The Governor's Task Force on Tax
Policy in Nevada will meet one final time
this week, just days before it is scheduled
to deliver a lengthy report outlining a
comprehensive tax plan for the state.
The eight-member panel last week
passed a motion to include a so-called
transaction tax that would place a levy on
various amusements and entertainment.
But the motion was for a tax only on spectator
entertainment such as movies and
not participatory events such as health
club memberships. As a result, the motion
passed by a vote of five to two because several
members felt the restrictions watered
down the proposal. Panel member Russ
Fields, president of the Nevada Mining
Association, was absent.
But the most contentious moments
came with discussion of the gross receipts
tax, now called the state activity tax or
SAT.
Task force member Eva Garcia-
Mendoza, a partner in Garcia-Mendoza &
Snavely in Las Vegas, asked to clarify
whether the gaming industry would be
subject to the SAT because it had been
suggested by members of the task force
that the casinos pay the .25 percent tax to
the Gaming Commission, which already
collects taxes imposed on gaming, rather
than to the Department of Taxation.
That would effectively raise the existing
6.25 percent gaming tax to 6.50 percent,
rather than levy a new .25 percent gross
receipts tax against the industry.
But the definition of taxable gaming
wins in the existing tax statutes and the
definition of gross receipts in the proposed
tax differ, and as result the gaming industry
would end up paying less than .25 percent
on its gross receipts, argued Garcia-
Mendoza.
Task force member Mike Sloan, senior
vice president of Mandalay Resort Group,
countered that the costs of administering a
new tax on the casinos would outweigh any
discrepancies in the amount the casinos
paid. And Jeremy Aguero, principal analyst
with Applied Analysis in Las Vegas and
head of the task force's technical working
group, said the difference in the amount of
tax collected from gaming would be negligible,
whether the tax department collected
it or the gaming commission did.
Despite the disputes on last-minute
details, the bulk of the report and proposal
is complete. And one thing is certain: The
task force will recommend a quarter percent
gross receipts tax on the state's businesses.
The SAT is the cornerstone of the task
force's proposal, intended to raise the bulk
of revenue needed to cover the state's gaping
budget shortfall estimated to be
between $2.6 billion and $4.6 billion over
the next 10 years.
From the beginning, however, the tax
has drawn criticism from the business community.
From the Asian Chamber of
Commerce in Las Vegas to The NBF
Group Inc., a debt collector in Carson City,
witnesses testifying before the panel have
lambasted it.
"As a business owner I don't want to see
any tax at all," said Quinn Ahrens, president
and CEO of Xoc Corp., a Renobased
technology company. "And a gross
receipts tax doesn't take into account the
margins of a business."
That has been the argument against the
tax from the beginning. The business community
maintains that a gross receipts tax is
inherently unfair: Two businesses, both
generating $1 million in annual revenue,
would pay the same tax even though one
business, working on a 1 percent margin,
netted only $10,000, while the other business,
operating on 20 percent margins,
made $200,000.
On the other hand, proponents of the
tax say it is far more stable and easier to
administer than any of its alternatives.
The primary alternative, in terms of a
broad, business-related tax, is an income
tax. The Nevada constitution prohibits a
personal income tax on individuals, but not
a corporate income tax on business.
But the panel has rejected that idea.
That's because a corporate income tax goes
hand in hand with a personal income tax,
according to Richard Davis, president of
the Washington Research Council in
Seattle.
"It is almost impossible to implement a
corporate income tax without a personal
income tax," said Davis. "A corporate
income tax is too volatile and a personal
income tax provides a stabilizing balance. It
also prevents raising the corporate income
tax too high."
As proof, Davis said that all states that
have a corporate income tax couple it with
a personal income tax.
Washington, for example, like Nevada,
has no personal income tax. It is also the
only state that has a gross receipts tax,
called the business-and-occupation tax.
Davis said that Washington businesses uniformly
hate the B&O tax, which began in
the 1930s.
"But the reason we've had the B&O tax
for so long is people hate it until they look
at the alternative," he said.
"The B&O tax in theory is a really
lousy tax. But if you keep the rate low it is
an endurable tax."
The unappealing alternative is the pair
of income taxes corporate and personal.
But in Washington, as in Nevada, a personal
income tax is considered anathema
not to mention that it would take five
years to change the Nevada constitution to
allow it. And a corporate income tax rate
would have to be set too high to raise comparable
revenue, said Davis.
Washington's B&O tax rate is currently
1.5 percent for services businesses and 0.5
percent for wholesale, retail and manufacturing
businesses. A corporate income tax
rate, estimates Davis, would have to be
between 14 percent and 16 percent to generate
the same amount of revenue.
Another argument has been that a gross
receipts tax would deter companies from
locating here and drive some existing businesses
into bankruptcy.
"We need to diversify the economy and
attract new business," said Robert Jones,
president of the Northern Nevada Builders
Association in Reno. "That's my biggest
concern about a gross receipts tax."
Some have said that Washington's B&O
tax has done just that - driven away the
likes of Boeing Co. and major manufacturers.
But that argument loses steam considering
that Washington's B&O is 70 years old,
and was in place long before Boeing left or
Microsoft was founded. In 1993, the rate
was raised, said Davis, but was reduced
within four years to its current rate after
the business community protested.
To spare small businesses, the Nevada
tax policy task force is recommending that
any gross receipts tax have a minimum revenue
threshold of $350,000, meaning that
the first $350,000 in revenue for any business
will be exempt. That eliminates about
60 percent of the state's businesses from
paying any gross receipts tax at all, estimates
the task force's technical working
group.
Another fear is that companies would
end up paying for revenues they simply
passed along to someone else like a travel
agent who collects fares for airlines or a
builder who collects a bill for a subcontractor.
The task force, though, says it will provide
provisions to avoid double taxing such
so-called pass-through revenues.
Some Nevada businesses have already
accepted the possibility of a gross receipts
tax as the lesser of all evils. The Nevada
Resorts Association, which represents the
casinos, has endorsed it. An executive from
cable giant Cox Communications testified
before the task force that his company
would support it. An oil company owner
grudgingly accepted it once the task force
assured him that he would be able to pass
along the cost of the tax as a line item on
an invoice.
"Nobody in business likes more taxes,"
said Chuck Byrne, CEO of Hytek
Microsystems in Carson City. "But I could
live with a gross receipts tax as long as it
was implemented properly, meaning as
long as the rate doesn't keep going up and
grow into some kind of monster."
"Personally," he said, "I think we have
to do something in Nevada."
The task force recommendations
* A tax on business' gross receipts at .25 percent, with a $350,000
exemption and a $100 per employee credit for business license tax
* A 50 percent increase in corporate filing fees; inflation adjustment for
the BLT; and application of the BLT to all businesses, including sole proprietorships
* A transaction tax on spectator entertainment such as movies
* An increase in cigarette and liquor taxes
* An increase in the cap on property taxes
For a copy of the report go to: www.appliedanalysis.com/Inetpub/wwwroot/
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