Gross receipts or net profits?
The Assembly Committee on Taxation last week examined the gross receipts tax being proposed in two separate bills before the legislature, and considered a tax on corporate net profits as a possible alternative.
A presentation by Guy Hobbs, chairman of the Governor’s Task Force on Tax Policy that first recommended the gross receipts tax, was followed by testimony from more than a half dozen opponents to the gross receipts tax.
Hobbs defended the tax as the broadest, most stable and one of the least costly to implement from the shortlist of possible business taxes.
“We looked at a margin tax, net profit, value added tax and the gross receipts tax,” said Hobbs, a partner in Hobbs, Ong and Associates in Las Vegas.
“Of those, the gross receipts tax was the easiest to implement and administer.”
He addressed common criticisms lobbed at the tax, and conceded that one charge that the tax hurts high-volume, low margin businesses such as grocery stores and gas stations isn’t easily dismissed.
“We see it as the one argument that is most difficult to counter,” said Hobbs.
He said there were ways the legislature could mitigate the impact a gross receipts tax would have on such businesses, and he suggested lawmakers consider a set of exemptions from it rather than taxing different industries at different rates as is done in Washington, which has had a gross receipts tax for decades.
Hobbs said that the complaint that the gross receipts tax is not based on the ability to pay could be levied against almost any tax, including the state’s existing business license, property, sales and insurance premium taxes.
“The only taxes that do reflect ability to pay are personal income tax and corporate income tax,” said Hobbs.
“I’ve been asked at least eight or 10 times this week alone: why a gross receipts tax rather than a net profits tax?”
He said in the last few years states with a corporate income tax have seen their revenue from that tax drop an average of 20 percent, and in some cases 50 percent.
Several critics of the gross receipts tax agreed that a net profits tax is not the answer.
“A net profits tax doesn’t solve the problem of stability,” said Ray Bacon, director of the Nevada Manufacturers Association.
“It’s why so many states are in trouble.”
“It’s unstable and totally unreliable revenue,” agreed Carole Vilardo, president of the Nevada Taxpayers Association, after the meeting.
But at least one opponent said a net profits tax was better than a gross receipts tax.
“We counsel fiscal moderation,” said Paul Misener, vice president, global public policy at online bookseller amazon.com, which has distribution centers in Fernley and Stead and headquarters in Washington.
“But if you truly cannot cut anymore, a top line tax makes no sense.
A bottom line tax perhaps makes more sense.”
Assemblyman Lynn Hettrick (RDouglas County) said a net profit tax would be easier to administer.
“It would be simple to have a company bring in the back page of its IRS form and the feds would audit,” said Hettrick.
Chuck Chinnock, director of the Department of Taxation, said the state would likely want to perform its own auditing rather than rely solely on the IRS.
Committee Chairman Assemblyman David Parks (D-Clark County) said after the meeting that he thought that a net profits had both advantages and disadvantages and that a gross receipts tax could be structured in such a way as to minimize the effect on high-volume, lowmargin businesses.
“I think it can, but whether it can be done to the satisfaction of everyone,” said Parks, is another question.
Assembly Speaker Richard Perkins (D-Clark County), who has said the Assembly won’t pass a tax package unless it includes a broad-based business tax, sat in on the committee meeting for a few minutes.
Two week ago the committee all but dismissed the idea of expanding the sales to some services during a long and sometimes rancorous meeting featuring testimony from proponents of a 5 percent tax on services such as legal and accounting services.
This week the committee will discuss whether sole proprietors should be taxed like other businesses.
Meanwhile, the chair of the Senate tax committee, Sen.
Mike McGinnis (RCentral Nevada), has promised to pass a broad tax bill this week.
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