Reading tax bill fine print

The never-ending tax battle has indeed come to an end, but for area businesses it is just the end of the beginning.

Northern Nevada businesses were busy last week trying to figure out the implications of the final tax package passed by the state Legislature late Monday and signed into law by Gov.

Kenny Guinn Tuesday afternoon.

Most agreed that the outcome could have been worse, although there are concerns about the taxes that were passed.

"Were the results perfect?" said John Breternitz, executive vice president, Q&D Construction Inc.

in Reno.

"No, but the outlook is a whole lot better than what it would have been with the proposed gross receipts, unified business tax or a tax on profits."

The new taxes include a payroll tax on wages minus any money paid out by the employer for employee health insurance.

The tax starts on Oct.

1 at a rate of 0.70 percent, then drops to 0.65 percent in July 2004.

Banks and other financial institutions pay the same tax but at a 2 percent rate.

Banks also pay a fee for each branch, excluding the first branch, at $1,750 per quarter or $7,000 annually.

"Heritage Bank wants to pay our fair share, but is it equitable?" said Stan Wilmoth, president and CEO, Heritage Bank of Nevada, which will have four branches by the time the tax goes into effect.

"I don't think so," said Wilmoth, because of the per-branch tax.

"If not, the next time around we could mount a better defense.

I'd like to revisit this at the next Legislature."

Others were dismayed that the payroll tax did not include a cap on wages.

In earlier iterations of the payroll tax, the Legislature was considering capping wages at two-thirds the average wage.

The formula is used for unemployment benefit calculations and is currently about $21,500.

That would have meant that businesses wouldn't pay the tax on any individual wage above $21,500.

The final bill did not include a cap so the tax is on all wages, minus the healthcare deduction.

"It sends a message that we're looking for low-wage jobs since if you move a high-wage job here we're going to tax it all," said Tim Ribald, director of business development at the Nevada Commission on Economic Development in Carson City.

"That was disappointing, particularly in light of the fact that we're in one of the highest paying industries," said Breternitz.

But Breternitz is more concerned that exemptions to the tax may be added before it's over.

"It's never a done deal until the regulations are written," he said, referring to the actual tax department regulations that will be created to implement the tax.

"Many businesses will be lobbying for some exemptions and I fear there will be an effort," to get industry-specific exemptions, Breternitz said.

The existing business activity tax, or head tax, will be eliminated once the payroll tax takes effect, and that was a relief to others.

"I think the payroll tax was a fair way to go and addressed some of the shortcomings of the per head tax," said Doug Busselman, executive vice president, Nevada Farm Bureau Federation, a lobbyist group for the agricultural industry.

The state often abates the head tax for qualifying new businesses.

The new bill allows for the abatement of the new payroll tax - at 50 percent for four years - but not until July 2005.

"It's interesting the way the bill is written," said Ribald.

"I have no idea why they did that.

They don't usually postpone abatements."

"That's 23 months away," said Ron Weisinger, executive director, Northern Nevada Development Authority in Carson City.

Weisinger met last week with several local chambers of commerce, including the Carson Valley chamber, which had hoped to have Assemblyman Lynn Hettrick (RDouglas County) available to talk about the logic behind delaying the abatement.

Weisinger said that due to some e-mail glitches the Assembly minority leader, who led the opposition to the budget and tax increases, didn't attend the meeting.

The other new tax in the package affecting business, as well as homeowners, is the real estate transfer tax.

The tax, currently implemented by counties, is now a state tax at the rate of $1.30 per $500 of assessed value.

That's on top of whatever the county already charges for it.

The new tax will go to the state's General Fund while the counties will retain the taxes they already collect.

"Businesses will pay a lot of money under this if they don't qualify for an exemption," said Alan Glover, Carson City county recorder.

During the legislative session, lawmakers talked extensively about eliminating many of the current exemptions from the real estate transfer tax.

They were urged on by several county recorders, who said that the bulk of their overwhelming workload is tied to evaluating claimed exemptions.

In the end, though, the exemptions were retained in the final bill.

That worries Glover.

"It is going to make collection of this tax extremely difficult.

With the much higher rate everyone will try to get exemptions."

There's another problem with it, Glover said.

Counties do not handle the process uniformly.

If a property owner wants to dispute a rejected exemption, the claim is turned over to the county district attorney as the final arbiter.

The problem, said Glover, is different DAs decide similar claims differently.

The same developer could be granted an exemption in Washoe County, for example, while it was denied an exemption on a very similar transfer of property in Clark County.

Now that it's a statewide tax, said Glover, "that opens up the whole tax to be challenged." Another concern, said Glover, is the deadline.

The tax takes effect Oct.

1 and Glover and other county recorders are worried there will be a run on their offices by developers and others trying to beat the deadline.

"We anticipate a major problem at the end of September when everyone rushes in to file before the October deadline," said Glover.

"We may work out a system where one company can only file for an hour then the next company gets a chance to file for an hour."

"It will be interesting to see how the title companies handle it," said Glover.

"Do they handle their best clients first?"

The other business-related tax in the new package is a $100 annual business license fee.

All in all, businesses were relieved, if not ecstatic, about the new tax package because the gross receipts tax proposed by the governor and the Governor's Task Force on Tax Policy didn't survive.

"The gross receipts tax would have been a disaster not just for companies like us but the business climate in the state," said John Davidson, treasurer and secretary, Davidson's, a tea company based in Sparks.

"This is definitely an improvement over that."