What Is a Business Tax Receipt?
A business tax receipt, also referred to as a gross receipt, is a method employed by some states to tax businesses operating in their region. These taxes require payments based on the organization's gross sales, without considering potential business expenses, such as payments made to contractors and employees or the cost of goods sold.
While not every state has a gross receipts tax, these taxes play an important role in successfully operating a business within the states that do. When you pay your tax, you'll have your business tax receipt, showing that you paid the necessary fees and are approved and authorized to operate.
Since the regulations concerning business tax receipts can vary widely depending on the state and even the county and city where the business wants to operate, each organization must carefully research the laws applicable to their business location. Your state's tax center and tax collector's office at city hall can be excellent resources. Here are the basics that all business owners should understand about a business tax receipt.
Explaining Tax Receipts
Generally speaking, receipts offer proof of a financial transaction. People are already well accustomed to the receipts they receive after paying for a particular good or service. Receipts are also issued for various business-to-business deals, as you might see following stock market transactions. The same principle applies to a business tax receipt. The difference is that the business tax receipt provides proof that a business has paid the required taxes to operate in a jurisdiction.
The rate and rules that govern how the business tax receipt is calculated can vary widely, from less than 1% in some states to over 3% in others. The amount an individual business owes is based on the gross receipts the business receives; in other words, the amount of money the business earns without considering the amount the business spent to run effectively. The tax targets each transaction between businesses and the moments when the business sells to customers.
In some cases, the state might not have a business tax receipt, but counties or even smaller municipalities might enact them on the businesses within their jurisdiction. Given this wide range of implantation, all business owners should carefully evaluate the regulations in their immediate area as they establish their businesses.
IRS Tax Receipt Requirements
For various record-keeping needs, digital receipts have become increasingly common. Digitizing records makes it easier for businesses to keep track of their information without filling files with scores of slips of paper. It also becomes easier to organize and track the receipts as needed.
The Internal Revenue Service (IRS) also recognizes the value of using digital records to track receipts. Since 1997, the federal tax collection agency has allowed businesses to keep records of their receipts with scanned and digital versions of the record. This can make it easier for many businesses to submit the appropriate documentation regarding their income and expenses throughout the year so that their taxes are reflected accurately. Particularly in the age of the coronavirus (COVID-19) pandemic, record-keeping through digital means as much as possible will benefit everyone involved.
Overall, to track your gross receipts, the IRS recommends that business professionals keep track of the following information:
- Cash register tapes
- Information about their deposits, including their cash and credit sales
- Receipt records, which will manage and track important receipts they collect
- Any invoices submitted
- Any 1099 forms submitted, including the 1099-MISC
These records will provide businesses with the documentation they need to demonstrate their gross receipts, which can then be used to pay any necessary business taxes levied in their particular zoning region. Since these taxes play such an important role in the success of the organization, maintaining clear and current records of gross receipts should be a top priority for any business.
How Do Business Tax Receipts Vary by State?
Since individual states set business tax receipts, they can vary considerably from state to state. In some areas, the tax is not even levied by the state but rather by a county or another region in the state. Currently, the states with a gross receipts tax are:
The tax rates administered can be as low as 0.02% in Tennessee but can get as high as 3.3% in Washington. However, other states allow local taxes based on business tax receipts. For example, you might have to pay a county business tax receipt rather than the tax to the state.
These states include:
- South Carolina
- West Virginia
You might also see other states where the local business tax receipt will be used in particular jurisdictions as more of an occupational license, such as in some areas in Florida.
In the areas with business tax receipts, the actual rate can vary depending on a few different factors, including the industry of the business. The amount owed is then calculated based on the revenue that the business brings in, without taking into account any business expenses the organization had to shoulder.
Here are a few key state guidelines to understand how these regulations can vary.
Texas enacted its gross receipts law for businesses operating in the state over a decade ago. When the law was enacted in 2006, it allowed for certain exemptions to the tax, including sole proprietorships and general partnerships. The law also sought to allow some relief for business owners by allowing them to elect to deduct the cost of goods sold or employment costs they incurred. Texas law specifically defines business tax receipts as:
- Sale of personal property, real property (including royalties from oil, gas, or minerals found on the property), and rental properties
- All services performed in the state, except for servicing loans for property in the state
- The use of patents, trademarks, copyrights, licenses, or franchises within the borders of the state
- All other business done in the state
The tax in Ohio focuses on businesses that have gross receipts that reach at least $1 million. The law also requires a minimum tax burden beyond the business tax receipts for organizations that make at least $150,000.
In Ohio, the law applies to anyone who owns capital in the state or is authorized to do business in the state. The law extends itself to include anyone that the state is authorized to reach for taxation purposes under the U.S. Constitution.
The state also defines gross receipts as:
- Money that comes from the sale or otherwise property moving from one entity to another
- Money that comes from the taxpayer performing a service for another
- Money that comes from "another's use or possession" of the property that belongs to the taxpayer
In the state of Florida, gross receipt taxes are levied for utilities. Specifically, the Florida Statute states that there is a 2.5% tax on the "sale, delivery, or transportation of natural gas, manufactured gas (excluding liquefied petroleum [LP] gas), or electricity to a retail consumer in Florida." Taxes on dry cleaning facilities may also apply in certain situations.
While that is the law that applies to the state as a whole, the city of Orlando also has its own specifications. In Orlando, all business owners must have a city business tax receipt to be legally eligible to operate within the city limits. Payment is required before new businesses open.
The tax is due the following year no later than Oct. 1, with the previous year's tax expiring on Sept. 30. You'll receive a renewal notice over the summer. If payment is late, the business tax account will begin to accrue late fees. If your business name differs from your legal name, you must register with the state of Florida through SunBiz before you proceed with your business tax receipt application. You may apply for your business tax receipt online.
Other areas in the state also have a local business tax receipt application, such as Broward County. To apply, you'll use the Broward County BTExpress system. Like Orlando, fictitious name registration is required before beginning the application.
Manage Your Tax Forms and Accounting With Skynova
If you're in an area that requires obtaining a business tax receipt, you need to keep careful records so that you know how to track your gross receipts and are prepared to pay any taxes necessary. From a property tax to gross receipts tax, businesses today need to keep track of several financial obligations. Whether you need a new business tax receipt or have a long-standing existing business, mismanaging your records can easily lead to inaccurate gross receipts and failure to pay the appropriate amount of tax.
Fortunately, Skynova offers several free business templates and software products that help small business owners, like you, track their invoices and accounting. Using these templates will enhance your ability to track your gross receipts and the income that your business generates. When the time comes to meet with the tax collector, you'll immediately have the information you need.
All writers’ opinions are their own and do not constitute financial advice in any way whatsoever. Nothing published by Skynova constitutes a financial or investment recommendation, or tax planning advice, nor should any data or content published by Skynova or available through any Skynova site be relied upon for any financial or investment activities or tax planning.
Skynova strongly recommends that you perform your own independent research and/or speak with a qualified financial, investment or taxation professional before making any financial, investment, or tax-planning decisions.
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