What is the difference between gross receipts and gross income

Taxes on gross receipts originated in Europe as early as the 13th century but were later replaced with value-added taxes, which are more stable, more transparent, and less economically harmful. Gross receipts taxes spread during the s, as the Great Depression reduced state property and income tax revenue. By the late s, however, gross receipts taxes began to be repealed or struck down as unconstitutional by state courts.

Gross Receipts Taxes have returned as a revenue option for policymakers after being dismissed for decades as inefficient and unsound tax policy. 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.

Nearly all states use gross receipts as a tax base in some context, most commonly for utility and energy companies. These limited taxes, however, have far less potential for harmful tax pyramiding, and are closer to functioning as ad valorem excise taxes.

Gross receipts taxes also exist at the municipal and county levels. Because gross receipts taxes are imposed at intermediate stages of production and do not allow deductions for costs, they are not based on profits or net income like a corporate income tax or final consumption like a well-constructed sales tax.

Please help us improve our site! No thank you. CFR prev next. A business subtracts all payments made by the business from the gross receipts. This will include operating costs, debt payments and tax liability incurred for that period.

The result will be the net profit, a common measure of business success and a useful metric to track over time. This must include associated direct costs aka COGS or Cost of Goods Sold, such manufacturing costs or the cost of purchasing inventory, but not operating costs.

That makes gross profit a better way to analyze profit margins, how efficient the sales process is and how a company can maximize how much money they make on sales. Gross receipts means the total amount of all receipts in cash or property without adjustment for expenses or other deductible items. Unlike gross sales , gross receipts capture anything that is not related to the normal business activity of an entity— tax refunds , donations, interest and dividend income, and others. Also, gross receipts do not account for discounts or price adjustments.

Some states and local tax jurisdictions impose taxes on gross receipts instead of corporate income tax or sales tax. Texas Tax Code Section Ohio Revised Code Section Like the above, definitions of "gross receipts" are given by other tax authorities that use them as a taxation basis for businesses. Detailed lists of exclusions to gross receipts are also provided. Tax Foundation. Accessed August 16, Texas Public Law.

Ohio Laws and Rules. Health Insurance. Small Business Taxes.