Gross Profit Ratio

Gross Profit Ratio means, in an installment sale, the relationship between the gross profit (gain) and the contract price. The resulting fraction is applied to periodic receipts from the buyer to determine the taxable gain from each receipt.

Example of Gross Profit Ratio:

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Land held as a capital asset by Collins is sold for $10,000. Collins's tax basis was $4,000, so the resulting gain was $6,000. The gross profit ratio is 60% ($6,000 -r $10,000 = 60%). Collins accepted a $1,000 cash down payment with the $9,000 balance of the price to be paid over 3 years. Of each amount paid toward the principal, 60% is gain to be taxed, and the balance is a nontaxable return of capital.

U.S. and other Developed Countries International Tax Meaning

Ratio of gross profit to the sales of a business or, alternatively, to the adjusted purchases or “goods consumed” during the accounting period.