Taxes hit business, but effect may be mild

RENO, Nev. (AP) -- New state taxes will make it more expensive to do business in Nevada but leaders disagree about the long-term impacts and some say it might not be so bad.

New taxes on payrolls in general and banks in particular, and higher levies on casino revenues, tobacco, alcohol and other targets promise an $836 million bounty to keep schools and state government operating for the next two years.

Inevitably, the tax burden will reach into consumers' pockets. It could dig into their livelihoods, too, if cash-strapped businesses rethink new hires, salary raises and giving back to the community through charities.

"Unfortunately, the consumer suffers and that's the bottom line," said Luther Mack, owner of 10 McDonalds restaurants in the Reno-Sparks area and a member of the Governors Task Force on Tax Policy, which last year recommended several levies.

"That's going to hurt," he told the Reno Gazette-Journal.

The new taxes could also mean the end for some struggling casinos in the Reno-Sparks area already pinched by competition from California Indian casinos and the tourism industry's ongoing slump.

The scenario "doesn't allow for the current number of operators to stay in business," said Ferenc Szony, CEO of The Sands Regent in Reno.

And what of Nevada's cherished image as an oasis for tax-weary out-of-state businesses?

That's been a mantra for economic development and is reflected in the states nation-leading growth in jobs and population.

A first-blush consensus among observers last week acknowledged taxes have caused damage. But they also foresee the state retaining its edge longer term.

"It's relative. It's not like all of a sudden you've passed New York in taxes," said John Mitchell, Western region economist for US Bank in Portland, Ore.

"You have a problem other states dont the magnitude of your population growth and narrowness of your tax base, so your system was under a lot of pressure," he said.

"But this stuff is happening in lots of places. Idaho raised its sales tax. Oregon and California are still fighting. It's not like Nevada is doing things and no one else is."

Added Ron Weisinger of the Northern Nevada Development Authority in Carson City: "What we're doing is minor (compared) with what's going on in other states."

In fact, taxes are only one of many issues on the minds of businesses looking at Nevada, Mitchell and others said.

"You'll still be making comparisons to other states, saying, 'We have this tax, but we're funding schools,"' Mitchell said. "It makes no sense to say you've got low taxes, but really crappy schools."

Chuck Alvey, CEO of the Reno-based Economic Development Authority of Western Nevada, agrees.

"It didn't help us," he said of the tax increases. "But it isn't going to hurt us, either. Yes, higher taxes will make it a bit harder to do our job, but we're still competitive."

Lawmakers dealt a tradeoff to every business in Nevada. Gone is the $100 per-employee business license tax created in 1991. In its place is a 0.7 percent tax on payrolls, estimated to bring in more than twice what the old levy generated.

But a key, Alvey and others said, is what the Legislature didn't do pass a gross receipts tax that had stirred deep opposition from the state's business community.

That could have proven costly to economic development, Alvey believes.

"A payroll tax is more manageable," he said. "It's predictable."

Chambers of commerce across Northern Nevada mounted a loud and unified campaign against the gross receipts tax, and the effort paid off, leaders said.

"All of us knew going in that there would be more taxes, that its going to cost more to live, work and do business in Nevada," said Larry Osborne of the Carson City Area Chamber of Commerce. "But we can live with this (payroll tax). It's a better alternative."

Banks, though, will pay a higher rate on their payrolls and also be levied a $7,000 annual tax on each branch, ATMs excluded, after the first.

Alvey said that's more problematic to his mission of wooing financial institutions to the state.

"It sends a message to the banking industry that we may not be as friendly as we like," he said.

Nevada's banks, which have benefited from the states phenomenal growth, are swallowing hard at the new taxes, said Ted Wehking of the Nevada Bankers Association.

"We're not crazy about it, but it was our idea to begin with as good corporate citizens," Wehking said. "We saw it coming."