Cheers, jeers for services tax
The business community’s answer to the gross receipts tax got its first hearing in the legislature last week.
And lawmakers discovered that like the governor’s proposed levy, the services tax endorsed by some business leaders has opponents, too.
The Senate Committee on Taxation took testimony on Senate Bill 382, a wide-ranging tax bill sponsored by Sen.
Terry Care (D-Clark) and Sen.
Mark Amodei (R-Capital) (see NNBW, March 3, page 1).
At its core is a transaction tax on services that essentially expands the sales tax, albeit at a lower rate, to intangible goods such as legal and accounting services, while excluding other services such as childcare and healthcare.
Supporters of the bill worked to portray the services tax as a fair levy that would target businesses while helping the average consumer save money.
“A key point is the average Nevadan household will pay less under our proposal,” testified lobbyist Sam McMullen.
“Nearly 100 percent of the services we’re proposing are paid by businesses and wealthy individuals.”
McMullen represents the Business Representatives Coalition, an ad hoc business group, which earlier announced a proposal to reduce the sales tax by 2 percent while instituting a 5 percent tax on a broad range of services that the group claims are used primarily by businesses.
The group says that under that scenario the average household would save about $250 annually, if all personal and household services were exempted, or about $90 annually if such services were subject to the tax.
Opponents to the service tax disagreed.
Representatives from the Culinary Union, which has collected 56,000 signatures on a petition in support of a broad-based business tax, said the average household would lose money.
In the worst case, if mortgages and other loans were taxed as a service, the average household would lose over $4,000 annually.
In the best case, excluding such loans, the family would lose $733, according to the union.
“People will understand they’re losing 2 percent on one tax and getting 5 percent on another,” said Michael Hillerby,Gov.
Kenny Guinn’s deputy chief of staff, outside the meeting.
“There’s no way this is not going to be paid by individuals and passed along indirectly.”
Danny Thompson, representing the AFL-CIO, echoed Hillerby’s comment in testimony before the committee.
“If you reduce one thing by 2 percent and raise another by 3 percent I suggest that’s a 1 percent increase,” he said.
The Senate bill calls for a 3 percent tax on services and, unlike the business group’s proposal, no accompanying reduction in the sales tax, although both Care and Amodei characterized their bill as a launching pad for other ideas.
The bill also proposes an exemption on personal services under $50, which drew some criticism from the committee.
“I have a problem with this,” said Sen.
Bob Coffin (D-Clark).
“If it’s an expansion of the sales tax then just expand the sales tax and start at zero.
Otherwise there will be cheating and fudging.”
Ann O’Connell (R-Clark) pointed out the difficulties in having a provider of a service keep records and remit taxes on only a portion of the bill.
The services tax as proposed in SB 382 would raise $659 million in 2004 and $699 million in 2005, according to the Legislative Counsel Bureau.
According to the Department of Taxation, it would raise $450 million in 2005, and cost the department $7.2 million to implement and collect.
The bill proposes imposing the tax starting in January 2004, but Chuck Chinnock, executive director of the department, said the department would need at least a year to implement it.
The bill outlines other tax proposals.
They include a 3 percent tax on amusement and entertainment admissions under $10, an annual business license fee of $50, a doubling of the current head tax to $200, a doubling of the liquor tax, a 25-cent-apack increase in the cigarette tax, a use tax on purchased goods used by businesses, an increase of the room tax to 3 percent, an employer surcharge tax and a 10-cent increase over two years in the property tax.
The bill also includes increases in the Secretary of State fees, but Amodei suggested the committee could delete that and instead follow the plan proposed by the state’s resident agents.
According to the tax department, the total cost to implement the bill’s array of taxes would be $21.4 million.
No one from the gaming industry testified in opposition to the bill, although the Nevada Resort Association, which represents the casinos, has already backed the governor’s plan.
Russ Fields, president of the Nevada Mining Association, testified in opposition to SB 382 and said the mining industry instead endorses the gross receipts tax.
And last week the Reno-Sparks Chamber of Commerce conducted a survey among its members.Out of 137 respondents, 57 percent of those with gross receipts over $450,000 (the threshold for the proposed gross receipts tax) were not in favor of the services tax, while 66 percent of those with gross receipts under $450,000 were not in favor of the tax.
The deadline for bills to be passed by committee was last week.
The governor’s tax bills, identical bills in the Senate and Assembly that include the .25 percent tax on businesses’ gross receipts, are exempt from the deadline, and Sen.
Mike McGinness (R-Central Nevada), chair of the Senate tax committee, said one of the many tax bills before the committee would receive a waiver.
He emphasized, however, that proposals from any of the bills, even if the bill containing them is killed, may live on in amendments to surviving bills.
“The piece of paper may die, but the concept won’t,” said McGinness.
“I think, ultimately, it was a great awareness for these restaurants and it kind of gave them a little boost for the week,” says Cheree Boteler, event organizer.