Taxing matters: What you need to know as a business owner

On June 10, 2015, Governor Sandoval signed SB 483, a package of tax changes which includes $1.1 billion in new and extended taxes over the biennium, which will affect many businesses and individuals. The tax package includes a higher cigarette tax, an increase in the corporation annual business license fee, a change in the Governmental Service Tax, an increase in the Modified Business Tax and a new Commerce Tax on the gross receipts of businesses with an excess of $4 million in revenues. The provisions went into effect on July 1, 2015.

Here is an overview:

Cigarette Tax. The sales tax on cigarettes, which is currently set at 80 cents per pack, will increase to $1.80 per pack under the new tax package.

Business License Fee. Currently Nevada businesses pay a business license fee of $200 annually. The business license fee, which was scheduled to sunset in 2016 to $100, will increase to a flat $500 for corporations organized under Chapters 78 (Private Corporations), 78A (Close Corporations), 78B, (Benefit Corporations), and 80 (Foreign Corporations) of the Nevada Revised Statues (NRS) on July 1, 2015. For other Nevada businesses, the business license fee will remain at $200 annually. However, the annual filing fees for all business will increase by $25 per year from $125 to $150.

Governmental Service Tax. This tax package will continue diverting 100 percent of the Governmental Services Tax revenue from the State Highway Fund to the State General Fund. However, beginning on July 1, 2016, 50 percent of the Governmental Services Tax revenue will be diverted to the State Highway Fund and 50 percent to the State General Fund. On July 1, 2017, 100 percent of the Governmental Services Tax revenue will flow to the State Highway Fund.

Modified Business Tax. The Modified Business Tax is currently charged to businesses other than financial institutions in the amount of 1.17 perent of wages paid above $85,000 per quarter. Financial institutions currently pay a higher rate at 2 percent with no wage threshold. The MBT rate was scheduled to decline to .63 percent for nonfinancial institutions beginning July 1, 2015. With the new tax package, the MBT will increase from 1.17 percent to 1.475 percent for nonfinancial institutions, effective July 1, 2015. In addition, the wage threshold will drop from $85,000 per quarter to $50,000 per quarter.

A tax credit may be available on the Modified Business Tax form for businesses that also pay the new Commerce Tax, discussed in greater detail below, but in general, this tax will affect certain businesses with annual Nevada gross receipts greater than $4 million. The credit will allow businesses to use 50 percent of the Commerce Tax paid in a tax year as a credit against the Modified Business Tax paid quarterly after the Commerce Tax has been paid. The tax credit may be rolled forward for four quarters, but may not be used in excess of the Modified Business Tax liability in any quarter. Also, the credit is non-refundable and any unused credit after four quarters will be lost.

Commerce Tax. This is levied on business entities with gross revenues generated in Nevada, in excess of $4 million per taxable year less certain exclusions and deductions. A business entity is defined to include a corporation, partnership, proprietorship, limited-liability company, business association, joint venture, limited-liability partnership, business trust, professional association, joint stock company, holding company and any other person engaged in business. Certain government entities, nonprofits, credit unions, grantor trusts, estates, real estate investment trusts, entities that meet the definition of a “passive entity” under Nevada law, and qualifying entities whose Nevada activities are limited to owning, maintaining, and managing certain intangibles would be excluded from the Commerce Tax.

Also, sectors that already pay a Nevada gross receipts tax (gaming, mining and insurance) could exclude from the Commerce Tax any revenue subject to those taxes. Eligible Nevada gross revenue will be taxed from 0.051 percent to 0.331 percent depending on a business’s North American Industry Classification System code. Businesses which do not fit into any other category are taxed at the 0.128 percent rate for unclassified businesses. If a business entity has more than one NAICS code, the NAICS code associated with the largest share of Nevada revenue will dictate the tax rate.

The tax is computed by calculating a businesses’ apportioned Nevada gross revenue less certain exclusions and deductions, subtracting $4 million and multiplying that amount by the rate based on the business’s NAICS code. Businesses must use the same accounting method (cash, accrual, etc.) used on their federal income tax return to calculate their gross revenue. The taxable year is a 12-month period from July 1 to June 30 and any Commerce Tax will be due on or before the 45th day following the end of the taxable year. However, businesses may request a 30 day extension to pay the tax. No penalty is assessed for the payment during the 30 day extension but interest will be imposed.

Contact a licensed CPA on how these changes will affect you and your business.

Jim Clausen, CPA, is a Partner with Reno-based Clausen & Company. With more than 35 years of experience in northern Nevada, Clausen & Company specializes in serving privately held companies, individuals and families. For more information call 775-829-7797 or visit www.clausencpas.com.