Partner Lynn Gandhi was quoted in the Bloomberg Tax article, “States May Consider Gross Receipts Taxes to Cope with Virus Impact,” about how some states may consider reviving the gross receipt tax, which taxes the total sales of businesses, as a way to help state and local governments that have been battered by the COVID-19 pandemic raise revenue in the expected recessionary period to follow the pandemic.
The tax is an alternative source of revenue, and many states may look to use it while businesses recover. But Gandhi cautioned that the taxes require patience, resources and political will to construct and implement, especially in an economic crisis. “States are going to have to face revenue raisers, but a brand new tax system requiring a brand new IT system would be a really heavy lift for them right now,” Gandhi said.
Gandhi pointed to her state’s experience with the Michigan Business Tax, which was enacted in 2007 and imposed a 4.95% business income tax and a modified gross receipts tax at the rate of 0.8%. The tax proved hugely unpopular and was repealed in 2011. Indiana, Kentucky and New Jersey have also repealed gross receipts taxes in recent years.
States searching for strategies to raise revenue quickly will probably expand their sales tax bases by including more services, Gandhi said.