. Ohio is 0.26 percent, Oregon is 0.57 percent, and a licensing state ranges by activity from about 0.09 to 0.75 percent, while Washington's business and occupation tax rates run higher.
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