December 13, 2006

The Indefensible Gross Receipts Tax: In Ohio, That Should Mean “Kill the CAT”

Filed under: Business Moves,Economy,Taxes & Government — Tom @ 9:01 am

The only good things you can say about the Ohio’s version of the tax, known as the Commercial Activities Tax, or CAT) are that it’s “sort of” low compared to what other states have had in the past, and that it appears to be a near-certainty that food will be exempt from it.

But other than that ….. well, let the Tax Foundation explain (full PDF report here):

Key Findings

  • There is a growing trend among states toward replacing corporate income taxes with Depression-era gross receipts taxes.
  • Gross receipts taxes are poor tax policy. They lead to harmful “tax pyramiding,” distort companies’ structures, and damage the performance of state and local economies.
  • The administrative simplicity and low rates of gross receipts taxes are illusory. Lawmakers are forced to add complexity to correct for their structural flaws, and some industries face high effective tax burdens despite low statutory rates.
  • States in search of alternatives to corporate income taxes should not rely on economically harmful gross receipts taxes.

I believe the tax was a significant factor in why Honda chose to build its next plant in Indiana. Let’s not lose another big one, or even a (relatively) small one: Kill the CAT.

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