Additionally, some states may only have a franchise tax that functions as a corporate income tax while others impose both a franchise and a corporate income tax. Texas, for example, has a franchise tax, but there is debate on whether it is an income tax or a gross receipts tax based on how it is calculated, which is based on what they define as the “margin.” Each state that imposes a franchise tax has different rules on what business entities are required to file them and on what exactly the calculation is based on. Several states have franchise taxes that can be similar to corporate income tax or GRT but is a separate level of tax altogether. It is a simplified tax levied on business sales. Also, it generally does not face the same level of legal complexity as corporate income tax when it comes to the application of nexus in a state. It can also be imposed on businesses regardless if they are a corporation or not. GRT is imposed on the sales of the business, typically without (or few) business operations and expense deductions often allowed for state corporate income tax filing. It is important to differentiate state corporate income tax from GRT. GRT is directly imposed on the business’s receipts and cannot be passed to and collected from customers the way sales tax is. While sales tax is considered a trustee tax where a business is responsible for collecting sales tax from their buyers and remitting collected tax to the state, GRT is simply imposed on the sales, or receipts, of the business in the state. Unlike sales tax, GRT is imposed on the business’ receipt activity, or sales, in a state.
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