Pennsylvania, along with a few other states like Virginia and West Virginia, implements a gross receipts tax at the local level. This tax is also in place in seven other states, including Ohio and Delaware, at the state level. Gross receipts taxes are levied on firms’ total gross sales without deductions for operating and other business expenses, and they apply to every production stage before the final consumer sale, unlike sales taxes.
In Pennsylvania, this tax impacts various sectors, such as electric companies, telecommunications, transportation, private banks, and managed care organizations. However, the popularity of gross receipts taxes has declined, with states like Indiana, New Jersey, Kentucky, and Michigan phasing them out between 2011 and 2022 due to their negative impacts on business reinvestment and profitability, particularly for businesses with narrow profit margins.
The tax has also faced legal challenges; in 2014, an audit deemed Pennsylvania’s gross receipts tax on Medicaid managed care organizations as “impermissible,” which had inflated Medicaid payments. Recent legislative efforts include a proposal by Senate Republicans to reduce the gross receipts tax on electricity as part of a broader initiative to lower the state’s tax burden by $13 billion over five years, though this requires broader legislative approval.
Despite these challenges, gross receipts taxes contribute to Pennsylvania’s rank of 34th nationally for state and local sales taxes and 28th for overall tax burden. While competitive with some neighboring regions, Pennsylvania lags behind more rapidly growing Sun Belt states, which are drawing more residents partly due to lower tax burdens.
