(THE CENTER SQUARE) – Ohio is one of the four states in the nation that taxes corporations on gross receipts rather than a corporate income tax, which is considered more harmful to businesses, according to a new report.
The report comes from the Tax Foundation and ranks each state, along with the District of Columbia, in terms of corporate income tax rates heading into 2023. Local taxes within each state can impact the rate from state to state.
The Tax Foundation said Ohio's structure is “generally thought to be more economically harmful due to tax pyramiding, disparate impacts on low-margin businesses and non-transparency.”
According to the Tax Foundation, a gross receipts tax is applied to a company’s gross sales, without deductions for a firm’s business expenses, like costs of goods sold and compensation. Unlike a sales tax, a gross receipts tax is assessed on businesses and applied to business-to-business transactions in addition to final consumer purchases, leading to tax pyramiding.
The top rates in the country belong to New Jersey (11.5%), Minnesota (9.8%), Illinois (9.5%) and Alaska (9.4%).
As of the ranking, 44 states have corporate income tax with Wyoming and South Dakota going without it, and Nevada, Washington and Texas joining Ohio using a gross receipts tax instead of corporate income tax.
Overall, 30 states, along with the District of Columbia, use a single-rate system for corporate income tax.
“A single-rate system minimizes the incentive for firms to engage in economically wasteful tax planning to mitigate the damage of higher marginal tax rates that some states levy as taxable income rises,” the report said.
Parts of Pennsylvania, Virginia and West Virginia also have local gross receipts taxes.
