When can a state enact a Gross Receipts Tax?

A state can enact a Gross Receipts Tax when it does not burden interstate commerce, which is essential for adhering to the Commerce Clause of the U.S. Constitution. This provision prevents states from enacting taxes or laws that would unfairly discriminate against or unduly burden interstate trade.

In determining whether a Gross Receipts Tax places an undue burden on interstate commerce, courts will generally assess whether the tax imposes significant costs on out-of-state businesses compared to in-state businesses. If a state can demonstrate that its Gross Receipts Tax is fairly applied and does not disproportionately affect interstate commerce, it is permissible.

The other options have limitations that prevent them from justifying the imposition of a Gross Receipts Tax. For instance, applying solely to businesses domiciled in the state may not satisfy the constitutional requirement, as it could lead to discrimination against out-of-state businesses. Similarly, merely having a budget shortfall or imposing the tax only on consumable goods does not inherently link to the constitutional framework governing commerce; the critical factor is that the tax does not impose an undue burden on interstate commerce.