What is a Commerce Tax? – Master of Accounting Degrees

A commerce tax is a levy or tariff that is imposed on companies that exceed a set limit of gross revenue. The State of Nevada is the latest state to impose a state-wide gross receipts tax on business entities that generate over four million dollars in annual revenue.

A Quick History

Gross receipts taxes (GRT) were actually started back in the early 1920s, but there was an increase in the number of states using GRTs in the 2000s. Most states impose some type of corporate income tax (CIT) to raise revenue from business entities. Most CITs are based on the federal income tax codes and rules. A few states, such as Ohio, Texas and Washington, impose a gross receipts tax (GRT) instead of a CIT. GRTs are a tax on business receipts instead of business income. GRTs apply to all business sales and allows very few deductions. There are a few states that impose GRTs and CITs, such as Delaware and New Mexico.

State Profile – Nevada

Nevada State has historically never imposed any type of business income or gross receipts tax. However, Nevada must increase revenue for their education system, so they have created a new business entity tax. The Nevada Senate passed Bill 483 that imposes an annual business tax on each business entity engaged in business in the state. Nevada’s Department of Taxation now requires companies who generate over four million dollars of revenue in the fiscal year to calculate their business tax liability. While this creates a burden for certain companies, the Nevada business tax has almost no deductions from gross receipts and applies to a variety of business entities, such as partnerships, business associations, joint ventures, business trusts, professional associations and joint stock companies.

Fast Facts – Nevada

Nevada’s fiscal year ends June 30, so the tax filing report is due 45 days on August 15. Companies may request a 30-day extension by submitting documentation with good causes. There are a few exclusions and deductions from the gross revenue tax, but there are no deductions for the cost of sold goods or incurred expenses. The business tax rates actually vary depending on the type of industry. The Nevada Tax Commission uses the North American Industry Classification System (NAICS) codes. There are 26 NAICS business categories and the tax rates range from .051 to 0.33 percent. Companies that are audited are responsible to pay the expenses to execute the audit. Unlike most other state tax statutes, the business tax isn’t a sales tax, but only applies to companies with gross revenue over four million dollars.

State Profile – Texas

The state of Texas imposes a GRT in the form of a franchise tax that is based on taxpayer’s margins. Their tax is imposed on partnerships, limited liability companies and C and S corporations. In Texas, taxable entities that are part of an affiliated group engaged in unified business operations are required to file a tax report that computes their franchise tax as if they were a single taxable business entity. A business entity’s taxable margin can either be the total revenue of less than one million dollars, 70 percent of the total revenue or the total revenue minus compensation or the cost of sold goods. The tax rate is one percent, but there is a reduced rate of 0.5 percent for taxpayers engaged in retail or wholesale trade.

The commerce tax is imposed for the privilege of engaging in business in certain states across the country.