Is Your Company’s Cross-State Sales Activity Triggering Gross Receipts Taxes?
As a business owner, expanding your sales activity beyond your home state is an exciting growth opportunity. However, as your cross-state sales activity increases, so does your state and local tax compliance. While you might have your income and sales tax filings covered, many businesses often overlook gross receipts tax filings. Gross receipts taxes have been around for many years now as a source to support and increase revenues within a respective state or local jurisdiction. And with many of these jurisdictions seeking ways to generate revenue, especially in today’s economic environment, governments are on the lookout for companies who aren’t filing these taxes.
Understanding Gross Receipts Taxes
Gross receipts taxes are based on your sales receipts to a particular jurisdiction. Typically, there are little or no deductions for things like discounts, cost of goods sold or operating expenses. It’s strictly the total amount of revenue your business collects in a tax period, whether you are generating overall income or losses. For example, if your business collects $1 million in revenue in 2023, and that state imposes a .26% tax rate on it, you must pay $2,600 to the state. The due date for these taxes varies within each state - they could be due monthly, quarterly or annually. It’s important to proactively be aware of your sales activity and understand how it impacts when your taxes are due.
Most Often Overlooked Filings
Below is an overview of key states where these taxes are imposed, with details related to the respective state’s rules, liability and due dates. Please note, if you have a physical presence in these states, either through your own employees or third parties, you may be required to file returns even though you are below the sales thresholds noted below.
| State | Tax Name | Rule | Rates or Liability | Due Date |
| Nevada | Commerce Tax | Applies to businesses with Nevada gross revenues exceeding $4 million in the taxable year. Entities subject to the tax include banks, joint ventures, S and C corporations, partnerships, sole proprietorships, independent contractors, limited liability companies and more. Passive entities, credit unions, governmental entities and nonprofits are on the list of exempted entities. | Between 0.051% and 0.331% of gross receipts depending on your business’ NAICS code. | Annually, 45 days following the end of the state’s fiscal year (June 30). |
| Ohio | Commercial Activity Tax (CAT) | Applies to businesses with Ohio taxable gross receipts of more than $500,000 per calendar year. Entities subject to the tax include sole proprietorships, partnerships, limited liability companies and corporations that have substantial nexus in Ohio, but not financial institutions, insurance companies, and a few other types of businesses. Commonly controlled entities may also be required to file a single return. | 0.26% of gross receipts, plus a minimum fee that is based upon prior-year total receipts. | Prior to Jan. 1, 2024: Annually, if subject to the $150 minimum tax. Quarterly for all others owing more than the minimum tax. Effective Jan. 1, 2024: The annual minimum tax is eliminated, so the 2023 annual return due May 10, 2024, will be the final return for annual filers. Click here to learn more about the recently enacted CAT law changes for calendar years 2024 and 2025. |
| Tennessee | Business Tax | Applies to businesses with gross receipts of $100,000, within any county and/or incorporated municipality in Tennessee or more than $500,000 in sales to the state. The state’s business tax consists of two separate taxes: State Business Tax All businesses (with a few exceptions) that sell goods or services must pay the state business tax. This includes businesses with a physical location in the state as well as out-of-state businesses performing certain activities in the state. City Business Tax If you have a business location in a city that has enacted the business tax, then you are required to pay the city business tax as well. Click here to view a dashboard that identifies which cities and counties impose this tax. | Between .025% and 0.1875% of gross receipts depending on your business’s classification. Click here to identify your business classification. | Annually, on the 15th day of the fourth month following the end of your fiscal year. For example, if your fiscal year coincides with the calendar year, then your return is due on April 15. |
| Washington | Business and Occupation (B&O) Tax | Applies to businesses with Washington gross receipts of more than $100,000. All businesses (with a few exceptions) that sell goods or services must pay the state business tax. This includes businesses with a physical location in the state as well as out-of-state businesses performing certain activities in the state. In addition to the state B&O tax, some cities also impose a local B&O tax. | Between 0.138% and 3.3% of gross sales depending on your business’s classification. | Monthly, quarterly or annually, depending on your sales volume: Monthly: Due on the 25th of the following month Quarterly: Due by the end of the month following the close of the quarter Annually: April 15 each year |
Potential Penalties
Your potential liability varies across each state. If you never file, then these states can go back as far as the tax enactment date or whenever you first crossed the threshold to have to remit tax. From there, the state can assess the tax, interest and penalties that far back. For example, Ohio’s CAT was enacted about 20 years ago, so the state could back that far to collect taxes owed by a business. Even if a state limits the years of assessment, this could still result in a costly tax penalty depending on how much sales activity was within that state. Penalties average about 25-30%, plus interest.
Gross Receipts Tax Planning Considerations
If your company has significant sales activity within these states, we encourage you to work with a state and local tax specialist to evaluate your exposure and work with you to bring you compliant. Gross receipts taxes are not widespread across every state, which is why businesses are often surprised when they receive a tax bill. It also doesn’t matter what your entity formation is –partnerships, C corporations and limited liability companies disregarded for income tax purposes could be subject to tax.Here are some ways to help keep your business protected from gross receipts tax exposure:
- Participate in a voluntary disclosure program. Some states offer a voluntary disclosure program to help reduce your overall tax burden. Through this program, if you approach the state before they identify your failure to file, they may agree to waive the penalties and only go back a few years (depending on the state) to collect taxes. Some states will also allow you to start this process anonymously, which lets you see the terms you’ll agree to before informing the state of your non-filing status.
- Modify customer pricing. Unlike sales tax, gross receipts tax is not collected from the consumer. However, knowing you are subject to the tax allows you to begin building it into your pricing when quoting contracts or sales prices for each state. While it doesn’t pass onto your customers directly as a sales tax does, you can use the invoice markup to recoup the money due to the state. This will help reduce the impact of the taxes coming out from your own business margin.
If your business is already filing an income or sales tax return in these states, it’s really a matter of when, not if, a state identifies you as a non-filer for gross receipts taxes. Once you begin filing in a state, you must maintain ongoing compliance until you notify the state that you no longer meet the requirements to file, and you can close your account. That’s why it’s important to track your sales activity within these states accordingly.
Here to Help
Navigating gross receipt taxes can be complex. Unless you are fully aware of which states have these rules and are up-to-date on its requirements, you would not know your exposure. Doeren Mayhew’s state and local tax pros specialize in working with businesses to evaluate their activity, determine where they may have exposure and help minimize their overall tax burden by working with the appropriate state and local jurisdictions.
