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February 14, 2003

ARCHIVE: Gross Receipts Tax


Governor Kenny Guinn laid out his tax plan for the Legislatures this week - 9 taxes in all, including a controversial new business tax. A new business tax is part of a revolution in the state's tax system that'll affect everyone.

Last week, Governing Magazine rated the State of Nevada like a badly run business. Nevada ranks in the lowest ten states for sources of revenue, has relatively poor management and the magazine said its system is unfair to taxpayers. The report blames the problems on Nevada's tax structure.

Experts say the structure is based on two sources of revenue, Gaming and Sales taxes. According to the Governor's task force on Tax Policy over the past ten years income from Gaming and Sales has steadily declined, putting the state in a billion-dollar bind. The spending deficit is 700 million dollars now and expected to climb to 1.4 billion by 2011. UNLV Professor of Economics, Kieth Schwer says the regions growth is slowing and the old revenue streams are being depleted.

''We are now facing the spread of competition in terms of gaming. It wasn't that long ago that Nevada was the only state with gaming now it is everywhere, so it is logical that Nevada asks itself where Nevada is going for the long run.''

Officials say the state faces problems in the long and short run. Right now it needs schools for 27-thousand new students and faces a high demand for Medicare. They concluded, the only solution - expand the tax base. So the Governor formed a task force on taxes to do just that. The Governors' director of communications Greg Borderland says the proposal it came up with will insulate Nevada.

''They spent a year developing a plan so that Nevada is not dependent on the cyclical economy and world events.''

This week Guinn threw a grab bag of 9 different taxes on the legislature's table. The taxes aim to solve the short term deficit with sin taxes - liquor and smokes and amusement. The anticipated long-term deficit is solved with a variety of other taxes. One is commonly known as the Gross Recipts Tax - and its grossly controversial.

First of all UNLV's Schwer says the brunt of the tax will effect grocery stores and pharmacies and they will pass it on to one already strained population.

''The gross receipts tax is a consumption tax without exemptions. Lower income households tend to spend a greater percent of their budget on food and medical and those type of expenditures and so that is the concern with this type of tax.''

The chamber of commerce also calls it unfair because it would tax businesses that have a lot of clients more than businesses with few clients. It prefers increasing the sales tax. But Guy Hobbs of the Governor's task force says it's better to spread out taxes rather than continue to rely on declining Sales tax revenues.

''The other way of looking at it is adding another arrow to the quiver, if you will, it takes some of the pressure off of other tax sources that could also rise whether that is sales tax fuel tax o property tax. And so it might help stabalize things by having more of them out there.''

The gross receipts tax is simple as it stands now, just a quarter percent tax across the board on business. But everyone agrees it will get more complicated. Only a handful of other states have such a tax. Washington has the broadest Gross Recipts tax and over time it has turned in to 800 pages of legalese. Hobbs says, the Nevada legislature will consider complicating the tax even before they approve it.

''We were actually were exploring that weather a margin tax might make sense and I would imagine that before the end of the day the legislature will have that discussion.''

According to Stephen Miller of the Nevada Policy Research Institute - a 12-year-old Nevada think tank aimed at containing government expenditures - the tax is appealing because the state can easily manipulate how it is applied over time and raise it like most other states have. Miller agrees with the chamber of commerce: The net effect will be to eventually discourage businesses from coming here.

''That definitely will be the effect, that is the bi-partisan consensus in the state is in Washington state. They see that it drives away business . . . they have the hard evidence. It also makes the state itself uncompetitive.''

While business groups oppose the tax, the Gaming industry surprisingly supports it. Miller claims that's because it will discourage other businesses from coming to Nevada, leaving the gaming industry as the dominant political force in the state. But Bill Bible, President of the Nevada Resort Association, says even if that's true the state's substandard education and services will hurt the economy more than new taxes.

''If you look at the reasons businesses locate to places, taxes tend to be down on the list, They are more concerned with the quality of the environment and the quality of the educational system and we ware like any other employer in the gaming industry, and we want employees that can read, write and count and make change and do a multitude of functions and we are supporting the proposals because they will increase the quality of the education system in the state of Nevada.''

Even if the legislature levies a Gross Receipts taxes, implementation and enforcement is tough. Other state with such a tax estimate that 30 percent of businesses just ignore it. According to the current edition of Governing Magazine, Nevada is ill equipped to deal with a Gross Receipts Tax. The state's working with an understaffed revenue department and using 1980's technology. Employees call it 'disgraceful' and say the department needs more than 20-million dollar before the department can implement a Gross Receipts Tax..

See discussion rules.


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