Alcohol and tobacco will be taxed even more than before in Nevada. Photo by Brian Corley
With a report in hand recommending two new taxes and increases to six existing levies from the Governor's Task Force on Tax Policy, the next step is up to Gov. Kenny Guinn.
The recommendations were forwarded to both Guinn and the Legislature on Friday. If put into effect, they would generate more than $700 million in new revenue for the state during the coming two-year budget cycle and neatly offset the $700 million projected deficit the state will face in the next two years if nothing is done.
Guinn's job is to use those recommendations to help build the budget he will submit to the 2003 Legislature.
He may, however, need to go even further than the report's recommendations. State agencies have submitted base budget requests totaling more than $900 million more than current revenue estimates.
Agencies were ordered to ask for no more than their existing budgets plus inflation and caseload-driven increases needed to maintain current services and programs.
Guinn has said he intends to include tax and fee increases to maintain existing services in his budget proposal, but made it clear it doesn't necessarily mean he will follow the recommendations to the letter.
Guinn has made it known he supports the idea of a tax on business in Nevada. The proposed State Activity Tax is a new tax and the biggest single piece included in the recommendations -- generating nearly $200 million a year. But experts say it will take until fiscal 2004-05 before it actually starts bringing in revenue.
That proposal is likely to be the most hotly debated in the Legislature since businessmen are putting the pressure on their legislators to reject it and more than one lawmaker has come out against the idea.
The task force's report acknowledges significant opposition exists to the idea of a gross receipts tax on business, but says is to be expected because the tax is just what the state needs -- broad based and stable.
"There is neither a perfect tax nor a perfect tax system," the report says. "The threat of additional taxes will inevitably spawn opposition and there is no more obvious sign that a proposed tax will produce no revenue than the fact that no one lobbies against it."
The other new tax on the list essentially applies the sales tax to admissions and amusements for a long list of spectator activities from movies and plays to professional athletic events, nightclub and cabaret shows. It would not apply to nonprofit events such as college and high school concerts and games. It would not apply to participatory activities such as golf and bowling or any instructional costs from arts and crafts to skydiving.
Even so, a number of people objected to the idea.
The task force appointed by Guinn and legislative leadership is headed by former Clark County finance chief Guy Hobbs, now of Hobbs and Ong. To make sure no one argues the task force didn't justify the need for more money or its recommendations, the report includes reams of backup data. Guinn's first job will be to wade through the 1,150-page report.
Tax
Earning potential 2003 2003-2004 budget years
State Activity Tax
$0 $400 million for the biennium
Admissions and Amusement Tax
$91 million a year $200 million
Passive Revenue Generators
$21 million a year $42 million
Business License Tax
$49 million a year $100 million for the biennium.
Corporate licensing and Secretary of State business fees
$38 million next year $60 million
Liquor Taxes
$37.3 million $74.6 million
Cigarette and tobacco taxes
$62 million a year $124 million
Property Tax
$60 million next year $120 million+
Fees on restricted slot licenses
$2 million to $3 million annually $5 million
Total if all recommendations are imposed $1,125,600,000 ($1.1 billion)
A review of tax proposals recommended by the Governor's Task Force on Tax Policy:
State Activity Tax
The centerpiece of the task force recommendations is a quarter-percent tax on the gross receipts of all businesses in Nevada. No business or industry would be exempted but, to ensure small businesses weren't unfairly hit, it would only apply to receipts in excess of $350,000 a year and all businesses would get an annual $100 deduction per employee to offset the Business License Tax.
Using the example presented by staff, the tax would cost a business with a $1 million gross and 10 employees $625 a year.
The task force report says the activity tax is intended to provide "a broad and stable revenue source" for the state.
Opponents say it unfairly taxes businesses with high volume and low profit margins, ignores whether a business is profitable and discourages investment in maintenance and assets. Some businessmen said it would drive some of them out of the state.
Supporters point out that the tax is still well below the corporate taxes charged by every state surrounding Nevada. They say it imposes a levy on a large number of businesses which currently pay little or nothing to do business in Nevada.
The tax would generate about $400 million over the coming biennium but, because it will take a while to start, nothing this coming year.
Admissions and Amusement Tax
The second new tax recommended by the task force amounts to a sales tax on all admission charges and amusements.
The task force didn't want the 6.5 percent tax charged for events such as high school and university football games, concerts or plays. But they did want it applied to for-profit movies, concerts and athletic events even if they are held in publicly owned venues. Also taxable would be lectures, tours, live entertainment at cabarets and nightclubs as well as motor sports, equestrian events and charges for closed circuit events. In short: all for-profit spectator events.
Participatory activities would be excluded from the tax including such things as ski, golf and bowling charges, club memberships, recreational rentals and instruction costs from arts and crafts to scuba, skydiving and yoga lessons.
The tax would generate more than $91 million a year -- nearly $200 million over the next budget cycle.
Passive Revenue Generators
Passive Revenue Generators are the only proposed increase everyone supports because, basically, they don't raise any charges. The label refers to a list of recommendations to improve the efficiency of existing revenue collections -- encouraging paperless transactions such as electronic fund transfers, credit card payments, online filing of tax and other forms. While tax experts admit some of the changes are hard to quantify, they estimate the state will realize at least $21 million a year.
Business License Tax
The Business License Tax was enacted in 1991 to help the state through the last economic slump and generates about $75 million a year. But it's been $100 a year per full-time employee since it was created. The task force recommends increasing the business license tax by the amount of inflation since 1991 -- 33 percent. The resulting $140 a year per worker would add about $34 million a year to the pot.
Opponents say it unfairly hits those businesses which have large numbers of employees. Supporters say it's fair because the demand for state services is created by those employees.
The task force also recommended eliminating exemptions from the business license tax so that all employers pay for all workers including themselves. Those changes would add at least $10 million more in revenue.
Finally, the business registration fee -- currently a one-time $25 charge on new businesses -- would become an annual fee for the next two years, generating some extra revenue while helping develop a business database for the state to use in collecting the business license tax and state activity Tax.
Altogether, the recommendations would generate an estimated $49 million a year $100 million for the coming biennium.
Corporate licensing and Secretary of State business fees
The Secretary of State's Office charges 225 different fees on the 194,000 businesses in Nevada. This past year, those fees generated $53 million. The task force recommends increasing them all 50 percent.
Opponents say that would drive enough businesses away to offset any increase. Supporters say that was the same argument made when some of the fees were doubled by the 2001 Legislature and it didn't happen. They point out Nevada's fees would still be low compared to most other states and that Nevada has better legal protections for businesses incorporated here than most states -- an incentive to incorporate here even if the fees were higher than other states.
The increases would bring in $38 million next year -- $60 million the biennium.
Liquor Taxes
Nevada has among the nation's lowest tax rates on liquor and hasn't increased them since 1983.
The task force recommended the rates be adjusted for inflation -- a total of 89 percent. But experts point out that, even then, Nevada would be below the national median in liquor taxes.
The 9 cent per gallon beer tax would go to 15 cents. The 40-cent-a-gallon tax on wine and other beverages up to 14 percent alcohol would increase to 76 cents. The 75-cent-a-gallon tax on spirits up to 22 percent alcohol would rise to $1.42 and the $2.05-per-gallon on hard liquor would become $3.87.
The existing tax should raise about $20 million next year. The task force proposal would add another $17.3 million next year.
It's also likely to be one of the first increases approved when the 2003 Legislature meets -- along with cigarette taxes. State officials say since retailers already collect the tax, it can begin generating more revenue almost immediately.
Cigarette and tobacco taxes
Higher cigarette taxes are also expected to be approved early in the 2003 Legislature. Nevada currently imposes 35 cents per pack. Local governments get a dime. The state gets 25 cents -- generating about $42 million a year. The task force recommends the state double the total tax to 70 cents a pack to collect $62 million a year in new revenue.
Opponents say it will just drive smokers to the Internet, Native American smoke shops and other places they can avoid the tax. And some question the wisdom of increasing the state's reliance on tobacco taxes while trying to discourage smoking.
Supporters say the increase would show up in the state treasury almost immediately and discourage juveniles from taking up smoking. But they say it likely won't drive too many customers away because, even at 70 cents, Nevada's tax will still be well below most surrounding states. California's is already 87 cents and its legislature is considering a sizable increase.
Property Tax
The task force recommends increasing the state's share of the property tax 10 cents. That would generate more than $60 million next year, increasing annually as property values rise.
To ensure it doesn't hurt local governments -- many of which are already at or near the statutory $3.64 cap -- the task force supported another committee's recommendation the cap be increased to $4.04. That not only allows for the 10 cent increase, but gives local governments at or near the cap some growing room.
Nevada's property tax rate is lower than most other states but, because it's over-complicated, sounds high. The maximum rate allowed is $3.64 for every $100 of assessed valuation. But assessed value is set at 35 percent of appraised value, which is still below market value.
When all those numbers are boiled down, Nevada's effective property tax rate is just about 1 percent of market value -- less than half the national average for commercial property and about two-thirds the national rate for houses.
Proponents point out that property taxes are the most stable of levies and that they grow with the state and its economy. Opponents say increases would hurt seniors who too often lose their homes because of taxes.
Fees on restricted slot licenses
Some 2,800 gaming licensees are in Nevada -- manufacturers and distributors as well as operators. The vast majority of them are restricted licensees with 15 slot machines or less such as grocery stores and bars. While the 339 non-restricted licensees pay up to 6.25 percent of their gross win in taxes, the restricted operators pay only a quarterly fee of $61 per machine.
Nonetheless, those fees generated $6.7 million last year.
Gaming officials originally wanted those small operators to pay the same percentage fees they pay, but the task force rejected that idea, recommending instead a 32 percent increase in quarterly fees which would add $2 million to $3 million annually to the pot.