Washington's Business and Occupation (B&O) tax stands out as one of the few gross receipts taxes (GRTs) still around in America. Last week the Tax Foundation wrote critically of GRTs, noting that

Though gross receipts taxes are business taxes and as such are sometimes viewed as progressive, in reality, they have potential to be more regressive than sales taxes as they pyramid and are passed on to consumers.

Largely adopted during the Great Depression, says the Tax Foundation, most states who had GRTs abandoned the practice soon after due to serious deficiencies.

A gross receipts tax is levied against the receipts of a sale that results in a change of ownership. Gross receipts taxes are largely a historical novelty to the developed world because most evaluations of tax instruments emphasize traits the gross receipts taxes perform relatively badly on: economic efficiency, equity, and transparency. By including transactions at intermediate stages of production, these “turnover taxes” are not based on profits, measures of income, or any other indicator of consumption power that is targeted by most other tax instruments in modern developed economies. Furthermore, the tax gives a competitive advantage to bigger businesses that can make their own inputs rather than buy them. Finally, as taxes get added to the various stages of production they “pyramid” into the final price, so that the effective tax rate on goods exceeds the tax rates presented to voters and final consumers.

The foundation's assertion that a GRT may be more regressive than a sales tax adds an interesting element to the argument we've heard over the past few years – mainly from progressives – that the sales tax is responsible for allegedly making Washington the state with the least fair tax structure in the nation.

You can read the report here.