![]() The GRT is compounded a final time when a sales tax is applied at the point of sale. The GRT adds a deadweight cost to production which is compounded as firms build the tax into their sale price at each stage of production. Although GRTs usually apply to all intermediate transactions during production, consumers are generally unaware that when they purchase a retail product they are paying tax on the price of the good and at least one (perhaps several other) iteration of the GRT. The GRT also lacks transparency, which violates a key tenant of sound tax policy. A 0.25 percent tax rate may seem low, but in the world of GRTs, it is not: it is virtually identical to Ohio’s 0.26 percent rate, which is in lieu of other business taxes. ![]() H.2855 takes an all-of-the-above approach and applies the GRT to all receipts obtained from sales, services, property deals, interest, rent, royalties, and miscellaneous other fees, without repealing any existing taxes. When Ohio adopted its GRT, known as the Commercial Activity Tax (CAT), in 2005, policymakers did so while simultaneously repealing the state’s corporate income tax, capital stock tax, and business tangible property tax. Unlike other states that have enacted GRTs, Massachusetts’ proposal intends to layer a broad-based tax on services and goods at all stages of production while retaining every component of the present tax regime. The result is an inequitable tax that forces struggling firms further into the red and disproportionately harms businesses with narrow profit margins. The so-called guaranteed revenue stream occurs because GRTs are assessed regardless of a company’s ability to pay, whether it lost money or earned a profit in any given year. The GRT has persisted into the 21st century thanks, in part, to its claim of a guaranteed revenue stream. To make matters worse, Bay Staters would be asked to shoulder the added tax burden at a time when inflation is already eroding purchasing power at a rate not seen 1982. If H.2855 becomes law, it would reduce the competitiveness of the Bay State and increase prices for consumers on already expensive goods and services. Some Massachusetts policymakers, however, want to layer a GRT atop the state’s existing corporate income tax. None of these states imposes a corporate income tax, and Ohio repealed several other business taxes as well when it adopted its GRT. Those that still rely on them as a significant source of revenue (like Texas, Nevada, Ohio, and Washington) typically do so in lieu of one or more alternative taxes. Today, only a handful of states levy any variation of the GRT. ![]() Unfortunately, some policymakers in Massachusetts want to turn back the clock. That is why most states abandoned GRTs in the early 1900s, as states developed the capacity to administer less harmful taxes. Not only is the tax inequitable, but it is also inefficient and distortionary. ![]() The economic harms of the gross receipts tax (GRT) were well understood by the early 20th century. ![]()
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