Key element of Nevada tax plan takes effect Oct. 1

CARSON CITY, Nev. (AP) -- A new payroll tax and real estate transfer levy -- the major elements of a record $836 million tax plan passed by Nevada lawmakers this summer -- take effect Wednesday.

The tax plan remains alive after surviving a drawn-out effort to erase or at least reduce it in the Legislature. Also alive is the political fallout caused by its approval at the end of the regular 2003 session and the two special legislative sessions that followed.

Public officials affected by that fallout include Republican Gov. Guinn, who faces a recall effort stemming from his long-standing insistence that a major tax increase was needed to keep Nevada operating in the black and allow for some growth in government services.

Also, most state Supreme Court justices have been criticized for their decision that would have allowed the tax plan to be adopted by a simple majority vote. Ultimately, it passed -- barely -- by a two-thirds' majority. But the justices' decision helped break a legislative impasse over taxes.

Others who could be caught up in the post-session controversy include the 17 state senators and 28 Assembly members who supported the tax plan. In the 2004 elections, many will face challenges from opponents who think the increase was excessive. Some who aren't up for re-election could face leadership challenges from within their own caucuses.

Ted Jelen, chairman of the political science department at the University of Nevada, Las Vegas, said Thursday that the recall effort against Guinn may not succeed, and criticism of the state's high court justices should fade -- but there will be a big effect on next year's legislative races.

"The Republicans are going to have really bloody legislative primaries between the (anti-tax) true believers and the pragmatists," Jelen said. "And one of the things we know is that divisive primaries have negative effects during general elections."

The recall move against Guinn is headed by conservative tax opponents who hope to collect some 200,000 signatures by a Nov. 25 deadline. However, a statewide poll last month commissioned by the Reno Gazette-Journal and KRNV-TV News 4 indicated overwhelming opposition to the recall effort.

Guinn spokesman Greg Bortolin said Thursday that the governor "will be the first to say some of the criticism is stinging. But he knew going in that it would be difficult, and he believes the end result, the tax increase, was the right thing to do."

Without the new levies, Bortolin said Nevada couldn't deal with the service demands created by some 400,000 new residents since Guinn was first elected in 1998. "Severe consequences" such as major cuts in education and public safety could have resulted, he said.

A recall move against the state Supreme Court justices whose decision helped to break the tax impasse in the Legislature also was discussed, but later dropped. However, criticism continues -- fueled by the justices' recent refusal to reconsider their earlier decision.

The high court's refusal last week prompted Assembly Minority Leader Lynn Hettrick, R-Gardnerville, a tax foe, to say the ruling was wrong and question how Nevada can have "conditional constitutional requirements."

U.S. Rep. Jim Gibbons, R-Nev., who led the effort to get the two-thirds' vote requirement written into the Nevada Constitution, also criticized the court, saying it's unfortunate that the justices who backed a simple majority vote didn't share his views.

Among legislators who could face challenges next year is Sen. Bill Raggio, R-Reno, who backed Guinn's tax-increase efforts although the Senate majority leader insisted he also supports the two-thirds' supermajority requirement.

Three Republican senators from Las Vegas, Ann O'Connell, Sandra Tiffany and Barbara Cegavske, have formed the Legislative Business PAC and are raising funds in what's seen by political observers as an effort to challenge Raggio's leadership. O'Connell abstained from voting on the final tax bill while Tiffany and Cegavske opposed it.

The new payroll tax imposes a 0.7 percent tax on gross payroll for all businesses except banks, which must pay 2 percent. It is expected to generate nearly $360 million by the time the current two-year budget cycle ends in June 2005.

Commercial and private real estate deals will be taxed at 0.26 percent, or about $1,000 on a $400,000 property transaction. The real estate transfer tax is supposed to produce an additional $121 million.

Combined, the two new taxes account for 57 percent of the total tax package.

The state already is collecting higher alcohol, cigarette and casino levies that were included in the tax plan. Other elements, including a live entertainment tax and higher fees collected by the secretary of state, will take effect in November and in January.

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On the Net: Nevada Department of Taxation: http://www.tax.state.nv.us/