Gross Receipts

Gross Receipts

Overview

Gross receipts are the total amount of money and the fair market value of property or services a business receives, before any deductions for expenses, cost of goods sold, or adjustments. They include operating and non-operating income and are used by some states and localities as the basis for business taxation instead of—or in addition to—corporate income or sales taxes.

What’s Included

Common items counted as gross receipts:
* Sales of goods and services (without deducting discounts or returns)
* Tax refunds and rebates
* Interest, dividends, and investment income
* Donations and grants
* Royalties (including mineral royalties)
* Fair market value of property or services received as consideration
* Debt forgiven or transferred as consideration

How Gross Receipts Differ from Gross Sales

• Gross sales typically reflect revenues from the primary business activity (product or service sales) before returns and allowances.
• Gross receipts are broader: they cover sales plus other receipts not tied to core operations (e.g., interest, refunds, forgiven debt).
• Gross receipts do not permit deductions for cost of goods sold, operating expenses, or many adjustments that reduce taxable income.

State Examples (illustrative)

Different jurisdictions define and apply gross receipts in varying ways. Two examples:

Texas
* Counts each sale of tangible personal property delivered or shipped to a buyer in the state regardless of FOB terms.
* Includes services performed in the state (with specific carve-outs).
* Includes rentals of property situated in Texas and use of intellectual property (patents, copyrights, trademarks, franchises) in the state.
* Includes sales of property located in the state, including royalties from oil, gas, and other minerals.
* Applies to other business activities conducted in the state.

Ohio (Commercial Activity Tax)
* Defines gross receipts as the total amount realized without deducting cost of goods sold or other expenses that contribute to producing gross income.
* Explicitly includes the fair market value of property or services received and debt that is transferred or forgiven as consideration.

Exemptions and Variations

States and local tax authorities often provide specific exclusions or adjustments to gross receipts for certain transactions or industries. Definitions and thresholds vary—businesses should consult the applicable tax code or a tax advisor for precise rules in their jurisdiction.

Why It Matters

• Tax liability: Gross-receipts taxes are based on top-line receipts rather than net income, which can lead to higher tax burdens for low-margin businesses.
• Compliance and reporting: Accurate classification of receipts affects tax filings, apportionment, and potential audit exposure.
• Location rules: Where a receipt is sourced (e.g., where goods are delivered, where a service is performed, location of property) can determine taxability in a particular state.

Key Takeaways

• Gross receipts measure total receipts from all sources before deductions.
• They are broader than gross sales and include non-operating income and certain noncash considerations.
• Some states use gross receipts as the basis for business taxes; definitions and rules differ by jurisdiction.
• Understanding local definitions and exclusions is essential for accurate tax planning and compliance.