California law would tax Nevada businesses

Sen. James Settelmeyer, R-Minden, is trying to sound the alarm about a new California law he says could impose that state's corporate income tax on thousands of Nevada businesses.Proposition 39 was approved by California voters in November and restructures how multi-state businesses calculate the taxes they must pay on sales and services to California customers. It was billed as closing a loophole allowing multi-state businesses to avoid taxes by moving jobs out of California.Reno Certified Public Accountant David Turner, a former member of Nevada's Tax Commission, said the old formula took into account not only the percentage of a company's sales in California but the percentage of payroll paid and property owned in that state.The ballot question replaced formula with one that just calculates the percentage of a company's total taxable sales that occur in California, Turner said. The problem for Nevada businesses is that the Silver State doesn't have a business income tax. Therefore, none of its Nevada sales would be part of that calculation.“If a manufacturer here sells his product in California, 100 percent of his sales could be taxable by California,” Turner said about the result.Settelmeyer said the new system would hit thousands of Nevada businesses with higher California corporate income taxes and most of them don't even know it exists.He quickly added that he isn't trying to protect his ranching business. Although he sells nearly all his cattle to operators in California, agricultural businesses were among the very few exempted from Proposition 39. The others are mining, financial institutions and telecommunications companies.Turner said long-standing federal law provided a way for two states with income taxes to work out something so a business didn't get double taxed on income.“Nevada doesn't qualify because Nevada doesn't have an income tax,” he said.“Whichever side you're on, you're looking at a half-billion out of this state's economy,” Settelmeyer said.He said it's a radical departure from existing law.“You used to have to have employees in the state or have land holdings in the state,” he said. “I know why they did it.”Settelmeyer said California officials are angry with Nevada and other surrounding states because so many businesses are leaving that state for more business-friendly tax and regulatory climates.As for the vote in November: “California voters looked at the ballot question and said, ‘Hey, we can tax somebody else,'”He said, however, it's not fair because those Nevada businesses receive no benefit from the tax payments they would be making to California.Nevada businesses already pay California for the business they do in that state but that it comes to about 1 percent, Settelmeyer said. He said the way he reads Proposition 39, the rate would jump to 10 percent.Nevada was in a similar situation in 1985 when California demanded public employee retirees who moved to Nevada continue paying taxes on their pension checks from that state. Nevada, Settelmeyer said, passed a law saying in effect it would not enforce any attempted legal actions against those retirees — many of them police, firemen and teachers.He said Nevada lawmakers may need to do something similar to that again to try block this new legislation.Turner agreed saying the state could enact a law stating that “Nevada will not spend one dime enforcing a California judgment in a tax case.”But he said it took action by the state's congressional delegation including Rep. Barbara Vucanovich and Sen. Harry Reid to finally resolve the pension fight. He said their legislation declared the California law an unreasonable restraint on the right of people to move from one state to another.“We may need them again,” Settelmeyer said.