Margin tax vs. commerce tax: same fundamentals, different particulars

Victor Joecks

There has been much debate over the differences between and similarities of the margin tax and the newly imposed commerce tax, especially with efforts to repeal the commerce tax underway.

The two taxes are fundamentally the same — they are both gross receipts taxes. There are only so many categories of taxes, for instance: sales tax, property tax, personal income tax, corporate income tax and gross receipt taxes. 

Although commerce tax supporters don’t like labeling the commerce tax as a modified version of the margin tax, even they acknowledge that it is a gross receipts tax.

As gross receipt taxes, both taxes have many structural things in common, outlined well by the Tax Foundation.

1. Both have a simple structure: Tax gross receipts
2. Tax business sales over the selected threshold
3. Apply to almost all transactions 
4. Create tax pyramiding issues

Instead, what supporters of the commerce tax focus on what makes the margin and commerce taxes different types of gross receipts taxes.

And there are differences on the particulars of the margin tax and the commerce tax.

1. The tax rate: 2 percent vs. 27 different rates
2. The tax floor: $1 million vs. $4 million
3. How affiliated group is defined
4. What does and doesn't count as revenue

It’s a bit like asking if baseball and softball are similar or not. You can point to many differences in particulars — the size of the ball, length between bases and how pitches are thrown — but it’s easy to see that softball has more in common with baseball than with sports like football, tennis or basketball.