A gross receipts tax is a tax on the total money a business brings in, before subtracting costs

A gross receipts tax is a tax on the total revenue a business collects from selling goods or services. Unlike income tax, which taxes profit after you subtract expenses, a gross receipts tax applies to the full amount of money coming in—before the business pays for inventory, labor, rent, or anything else. This means a business can owe the tax even if it made no profit that year.

Only a handful of states and cities use gross receipts taxes. Nevada, New Mexico, and Washington have statewide versions. Some cities, including Las Vegas and Albuquerque, also impose them. The tax rate and what counts as "receipts" varies significantly by location. A business operating in multiple states may owe different versions of this tax in each one.

Key Takeaways

  • Gross receipts taxes apply to total revenue, not profit, so a business owes tax even if it loses money after expenses.
  • Only Nevada, New Mexico, Washington, and a few cities currently use gross receipts taxes; most states do not.
  • Tax rates and what counts as taxable receipts depend on the state or city, and some jurisdictions exempt certain industries.
  • Businesses in multiple states may owe different gross receipts taxes in each location where they operate.

How gross receipts taxes differ from income tax

Income tax, the most common business tax, is calculated on profit—the money left after a business pays its operating costs. A restaurant that brings in $500,000 in sales but spends $400,000 on food, labor, and rent owes income tax only on the $100,000 profit. Under a gross receipts tax, that same restaurant would owe tax on the full $500,000.

This difference matters most for businesses with thin profit margins. A grocery store might have $10 million in sales but only $200,000 in profit because food costs are high. Under a gross receipts tax, the store pays tax on the $10 million, not the $200,000. This can make the tax burden much heavier for certain industries, which is why some states exempt or reduce rates for wholesale, manufacturing, or agriculture.

Which states and cities use gross receipts taxes

Nevada imposes a gross receipts tax called the Commerce Tax on most businesses. New Mexico has a Gross Receipts Tax that applies to nearly all business activity. Washington uses a Business and Operations Tax on certain service and retailing activities. Each state defines taxable receipts differently and sets its own rate.

Several cities layer their own gross receipts taxes on top of state versions. Las Vegas, Albuquerque, and Reno all have local gross receipts taxes. A business in Las Vegas may owe both Nevada's state tax and the city's local tax on the same revenue. Some jurisdictions exempt specific industries—manufacturing, agriculture, or wholesale operations—to reduce the burden on those sectors.

What counts as taxable receipts

Taxable receipts usually include all money from selling goods or services. This covers retail sales, service fees, rental income, and professional fees. However, what is included varies by state. Some jurisdictions exclude certain transactions: sales to other businesses for resale, exports, or specific industries like insurance or financial services.

Refunds and returns typically reduce taxable receipts in the period they occur. If a business collects $100,000 in sales but issues $10,000 in refunds, taxable receipts are $90,000. Some states also allow deductions for bad debts—money owed to the business that will never be collected. Understanding what your state or city counts as receipts is essential because the definition directly affects the tax amount owed.

Tax rates and how they are calculated

Gross receipts tax rates vary widely. Nevada's Commerce Tax ranges from 0.051% to 1.575% depending on the industry. New Mexico's Gross Receipts Tax is typically 5.125%, though some activities have different rates. Washington's Business and Operations Tax ranges from 1.5% to 1.75% depending on the type of business. Local taxes add another layer—Las Vegas's tax rate is 3.6% on most businesses.

Rates often depend on the industry classification. Wholesalers, manufacturers, and agricultural businesses may pay lower rates or be exempt entirely. Service businesses, retailers, and contractors typically pay the standard rate. A business must determine its correct classification to calculate the tax owed. Misclassifying your business can result in underpayment and penalties.

How businesses report and pay gross receipts taxes

Businesses in states with gross receipts taxes must file regular returns—usually monthly or quarterly—reporting total receipts and calculating tax owed. The filing process is similar to sales tax reporting in other states. A business collects receipts data from its accounting records and reports the total to the state or city tax authority.

Payment is typically due by a set date each month or quarter. Late payments incur penalties and interest. Some jurisdictions offer online filing and payment systems; others require paper forms. A business should verify the filing frequency and deadline with the specific state or city tax authority, as these vary by location and sometimes by business size.

Frequently Asked Questions

Can a business deduct business expenses from gross receipts before calculating tax?

No. Gross receipts taxes apply to total revenue before expenses. This is the key difference from income tax. Some states allow limited deductions for specific items like bad debts or returns, but ordinary business expenses like payroll and rent do not reduce taxable receipts.

Do I owe gross receipts tax if my business operates in multiple states?

Only if you operate in a state or city that has a gross receipts tax. If you have a location in Nevada or New Mexico, you owe their gross receipts tax on receipts from that location. You do not owe it in states that do not have the tax. Some states allow credits for taxes paid to other states to avoid double taxation.

What happens if I do not file or pay gross receipts tax on time?

Late filing and payment result in penalties and interest charges. The amount varies by state but typically starts at a percentage of the unpaid tax. Repeated non-compliance can result in license suspension or legal action. Contact your state or city tax authority immediately if you miss a deadline.

Are nonprofits and government entities exempt from gross receipts tax?

Most states exempt nonprofits and government entities from gross receipts tax, but exemptions vary. A nonprofit must usually register for exemption status with the tax authority rather than receiving it automatically. Verify exemption status with your state or city tax department before assuming your organization is not subject to the tax.