Tax rules done, but arguments lie ahead

After 14 public workshops over the span of four months, the Nevada Tax Commission last week approved the regulations covering the state's new taxes on business.

Now, the disputes begin.

The commission, by unanimous vote, passed the rules for the modified business tax, the modified business tax on financial institutions and the live entertainment tax.

"It has not been an easy assignment," said Barbara Smith Campbell, chair of the commission and controller for Mandalay Development.

"We have debated with great vigor the plain meaning of the law."

That debate included exactly what the legislature was thinking when it passed the law, including the types of businesses it meant to include and exclude and the extent of the healthcare deduction allowed under the two payroll taxes.

Those interpretations of the so-called legislative intent may create problems for the department, according to Commissioner David Turner.

"My concern is the lengths we went to to define legislative intent," said Turner.

"I am concerned we set a precedent we shouldn't have."

During the workshops, the commission took testimony from several legislators, including Sen.

Randolph Townsend (R-Washoe County), who served on the Senate tax committee and is chair of the Legislative Commission, the committee that oversees the Legislative Counsel Bureau between sessions.

Townsend, through the Legislative Counsel Bureau, also provided the tax commission with clarifications on parts of Senate Bill 8, the tax bill passed by the legislature during a special session last summer.

Turner said that the courts have routinely said that legislative intent can only be determined in written form.

"And we accepted a lot of oral testimony," said Turner.

Chuck Chinnock, executive director of the Nevada Department of Taxation, said he didn't foresee any problems because the commission worked closely with the Legislative Counsel Bureau and the attorney general's office to develop the regulations.

But for one reason or another, businesses will soon start contesting the taxes.

Lawmakers and the tax department expect some businesses to oppose being defined as a financial institution under the higher rate modified business tax on financial institutions and as entertainment under the live entertainment tax, as well as to challenge details of the healthcare deduction.

Those appeals will begin sometime after January, when the tax department sends out its first modified business tax notices that will classify businesses based on the North American Industry Classification System and the Standard Industrial Classification Manual.

The regulations lay out the procedure for disputing classification as a financial institution.

All types of appeals are to be made to the tax department.

Ray Bacon, executive director of the Nevada Manufacturers Association in Carson City, said he didn't expect many appeals to come from the manufacturing sector since it is unlikely any manufacturer would somehow end up in the financial services category.

He did, though, expect some contests over the health-care deduction to come from companies that are partially selfinsured, because self-insured employers are allowed to deduct more under the regulations.

Townsend said the Legislative Commission is already working on a bill draft request for the next legislative session to clear up some technical flaws in the tax bill.

He said the clean-up bill will deal with holding companies as financial institutions, a definition that has been criticized by the gaming industry which often creates holding companies to pay executive salaries, said Townsend.

It will also work to remove mortgage brokers and collection agencies from the financial institution category as well as remove dancers from the live entertainment tax.

The new regulations are available on the tax department's web site.