Governor lays out business tax plan based on national system
Gov. Brian Sandoval laid out details of his proposed Business License Fee, a plan based on the North American Industry Classification System.
That system, known as NAICS, breaks all businesses — from utilities and construction to purely service oriented such as lawyers — into different classifications for tax and statistical purposes.
Sandoval’s Business License Fee plan is designed to cover most of the expanded costs of educational programs in Sandoval’s proposed budget by generating $438 million over the biennium.
Economist Jeremy Arguero of Applied Analysis in Las Vegas, who helped develop the plan, said NAICS helps ensure the taxes applied to more than 30 different super-classifications of business are fair because they take into account differences between types of businesses. Some, for example, have a much higher percentage of labor costs such as health care providers. Others like construction businesses may have a much higher percentage in the cost of goods and materials.
Sandoval’s original announcement said all businesses would be hit with a minimum fee or tax of $400. That tax could rise to as much as $4 million for the largest operations.
The chart issued at Thursday’s press conference, however, showed the maximum actually paid by any business in Nevada would be $2.58 million in the Accommodations category — resort hotel/casinos.
After that, the top business among Nevada Utilities would pay $1.75 million.
The rates paid are based on each business’s gross receipts from less than $125,000 to more than $1.1 billion. And those rates are different for each of the 30 business categories.
Sandoval pointed out the plan hits businesses for less than other recent tax plans including the Gross Receipts Tax proposed by Gov. Kenny Guinn in 2003, the Margins Tax backed by Nevada Assembly Speaker John Oceguera in 2011 and the Margins Tax defeated by voters last November.
Sandoval said he and his advisers also thought about the idea of expanding the sales tax to cover services but “we have no idea what that would raise.”
He said he couldn’t logically base a budget on a tax if no one can predict what it would generate. He said there will be doubters and opponents and he will expect businesses to come forward with specific issues about how the tax would apply to them. But he said the plan has the virtue of making everyone pay.
At present, just more than 20 percent of Nevada’s 330,000 business entities pay the Modified Business Tax and many professional services (often sole proprieterships) pay nothing.
“Everyone’s going to find a problem,” he said. “But there’s not a really broad universe of options.”
He said it will be up to the 2015 Legislature, which will convene Monday, to work out any problems and balance the plan so it will be fair to all.