Occupation tax – definition and meaning

Occupation tax is a tax the government imposes on certain trades and professions. It is usually a set amount the government levies, typically as a license fee, on doctors, lawyers, and other professionals. However, sometimes it may be a proportion of gross income.

The providers of the services pay the occupation tax, rather than the clients.

Business and occupation tax

In the United States, professionals pay occupation tax to the state or local government.

The US states of Washington, West Virginia, and Ohio call it business and occupation tax or B & O tax.

Some jurisdictions class business and occupation taxes according to sectors, such as wholesaling, services, retailing, or manufacturing. Within each sector, the tax rate is the same. However, it may vary among classes.

In some parts of the world, this tax also refers to taxes and fees some businesses must pay. For example, it might be the fee for a liquor license for a nightclub, bar, or restaurant.

In other words, the term refers to local taxes that professionals, service providers, and other businesses pay.

Occupation tax - image with explanation and examples
Occupation tax may be a flat fee or a percentage of gross receipts.

Regarding occupational tax, USLegal.com writes:

“The power to levy occupation tax is derived is from the police power of the state to regulate its citizen’s.”

State and local governments impose the tax for the privilege of practicing a profession, trade, or running a business.

Occupation tax – example

In the City of Lincoln, Nebraska, there is a restaurant occupation tax. Anybody who operates a drinking establishment or restaurant must pay this tax.

The rate is two percent of all gross receipts for each calendar month.

According to the City of Lincoln: contributors have to pay a percentage of their gross receipts. In other words, a percentage of their sales.

Sometimes, how local governments collect this type of tax changes. For example, in the city of Roswell, Georgia, the authorities used to collect the tax according to the number of workers.

For 2018, however, the city will tax businesses using a method based on gross receipts.

The North Fulton Neighbor explains that ‘gross receipts’ refers to a company’s total sales during an annual accounting period. We do not subtract any costs or expenses to get the gross receipts total.