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Institute on Taxation and Economic Policy

Source: www.itepnet.org
Topic: Economic Policy

Sort Desciption: Institute on Taxation and Economic Policy. Broad-based gross. receipts taxes may. hold some appeal. for policymakers. unable or unwilling. to address long- ...

Content Inside: ITEP T ALKING T AXES Funding for this Policy Brief was provided by the Annie E. Casey Foundation Broad-Based Gross Receipts Taxes: A Worthwhile Alternative? S tates currently face a number of fiscal challenges ranging from unresolved structural deficits to underlying flaws in their existing tax systems to the demands posed by ambitious initiatives such as improved access to health care. In response some policymakers are casting about for new alternatives for generating revenue that do not seem to require visible or difficult changes in law. One such alternative that has gained in popularity in the past few years is a broad-based gross receipts tax. This policy brief describes how broad-based gross receipts taxes typically function reviews the advantages and disadvantages of this form of taxation and details the states that use such taxes. How Does a Broad-Based Gross Receipts Tax Work? A gross receipts tax (GRT) is essentially another type of sales tax. The main difference between a traditional sales tax and a GRT is that the former generally applies only to retail sales while the latter applies to the sales made by companies at every stage of the production process. In other words a GRT is a sales tax that applies to more types of transactions. Take for instance the production and the purchase of a dining room chair under each of these two types of taxes. Under a retail sales tax (assuming that exemptions are in place for business purchases for use in production) only the purchase of the chair by the consumer is taxed with the amount of sales tax explicitly stated on the consumers sales slip. Under a GRT the lumber that forms the basis of the chair the machines that shape that lumber into legs back and seat the sale of the assembled chair from manufacturer to wholesaler the sale of that chair from wholesaler to retailer and the sale of that chair from retailer to consumer are all subject to taxation. These multiple impositions of the GRT are incorporat ...

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