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Kicking around taxing ideas

Anne Knowles

Legislators are working to redefine the gross receipts tax that forms the basis of Gov.

Kenny Guinn’s broad-based business tax.

The governor’s gross receipts tax has been widely criticized by the business community, which complains it unfairly penalizes low-margin businesses.

Because it taxes revenues rather than income, one company in the red and another in the black would pay identical taxes if their gross receipts were the same.

The definition of gross receipts in the governor’s bill as it stands is receipts from any business transacted in the state of Nevada.

The tax itself is a .25 percent tax on any revenue above $450,000.

Now leading lawmakers are trying to find ways to modify the definition in order to mitigate some of the tax’ inherent shortcomings.

Those drawbacks include the inequitable impact on lowmargin businesses and a possibility of pyramiding, a problem that arises when a product is taxed multiple times as it moves through the chain of production.

“I’m keeping an open mind,” said Assemblyman David Parks (D-Clark), who chairs the Assembly Committee on Taxation.

“I haven’t made up my mind on the gross receipts tax.We need something like the GRT.

It needs to be adjusted in some fashion.”

Assemblywoman Dawn Gibbons (RWashoe), for one, is floating the idea of a flat tax on the gross receipts of all businesses.

Her proposal is for a tiered system that would impose a 0.20 percent tax on gross receipts under $10 million, which would apply to the vast majority of Nevada businesses.

The remaining 2 percent of businesses, according to Gibbons numbers, would fall under 0.30 percent and 0.35 percent tiers.

She said the tax would raise more than $350 million annually, enough to eliminate the head tax and kill some other proposed taxes, including the admissions and amusement tax, an increase in the property tax and even, if wanted, the increase in the gaming tax.

Other definitions of the gross receipts tax were bandied about by the governor’s Task Force on Tax Policy, where the idea for the tax originated.

The task force did recommend a one-for-one credit for the business license tax.

Companies paying more in gross receipts could deduct what they owe in the head tax, and companies with a higher head tax bill could simply pay that, wiping out any gross receipts tax due.

But the governor rejected that idea when he was told by the Legislative Counsel Bureau, which drafts legislation, that such a deduction was probably unconstitutional.

Instead, his bill proposes lowering the head tax to $140, after tripling it to $300 in the interim, once the gross receipts tax goes into effect.

The task force considered six different taxes they said met the definition of a broad-based business tax.

Four were like the gross receipts tax now proposed by the governor, with varying rates and deductions.

A fifth tax was a so-called margin tax, which taxes gross receipts minus costs of goods sold.

The task force concluded a margin tax, like a gross receipts tax, can cause pyramiding, but is a relatively stable tax.

No state, however, has such a tax.

A sixth tax was essentially an income tax.

Unlike a personal income tax, an income tax on business is not prohibited by the Nevada constitution.

The task force, however, quickly nixed the income tax idea because it is a more volatile tax that other states always couple with a tax on personal income.

The task force also discussed other ways to structure the tax, such as creating tiers of the tax that would be applied based on average industry margins.

In that instance, low-margin businesses, such as oil marketers, would pay a lower rate than higher margin businesses, such as banks.

In the end, the task force rejected that idea, too, because the resolution that created the task force said no industryspecific taxes should be considered.

Opponents to the gross receipts tax have proposed alternatives.

Sen.

Mark Amodei (R-Capital) and Sen.

Terry Care (D-Clark) introduced a bill that includes a 3 percent tax on services.

The idea is backed by an ad hoc group of businesses, including manufacturers and retailers, although they suggest a 5 percent tax on service and a 2 percent reduction in the sales tax.

Other businesses, including mining and gaming, are opposed to the services tax as are the AFL-CIO and other consumer and labor groups who see the tax, no matter how its configured, as extremely regressive.

The task force, too, rejected the idea as too regressive, although in its report to the governor the panel suggested looking at taxing some services in the future as a way to continue broadening the state’s narrow tax base.

Assemblyman Lynn Hettrick (RDouglas), backed by more than dozen other legislators, in March proposed cutting the budget, reducing the sales tax, and starting to tax some services and increasing the real property transfer tax.