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Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 1785
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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Hi, I have a question regarding Gross taxes. I am supposed

Customer Question

Hi, I have a question regarding Gross taxes. I am supposed to retrieve from an Annual Report the value of "Payments to government" which should include gross taxes and royalties excluding employee taxes. I could use income tax as a proxy for payments to government isn't? but actually income tax is both in the Income statement as income tax expense and in the cash flow as income tax paid. Which value should I take? Could you please provide the definition for gross taxes?

Thanks
Submitted: 1 year ago.
Category: Tax
Expert:  Anne replied 1 year ago.

Anne :

Hi

Anne :

Thank you for your question

Anne :

 


 


According to the center for tax and budget accountability,

Anne :

 


What is a Gross Receipts Tax?


 



 


A Gross Receipts Tax (GRT) is a broad-based, low rate (generally less than 1%) tax imposed on


 


all income received by a business with out any deductions for costs of doing business , such as as deduction for wages. GRTs are not based on a company’s profit or loss for a given tax year; rather, they are owed on all income, regardless of whether or not business is profitable.


 



 


Currently, seven states impose a GRT: Delaware, Kentucky, Michigan, New Mexico, Ohio, Texas and Washington.


 


How is the GRT Different from the Corporate Income


 


Tax?


 



 


Unlike the corporate income tax which is levied on a corporation’s profits, the GRT is imposed on the


 


gross receipts or, the total sales, of all goods and services each time they change hands in the distribution chain.


 



 


The GRT is a stable revenue source because all firms, even unprofitable ones, pay some tax, which


 


results in more revenue for the state. Estimates show that a 1-2% GRT would generate roughly $6 billion for Illinois.


 



 


In the few states that have a GRT, the rate is typically lower than a corporate income tax rate due to


 


the much larger tax base.


 



 

Anne :

 


I truly hope this information is helpful but please do not rate until you are satisfied. If you want to click on 1 or 2 just click on the continue to work with me button instead. You will then be able to add any other info or respond to what I have posted so far. Rating 3-5 gives me credit and a good rating but you can still converse with me.

Anne :

Hello, I see you're here now

Customer:

I still do not know which amount should I take from and Annual Report "Payments to government". Can I take income tax as a proxy for GRT? If yes, which accrual or on a cash basis?

Anne :

where are you located?

Customer:

well, I revise the Annual Reports of companies published worldwide.

Anne :

ok

Anne :

let me check something

Customer:

also one comment, I thought the term gross taxes means the sum of current and deferred taxes - as reported in the income statement

Anne :

I want to be sure we're on the same page here..............do you have a form number that you can give me?

Anne :

the form you need to file

Customer:

could you please clarify which Form? I just revise the Financials of copamnies. For example take the Annual Report of the company Severstal: pages 120 for income tax expense and page 123 for income tax paid. I am sinding you the attachment.

Anne :

Ok..........I'll let you know when I get it

Customer:

It seems the file is too large - it did not work but here is the link: http://www.severstal.com/eng/index.phtml you can download and revise the 2012 Annual Report.

Anne :

Ok.....let me check one more thing..........and then I think we will have the right answer

Customer:

Ok, Thanks

Anne :

ok...the term "gross taxes" in whatever form, report, etc, that you file is obviously NOT the same as "Gross Receipts Tax"........in this case I would use the "payments to government"

Customer:

and which value from the Annual Report should I take for "Payments to government"?

Anne :

Since I can't see the paperwork, I would think that they would have itemized the type of tax paid

Anne :

is this correct?

Customer:

I mean where payments to government are reported in the Annual Reports of companies? Income statement as tax expense of Cash flow as tax paid? This is the same in any income statement of statement of cash flows

Customer:

I mean if you would have to look in an Annual Report of a company x for the value of "Payments to government", where is this value reported? In the income statement as tax expense OR in the Statement of Cash flows as tax paid?

Anne :

ok.........I think we're finally on the same page

Anne :

give me just one more minute please

Anne :

use tax expense

Customer:

could you please explain why? and why not the tax paid? thanks

Anne :

gross tax is the amount due........which may or may not be the same as what was already paid

Anne :

although generally, those 2 numbers match

Customer:

so in this case gross tax is the sum of current and deferred tax. Why would not be appropriate to take income tax paid since the term is "Payments to government"?

Anne :

You have the advantage of being able to see the forms................and I follow your reasoning.........since they paid the amount they were supposed to pay (not every company does) then yes, use the payments to the government

Customer:

You can take any income or cash flow statement. I do not have any form only the task to find a value from the Annual Report for "Payments to government" and I am asking which value should be the best one that reflects paymenst to government. OK you said use tax expense, right but I just wornder why not to take tax paid. Again I do not have any form for "Payments to government only the information that this refers for example to gross taxes and royalties less employee tax paid.

Anne :

do those 2 numbers match? tax expense and tax paid?

Customer:

No, this is the problem. I have to revise many Annual Reports on a global basis. In one case (out of 30) the value was the same. In other cases, few they are close, and in the rest of the cases they are quite different.

Customer:

my concern is taking a value that should not be the correct one.

Anne :

that's the reason for using the "tax expense".........this term should be what is OWED ..........whether or not all of it is paid...........

Customer:

This implies that in some cases I take a low value when they actually paid a higher value...

Anne :

the difference is most likely tax they are paying from a previous year......

Customer:

Ok, so what is reported as tax expense is what companies must pay regardless when

Anne :

yes

Customer:

you mentioned above that companies "paid the amount they were supposed to pay (not every company does)". What do you mean by saying not every company does?

Anne :

its exactly what we were talking about......the difference in tax expense and tax paid

Customer:

OK thanks for the confirmation.

Anne :

You're most welcome

Anne :

Please come back if we can help you again.

Customer:

OK have a nice day.

Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 1785
Experience: Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
Anne and 5 other Tax Specialists are ready to help you
Expert:  Anne replied 1 year ago.
Thank you very much for the accept, excellent rating, and your generous bonus!

Please fee free to ask for me by name if I can help you in the future
Customer: replied 1 year ago.

Hi Anne,


Actually, I am a bit confused still as I received feedback from one company for which I check theri data as follow "For payments to government they could take the taxes paid, which amounted to x". I also read that the value for income tax expense is an estimate and not what is really paid every year. Do you have any comments?

Expert:  Anne replied 1 year ago.
Yes......many companies give an estimate based on the prior year's taxes. they have not "crunched" the exactl numbers (meaning generally thinigs like depreciation, etc) will not have the EXACT total, as some things vary every year (depreciation was the easiest one to use as an example.

I hope this helps. ........
Customer: replied 1 year ago.

Well, then the value that best reflects payments to governement is Income tax paid and not income tax expense...

Expert:  Anne replied 1 year ago.
Since you mentioned that these are annual reports......if you are looking at a prior year, then yes, the $ amount paid to the government would be correct

If you are looking at THIS year's reports, then you would use tax expense since they have not close their books yet.

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