State Taxation of Gross Receipts: Texas Franchise, Oregon CAT, Ohio CAT, Nevada Commerce, Washington B&O and Other Local GR Taxes

Description

Called by many different names--CAT, franchise tax, margins tax, commerce tax, etc.--a GRT is still a tax on receipts. It's a tax that can be charged multiple times on the same product and businesses operating at a loss. As a result, this is an ideal tax for states needing to raise revenue and is being embraced by more and more states and localities. Minimizing the impact of GRTs is an increasingly important concern for businesses and SALT professionals.

Oregon recently joined the group of states with a GRT called a CAT. The tax applies to "persons" that have substantial nexus in Oregon. Nexus includes, but is not limited to, receipts of $750,000 or more, property valued at $50,000 or more, or payroll of $50,000 or more. This CAT is assessed on receipts of $1 million and above, after a 35 percent deduction for certain costs, and is calculated as $250 plus .57 percent of "calculated taxable commercial activity." These gross receipts calculations are subject to unitary reporting rules.

One of the better-known GRTs is Texas' franchise tax. In January 2021, Texas adopted expansive changes to its apportionment and sourcing rules for gross receipts effective retroactively. Texas allows deductions for certain expenses, including the cost of goods sold, and has credits available to mitigate the tax.

With more states charging GRTs, additional planning opportunities exist to minimize the impact of GRTs in these states. Categorizing a business correctly is the first and most important item to consider to ensure assuming it meets nexus criteria. Some states require business registration and minimum fees, even when the business is below the GRT threshold for taxation (Texas for one). Noncompliance can be costly.

Listen as our panel of SALT experts explains the new Oregon CAT and who is required to file, recent Texas franchise tax changes, Nevada's commerce tax, and strategies to minimize taxation in other states that raise revenue by taxing gross receipts.