Document Type



Tax Law


Turnover taxes have a storied history dating back to ancient Athens, and are starting to make a comeback in the States. A gross receipts or turnover tax is levied every time a good or service “turns over,” that is, transferred from one entity to another for consideration. The resulting gross receipt is subject to tax. The tax base is “turnover” and the measure of the tax is “gross receipts.”

A turnover tax applies to both services and tangible items ranging from sales of business inputs to sales to end users alike; in essence it taxes business activity, whereas a retail sales tax is intended to tax consumption and should apply only to the end user. The turnover tax is not to be confused with a gross receipts sales tax, which is intended to be a vendor-based sales tax, although both are measured by gross receipts.

This article re-evaluates myths and realities of turnover taxes, including their purported benefits and drawbacks. Some of the arguments in favor of turnover taxes such as, low rates, ease of administration, stability, and the notion that they are hidden from voters are discussed, as well as their many drawbacks including cascading, uneven treatment of corporations, the fact that they are a heavy burden on loss corporations and capital-intensive industries, and that they discourage replacing old assets with new, just to make a few.

Professor Pomp concludes this article by issuing a warning for policymakers to heed: that the purported advantages of turnover taxes are illusory and turnover taxes instead contain structural defects that many modern taxes do not possess.

Included in

Tax Law Commons