Tax plan reviewed; Aguero says small businesses get a break

Members of the legislative money committees got their first review of the governor’s latest tax plan on Thursday, a combination of elements in his original plan plus those in two other proposals to raise revenue and balance the budget.

The combined plan generates an estimated $755.2 million over the biennium, but that total replaces the roughly $490 million the Modified Business Tax currently brings in.

The net increase, then, is about $262 million from basically three elements.

First is the revamped existing business license fee, currently $200 a year. That would rise to $500 a year for corporations and $300 a year for partnerships and other non-corporate businesses.

Second, the MBT would rise to $1.475 percent of payroll for all non-financial businesses. Financial businesses would stay at the 2 percent they already pay and all businesses would be allowed to exempt the first $50,000 in payroll each quarter from the tax.

Third and most controversial, the plan creates a “commerce tax” based on the gross receipts of all 330,000 business operating in Nevada.

Key to that plan, according to analyst Jeremy Aguero who helped develop it, was the ability to “capture businesses that have few employees in the state but are doing business in the state.” He said many of those major national and international businesses almost entirely escape taxation in Nevada because the MBT is based on payroll and, therefore, the number of employees a business has.

“Many of them have a much larger economic footprint in the state of Nevada than an employment footprint in the state of Nevada but they escape taxation because we have chosen to tax our businesses solely on whether or not they have employees located here,” he told the joint session of the Assembly Ways and Means and Senate Finance committees.

He said some of those multi-state, multi-national firms have maybe five employees in Nevada but are “doing millions if not billions of dollars of economic activity inside our state.”

Aguero also pointed out this plan greatly expands the base of businesses paying a tax since the MBT only hits about 12,000 businesses.

He said that part of the package would avoid hitting small businesses in Nevada by exempting the first $3.5 million in revenue from the tax. That exemption, he said, would let the “vast majority” of Nevada small business out from under the tax.

He said for Nevada businesses who are labor intensive, the plan allows a 50 percent credit on the commerce tax reducing their MBT payment.

There have been complaints since the governor’s original plan was unveiled the system of different tax rates for different industries was too complicated to administer. But Aguero and Deputy Chief of Staff Chris Nielsen said those rates are based on the industry classification codes already used by every business in the state.

There are 27 different codes included in the plan, the highest of which is just over a third of a percent of business revenue over and above $3.5 million a year.

Aguero told lawmakers it would simplify everything by setting one simple rate instead of different rates for different industries.

“But we would be trading equity for simplicity,” he said.

He said a single rate would seriously disadvantage high volume, low margin businesses.

Joint committee Chairman Assemblyman Paul Anderson, R-Las Vegas, said this was just the first in a series of hearings on the plan. Lawmakers have just under two weeks before the constitutionally mandated end of the 2015 Legislature to get something done that funds and balances the governor’s proposed $7.4 billion General Fund budget.