(The Center Square) — Though much attention has focused on Pennsylvania’s corporate net income tax, the commonwealth has another corporate tax that only a few states use: the gross receipts tax.

Gross receipts taxes are used on the local level in Pennsylvania, along with Virginia and West Virginia. Another seven states have a state-level gross receipts tax, including Ohio and Delaware. 

The tax is applied on firms’ gross sales before adjusting for operating costs and other business costs, the Tax Foundation noted, and applies to every stage of production before the final sale to a consumer, unlike a sales tax.

In Pennsylvania, gross receipt taxes hit a variety of businesses from electric companies to telecoms and transportation companies to private banks and managed care organizations.

The taxes are getting rarer, however. Joseph Johns, of the Tax Foundation, said gross receipts taxes “have fallen out of favor” in most states and were repealed before 2000.

He said Indiana, New Jersey, Kentucky and Michigan eliminated the taxes between 2022 and 2011.

“Policymakers increasingly recognized that these taxes were structurally unsound, distorted firms’ incentive to reinvest in their business models, and eliminated the profits of businesses with already narrow profit margins,” he said.

Gross receipts taxes have also caused some trouble in the past. In 2014, an audit by the U.S. Department of Health and Human Services found that Pennsylvania’s gross receipt tax on Medicaid managed care organizations was “impermissible,” helping the state inflate Medicaid payments.

Senate Republicans also announced on May 7 a new plan to cut the gross receipts tax on electricity bills as part of a larger package to reduce the state’s overall burden by $13 billion over the next five years. It requires buy-in from the rest of the legislature, however.

The persistence of gross receipts taxes in Pennsylvania also adds to its overall burden. The commonwealth ranked 34th nationally for state and local sales taxes and 28th nationally for its overall state-local tax burden. While it’s better or competitive with neighboring states, Pennsylvania trails Sun Belt states that have been attracting more residents in recent years.

State politicians have made progress on reducing the corporate net income tax, but other barriers remain. Beyond taxes, business leaders have complained of a slow permitting process that delays or kills new projects. Though the Shapiro administration has made some progress, regional variations and a lack of predictability still cause headaches.

Anthony Hennen is a reporter for The Center Square. Previously, he worked for Philadelphia Weekly and the James G. Martin Center for Academic Renewal. He is managing editor of Expatalachians, a journalism project focused on the Appalachian region.

This article was republished with permission from The Center Square.

2 thoughts on “Gross receipts tax rare nationwide, but not in Pennsylvania”

  1. Before you relocate or expand your company, your commercial real estate agent should show you the differences in all the various taxes for each municipality. There is a huge difference between Tredyffrin (Chesterbrook, portions of Wayne, etc.) with zero gross receipts tax and Upper Merion (King of Prussia), just across from each other. Business Privilege Tax (BPT) is a business gross receipts tax levied by Upper Merion Township – except those businesses subject to the mercantile tax or that fall under allowable exclusions. Upper Merion Township also imposes an amusement tax upon the sale of admission to or on the privilege of attending or engaging in amusements. The rate is 10% of admission sales or established price by any producer of such an event.

  2. I’m surprised the piece doesn’t make the Philadelphia gross receipts portion of its business privilege tax part of the discussion. Mayor Nutter claimed the great recession thwarted his intentions to make big reductions to this and wage taxes, and Mayor Parker has specifically said at this point tax changes aren’t on the radar. It is well-documented that such taxes are significant reasons people leave and jobs leave. Parker should tackle this persistent issue by arguing for state policies to end such taxes that would also force the City to drop such taxes to get around Council having little momentum to do so.

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