Learning from Europe and America’s Shared Gross Receipts Tax Experience

As states in America continue to consider gross receipts taxes (GRTs) as a source of tax revenue, Europe is also evaluating proposals to use GRTs to tax digital firms. Europe’s historical experience, like the experience of its American counterparts, shows that GRTs are bad tax policy with no place in debates over digital taxation and optimal sources of tax revenue. Prior to 1970, western European countries other than France levied turnover taxes, also known as gross receipts taxes, including Germany, Italy and Belgium. These taxes are levied on total sales when goods “turn over” without any deduction for a firm’s costs. Turnover taxes have a long history in Europe. The first turnover tax, named the alcavala, was established in Spain in 1342. In The Wealth of Nations, Adam Smith in 1776 condemned turnover taxes as having caused “the ruin of the manufactures of Spain.” Turnover taxes were a major source of revenue for European countries after…

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