Gross Receipts Tax Guide for Small Business

What Is a Gross Receipts Tax?

A gross receipts tax (GRT) is a tax levied on the total gross revenues of a business, regardless of the source of those revenues or whether the business is profitable. Unlike an income tax, which applies to net profit after deductions, a gross receipts tax is calculated on the top line—total sales before any expenses are subtracted. Several U.S. states and local jurisdictions impose gross receipts taxes, and the rates and rules vary significantly.

Quick Answer

A gross receipts tax is a tax on your business's total revenue—no deductions for cost of goods sold, operating expenses, or losses. States like Washington (B&O tax), Ohio (Commercial Activity Tax), and Delaware impose GRTs. Rates typically range from 0.1% to 1.5% depending on the jurisdiction and industry classification. Unlike sales tax, a GRT cannot be passed directly to customers (though businesses often build it into pricing).

Gross Receipts Tax vs. Sales Tax

Many small business owners confuse gross receipts taxes with sales taxes, but they operate very differently:

Feature	Gross Receipts Tax	Sales Tax
Who pays	Business (on its revenue)	Customer (collected by business)
Tax base	Total gross revenue	Specific taxable transactions
Deductibility	No deductions for COGS or expenses	Exemptions for resale, food, etc.
Pass-through to customer	Not legally required	Legally required (business is agent)
Filing responsibility	Business pays from its own funds	Business remits collected amounts

Understanding this distinction is critical for proper tax accounting and cash flow planning. A gross receipts tax is a cost of doing business, while sales tax is a collection mechanism on behalf of the state.

Which States Impose a Gross Receipts Tax?

As of 2026, the following states have significant gross receipts taxes:

Washington — Business & Occupation (B&O) Tax

Washington's B&O tax is the most well-known GRT. It applies to gross income from business activities conducted in the state. Rates vary by classification:

• Service and other activities: 1.5%
• Retailing: 0.471%
• Wholesale: 0.484%
• Manufacturing: 0.484%

Washington also offers a small business credit that reduces the B&O tax for businesses with gross income below a threshold, effectively exempting very small operations.

Ohio — Commercial Activity Tax (CAT)

Ohio's CAT applies to gross receipts from business activities in Ohio. The rate is 0.26% on gross receipts over $150,000. Businesses with gross receipts between $150,000 and $1.5 million pay a flat minimum tax of $150. Receipts below $150,000 are exempt.

Delaware

Delaware imposes a gross receipts tax on most business activities. Rates range from 0.0945% to 1.9912% depending on the business activity, with monthly exclusion amounts that allow small businesses to deduct a base amount before the tax applies.

Other Jurisdictions

Several other states and cities impose gross receipts taxes or similar levies, including Nevada's Modified Business Tax, Texas's Margin Tax (a hybrid), and various city-level gross receipts taxes in Pennsylvania, West Virginia, and California (San Francisco's Gross Receipts Tax). Businesses operating across state lines must understand each jurisdiction's nexus rules to determine filing obligations.

How to Calculate Gross Receipts Tax

The basic formula for a gross receipts tax is straightforward:

Gross Receipts Tax = Gross Revenue × Applicable Tax Rate

However, complications arise in three areas:

1. Determining Gross Revenue

Most states define gross revenue broadly—all income from business activities in the state before any deductions. This includes sales revenue, service fees, rental income, interest income (in some cases), and even bartered goods and services. Some exclusions apply, such as:

• Proceeds from the sale of capital assets (varies by state)
• Intercompany transactions (if properly documented)
• Refunds and allowances (usually netted against revenue)

2. Apportionment for Multi-State Businesses

If your business operates in multiple states, you must apportion gross receipts to each state using that state's apportionment rules. Most states use a single-sales-factor approach, but some still use a three-factor formula (property, payroll, and sales). Proper apportionment prevents double taxation of the same revenue.

3. Industry-Specific Classifications

States like Washington apply different tax rates to different business activities. A company that both manufactures and retails products may need to allocate revenue to separate B&O tax classifications and apply different rates to each portion.

Accounting for Gross Receipts Tax

Unlike estimated income tax payments, which are based on projected net income, gross receipts tax is based on actual revenue. Record the tax expense when incurred:

When the tax is paid:

If your business is subject to both a GRT and an excise tax, track them in separate accounts for clarity and audit readiness.

Gross Receipts Tax Exemptions and Deductions

While the GRT applies to gross revenue without expense deductions, several exemptions and deductions can reduce your taxable base:

• Small business exemptions: Most states exempt businesses below a gross receipts threshold (e.g., Ohio's $150,000 floor).
• Industry-specific exemptions: Manufacturing, agriculture, and non-profit activities often receive preferential rates or full exemptions.
• Interstate commerce deductions: Revenue from sales delivered out of state may be excluded from in-state gross receipts.
• Bad debt deductions: Some states allow you to deduct accounts receivable that have been written off as uncollectible.
• Return and allowance netting: Most states allow you to net returns and allowances against gross revenue before calculating the tax.

Gross Receipts Tax and the Tax Burden Cascade

One of the most criticized features of gross receipts taxes is tax pyramiding—the compounding effect when a product passes through multiple production stages. Because the tax applies at each level of the supply chain without a deduction for prior taxes paid, the effective tax rate on the final consumer can be significantly higher than the statutory rate.

For example, if a raw material supplier, manufacturer, wholesaler, and retailer each pay a 0.5% GRT on their gross receipts, the total tax burden embedded in the final product exceeds 0.5% due to compounding. This makes GRTs less economically neutral than a franchise tax or income tax.

Filing and Compliance Tips

• Know your filing frequency: Most states require monthly or quarterly GRT filings. Missing deadlines triggers penalties and interest.
• Maintain detailed revenue records: Because the GRT applies to gross revenue with limited deductions, accurate revenue tracking is essential. Use your chart of accounts to segregate revenue by state and business activity.
• Track nexus changes: If your business expands into a new state or hires remote employees in a new location, you may trigger GRT filing obligations. Review tax compliance deadlines regularly.
• Claim all available credits: Many states offer GRT credits for job creation, research and development, or investment in designated zones. These credits can substantially reduce your effective rate.
• Consider entity structure: In some cases, restructuring business operations or separating business activities into different entities can optimize GRT liability across multiple classifications.

Gross Receipts Tax vs. Other Business Taxes

Small businesses may be subject to several types of taxes simultaneously. Understanding how the GRT fits into the overall tax landscape helps with planning:

• Income tax: Based on net profit. A business can owe GRT even in a loss year.
• Franchise tax: Based on net worth or capital. Some states impose this as an alternative minimum tax.
• Excise tax: Imposed on specific goods or activities (fuel, tobacco, alcohol). The GRT is broader, applying to all business revenue.

For a comprehensive overview of available deductions that can reduce your overall tax burden, see our tax deductions guide for small business.

Key Takeaways

• A gross receipts tax is levied on total business revenue—not net profit—making it payable even in unprofitable years.
• Key GRT states include Washington (B&O), Ohio (CAT), and Delaware, each with different rates and thresholds.
• Unlike sales tax, the GRT is a cost to the business, not a pass-through to customers.
• Tax pyramiding is a significant economic concern, as the tax compounds through supply chain stages.
• Track revenue by state and classification, claim all available exemptions and credits, and file on time to avoid penalties.