Democrats launch tough talks on tax overhaul plans

Nevada lawmakers have started combing through a $1.2 billion tax proposal Democrats say will stabilize revenues and keep state accounts from "diving into a tailspin every time the economy dips."

But there were plenty of questions about the ambitious plan during Thursday hearings, which came against the backdrop of a quickly waning legislative session and Gov. Brian Sandoval's repeated pledge not to raise taxes.

"It's dicey," said Department of Taxation Interim Director Chris Nielsen, as critics picked apart the provisions of a 1 percent transaction tax on services. What happens when a service provider is out of state? What happens when someone provides both a good and a service?

More hearings on the tax bills are scheduled for Friday and Saturday.

The tax plan introduced last week is in part an answer to Sandoval's deep proposed cuts to education and health and human services. The proposal would enact a 1 percent tax on services and a margin tax on a business's gross revenue, which would eventually replace a tax based on payroll.

It also extends several taxes passed in 2009 and scheduled to expire at the end of June.

"We need to continue those as a bridge, and only a bridge, until the reform we all want comes online," said Senate Majority Leader Steven Horsford, D-Las Vegas.

Proponents on Thursday told the Assembly Taxation Committee the service tax would diversify Nevada's revenue stream to depend less on sales tax, and capitalize on the state's shift toward a more service-based economy.

"Our general fund is like a mutual fund, and we're adding a new base to it," said Assembly Majority Leader Marcus Conklin, D-Las Vegas. "There's no mutual fund that invests in just one stock."

The tax would raise a projected $566 million in the next two years. Some services would be exempt from the tax, including health care, day care and funeral services, where consumers don't have a choice but to pay for them.

Land-line telephones, internet access, waste disposal, gas, electricity and water delivery are all exempt, and so are services provided by or to a governmental entity or a 501(c)(3) nonprofit organization.

Lawmakers said they wanted to check with constituents to see how the tax might affect smaller businesses, such as landscapers, or inadvertently apply to people in the informal sector such as teenage baby sitters. A second hearing on the measure is set for Saturday.

Assembly members questioned whether the proposed tax would avert the kind of revenue crisis the state has experienced as sales have tanked in the recent recession.

"We'll never get rid of some of the booms and busts," Conklin said. "But certainly, smoothing them out is a goal, and this goes a long way toward getting us there."

The proposed margin tax would by mid-2013 replace the existing modified business tax based on employee wages.

Exempting the first $1 million in revenue, the 0.8 percent tax rate would then be based on 70 percent of total revenue; total revenue minus wages and salaries paid; or total revenue minus the cost of goods sold. The tax would apply to whichever option is less.

Horsford said margin tax revenues would be more predictable than the existing tax.

Republicans have been critical that the plan comes with less than a month left in the legislative session; Assemblyman Pete Livermore, R-Carson City, said he would have appreciated the tax plan a month ago to give time for more debate.

The proposals are likely to hit a wall of opposition from legislative Republicans, who have shown little appetite to raise taxes, which they say would reverse a fragile economic recovery.

Democratic leaders tried to rally them again Thursday with calls for compromise.

"Sometimes we become entrenched in our positions and our differences seem insurmountable," Horsford said. "But whichever political party we're in, we can agree that Nevadans want us to find a balanced solution."