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Tax Issues - Gross Receipts Tax

Gross receipts taxes, also referred to as “turnover” taxes, are imposed on sales at each stage of the supply chain, e.g., on suppliers, manufacturers, distributors and retailers.  Unlike a corporate income tax, businesses must pay gross receipts tax whether they are profitable or not. 

Revenue shortfalls have prompted some states to consider, and in rare cases, adopt, gross receipts taxes to supplement or replace other business taxes.   Gross receipts taxes distort production and consumption decisions because the amount of tax imposed on any particular good or service depends on how many different in-state firms are involved in the supply chain.  In addition, effective tax rates can differ widely by industry. 

Healthcare distribution is a “high-volume/low-profit margin” business that suffers disproportionately from a gross receipts tax.  The national average net profit margin of a pharmaceutical distributor is approximately 1.68% before taxes. [i] Given the business realities of operating in this competitive market, it is impossible for these companies to absorb the resulting negative financial impact of a gross receipts taxDistributors’ revenues are almost entirely and immediately offset by the costs of purchasing the medicines, since there is relatively no distributor mark-up.  A gross receipts tax, which generally is based on total sales revenue without consideration of operating costs or expenses (cost of medicine), has a significant financial impact on pharmaceutical distributors given the high dollar value of the products they carry.  For example, even if the gross receipts tax rate is relatively low, the total tax owed becomes substantial when it is multiplied by the high volume of high value pharmaceutical products sold by distributors each year.  The unique nature of the distribution business model will result in a disproportionately high tax, compared with other industries.

State Activities


[i] 2007-2008 HDMA Factbook, Healthcare Distribution Management Association (2007).


Liz Gallenagh
Vice President, Government Affairs and General Counsel

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