Gross Receipts Taxes: Lessons from Previous State Experiences

States have in some cases enacted gross receipts taxes as an immediate source of increased revenue, neglecting the well-known established economic consequences of gross receipts taxation.

Four states—Indiana, New Jersey, Kentucky, and Michigan—each enacted gross receipts taxes, but repealed them after experiencing negative effects. New Jersey’s and Kentucky’s taxes lasted only several years.

Enactment quickly results in economic problems, including reduced levels of transparency, competitiveness, neutrality, and fairness.

Despite broad agreement that gross receipts taxes lead to many economic problems, some states have newly begun to consider them as a policy option.

States exploring tax reform should follow the example of other states and exclude the gross receipts tax from their revenue toolkit.

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