Overview of Gross Receipts Taxes in Louisiana and Other States
Gross Receipts Taxes, a resurgence in state revenue-raising mechanisms, are examined in Louisiana and other states, highlighting similarities and differences in approaches. The presentation delves into the structure and implications of gross receipts taxes, providing insights on legislation and fiscal estimates, with a focus on the Commercial Activity Tax. Additionally, details on the Ohio Commercial Activity Tax and Texas Franchise (Margin) Tax are outlined, encompassing tax bases, rates, deductions, and calculations.
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Presentation Transcript
1 Gross Receipts Taxes Louisiana Tax Institute January 23, 2018 Prepared and presented by Luke Morris Assistant Secretary Office of Legal Affairs
2 Informational Purposes Only This presentation is for informational purposes only and not to be considered advice, informal or otherwise. The material herein is informational in nature and based on publicly available data.
3 Overview 1. Gross Receipts Taxes, in General 2. Other States Approach to Gross Receipts Taxes 3. Louisiana Legislation and Fiscal Estimates Commercial Activity Tax (HB 628)
4 Gross Receipts Taxes Traditionally, state governments have raised revenue from business by taxing corporate income. In recent years, the growing difficultly of administering state corporate income taxes has prompted a resurgence of the gross receipts tax. Gross receipts taxes have a simple structure of taxing business sales, similar to a sales tax, but the tax is paid by the business, not the consumer.
6 Ohio Commercial Activity Tax Tax Base Gross receipts on business activities Exclusions: Interest, dividends, capital gains Wages reported on Form W-2 Dividends and distributions from corporations Deductions Cash discounts allowed and taken Returns and allowances Bad debts Amount realized from sale of an accounts receivable
7 Ohio Commercial Activity Tax Tax Rate No tax on business with less than $150,000 of taxable gross receipts 0.26% tax on receipts in excess of $1 million Tax Calculation
8 Texas Franchise (Margin) Tax Tax Base Total revenue No tax liability if annualized total revenue is equal to or less than $1.13 million Deductions (Margin) Total Revenue x 70% Total Revenue - COGS Total Revenue - Compensation ($370,000 limit/employee) Total Revenue - $1 million
9 Texas Franchise (Margin) Tax Tax Rate Most entities: 0.75% Wholesalers and retailers: 0.375% EZ Computation: 0.331% Tax Calculation
10 Nevada Commerce Tax Tax Base Total amount realized by entity from engaging in a business in Nevada No deduction for COGS or other expenses Deductions Dividends and interest from securities of federal government or Nevada Dividends and distributions from corporations Distributive or proportionate shares of receipts and income from pass-through entities Bad debts and returns and allowances
11 Nevada Commerce Tax Tax Rate Rates vary from 0.051% to 0.331% depending on industry type Tax Calculation Nevada gross revenue Less allowed deductions Less $4 million Multiplied by applicable tax rate
12 Washington B&O Tax Tax Base Value of products extracted and manufactured industries Gross proceeds of sales for retailing businesses Gross income for other business activities No deduction for labor, materials, taxes, or other costs of doing business Deductions (illustrative) Bad debts and cash discounts Consignment sales Interstate and foreign sales
13 Washington B&O Tax Tax Rate Retailing: 0.471% Wholesaling: 0.484% Manufacturing: 0.484% Service and other activities: 1.5% Tax Calculation Gross amount Less deductions Multiplied by applicable tax rate
14 LA Commercial Activity Tax House Bill 628 Representative Sam Jones
15 Key Points of the LA Commercial Activity Tax Provides a steady revenue stream of tax, free from credits and exemptions which dilute the tax base Ensures businesses which do not pay state income taxes pay an equitable share in return for the privilege of doing business in Louisiana Allows a gross profit tax alternative to provide for high volume, low profit businesses Follows the general principle of maintaining a large tax base with a low rate
16 Entities Subject to CAT An entity is subject to the commercial activity tax ( CAT ) if: 1. The entity qualifies to do business or actually does business in Louisiana; 2. The entity exercises its charter in Louisiana; or 3. The entity owns or uses capital, plants, or other property in Louisiana. In other words, the entity is subject to CAT for the privilege of doing business in Louisiana.
17 Overview of CAT Calculation The CAT is calculated differently depending on the entity s type of organizational structure Corporations Pass-throughs Small Business Exclusion Regardless of entity, CAT is not due if the entity has gross receipts from all sources less than $150,000
18 CAT Calculation for Pass-throughs Pass-through entities pay a fixed amount ranging from $250 to $12,500 depending on the amount of gross receipts from all sources. Threshold of Gross Receipts from All Sources $150,000 - $500,000 $500,000 - $1 Million $1 Million - $1.5 Million $1.5 Million - $3 Million $3 Million - $6 Million $6 Million - $12 Million $12 Million or More CAT Amount $250 $500 $750 $1,500 $3,250 $6,500 $12,500
19 Example Pass-through Entity ABC Partnership operates a restaurant business in Louisiana, Texas, and Mississippi. ABC Partnership s gross receipts information is below. Gross Receipts $3 Million $2 Million $3 Million $8 Million ABC Partnership s CAT liability to Louisiana is $6,500 based on gross receipts from all sources. State Louisiana Texas Mississippi Total
20 CAT Calculation for Corporations Most corporations pay the greater of: 1. Corporation income tax due after application of all credit carryforwards, nonrefundable credits, and refundable credits 2. 0.35% of the amount of Louisiana gross receipts if gross receipts from all sources exceed $1.5 million 3. An amount of $250, $500, or $750, depending on the amount of gross receipts from all sources
21 CAT Calculation for Corporations If gross receipts from all sources is less than or equal to $1.5 million, then the CAT is as follows: Threshold of Gross Receipts from All Sources $150,000 - $500,000 $500,000 - $1 Million $1 Million - $1.5 Million CAT Amount $250 $500 $750
22 Example Service Corporation XYZ Corp provides consulting services only in Louisiana. XYZ Corp earns $4 million in gross receipts and pays its consultants $3 million in salaries. XYZ Corp s CAT liability before consideration of corporation income tax is $14,000. ($4 million of Louisiana gross receipts multiplied by 0.35%)
23 CAT Calculation for Merchandising Corporations For corporations in the business of merchandising, whether at wholesale or retail, the calculation includes a gross profits component.
24 CAT Calculation for Merchandising Corporations Merchandising corporations pay the greater of: 1. Corporation income tax due after application of all credit carryforwards, nonrefundable credits, and refundable credits 2. Lesser of: A. 0.35% of the amount of Louisiana gross receipts if gross receipts from all sources exceed $1.5 million B. 2.76% of the amount of Louisiana gross profits if gross receipts from all sources exceed $1.5 million 3. An amount of $250, $500, or $750, depending on the amount of gross receipts from all sources
25 Example Retail Corporation JKL Corp sells clothing at retail in department stores only in Louisiana. JKL Corp purchases the clothing from a wholesaler. JKL Corp earns $10 million in gross receipts and expends $9.9 million in cost of goods sold. JKL Corp s CAT liability before consideration of corporation income tax is $2,760. ($10M x 0.35% = $35,000 > $100,000 x 2.76% = $2,760.)
26 Consolidated Returns Consolidated returns are required in certain instances: 1. Corporations owning single member LLCs 2. Corporations owning qualified Subchapter S subsidiaries 3. Publicly traded partnerships owning LLC or LP affiliates
27 Fiscal Effect Legislative Fiscal Office estimated a revenue increase of $416.6 million.
