The joint Senate Finance/Assembly Ways and Means committees held their second extended hearing into the compromise business tax plan proposed by the governor.
The plan is a combination of the flat business license fee, a raised Modified Business Tax and a new commerce tax based on business revenue designed to generate $755 million including $262 million in new revenue.
Most of the testimony – especially the opposition — focused on the commerce tax provisions that set different rates for 27 different categories of businesses. That part of the puzzle is worth about $121 million a year.
But a litany of witnesses came to the table to protest saying the commerce tax heavily penalizes high volume, low margin businesses, putting them at risk of failure because their profitability isn’t part of the equation, only their gross revenue.
Paul Enos representing the trucking industry said his members are a prime example because their average profit margin is less than 2 percent.
He said many of that industry’s costs are outside their control — especially fuel prices. And he said many times, the truckers can’t raise their prices to fix that problem.
“It isn’t a rate thing for trucking companies to be unprofitable,” he said.
Peter Krueger representing the gas stations and convenience stores made a similar argument saying gas prices are posted for all customers to see and competition prevents them from raising prices in many cases.
Assembly Minority Leader Marilyn Kirkpatrick D-North Las Vegas, objected to the fact those same people have ritually opposed any proposed tax plan this session.
“What I can tell you is in 11 years of being in this building, we’ve studied the crap out of taxes and what have we done? Nothing,” she said.
She said lobbyists have said repeatedly there’s no way they can pass on the taxes to customers. “There’s no way you pass on this revenue? I beg to differ,” she said.
She made it clear she doesn’t believe any of those businesses absorb the taxes.
“You folks had better get serious because there’s nothing good that comes out of a special session,” she said pointing out there are just six days left in the regular session.
She was joined by Assemblywoman Maggie Carlton, D-Las Vegas, who objected to protests by retailers about their low margins. She said major multi-national firms charge the same for that TV in California, Oregon, Florida as they do in Nevada despite the taxes they pay in those states.
“In other states they are paying the taxes,” she said. “The idea behind the commerce tax is to get the folks who are leaving town and taking the money.”
“That has got to stop. They take the money from this state, they should contribute back,” she said.
Bryan Wachter of the Retail Association said Nevada is a small economy compared to its neighbor to the west and doesn’t dictate the prices that can be charged. He said the association would pay a higher Modified Business Tax but objects to a commerce tax based on revenue because their margins are low like many other businesses.
Supporters, however, said the commerce tax is key to getting tax revenue from companies headquartered and located outside Nevada that currently pay little if anything to the state.
A number of business representatives said the state should talk about expanding the sales tax to include services.
Enos and Randi Thompson representing the National Federation of Independent Businesses said a services tax would be better than the commerce tax.
“It’s the devil we know,” she said.
But she said since most of the state’s economy is based on services, “70 percent of our economy is not being taxed.”
She said expanding that tax to services would allow lowering the overall sales tax while generating more money.
Wachter made a similar argument.
The Las Vegas Metropolitan Chamber of Commerce made it clear it can’t endorse the commerce tax per se but it was “proposing some conditions that will define how the chamber can live.” It said that support was conditioned on the Legislature committing to review all business taxes, broadening the sales tax to include services and funding both the UNLV medical school and Graduate Medical Education.
That list of “conditions” drew snide references from several witnesses that followed, all indicating they didn’t intend to try impose “conditions” on lawmakers.
The plan did, however, have its supporters including the Nevada Resort Association, over the years, the repeated target of tax increases. Nevada’s resorts are the state’s largest employer and, therefore, the largest payer of the payroll tax imposed by the MBT.
Spokesman Billy Vassiliadis told the panel it’s important to broaden the tax base and the governor’s plan does that.
The Nevada Hospital Association, wireless companies, AT&T, NV Energy, Nevada’s bankers, homebuilders, subcontractors and the mining industry all said they support the attempt to broaden Nevada’s tax base.
The committee took no action on the plan outlined in AB464.