Tax battle brewing over bank levies
The banking industry, claiming that it is paying more than its fair share, is vying to change the tax rules at Nevada’s next legislative session.
Bankers say they are paying up to six and a half times more than other businesses under the state’s new modified business tax and excise tax on bank branches.
Under Nevada’s new payroll tax instituted last October, financial institutions pay a 2 percent tax on gross wages while other businesses pay .7 percent, soon to be reduced to .65 percent.
In addition, banks pay a quarterly excise tax on branches, excluding a main branch, that amounts to $7,000 per branch annually.
The bank tax rate, already three times higher than the general rate, rises when other factors are considered, according to Mark Daigel, president and CEO of Colonial Bank’s Nevada operations.
Daigel, testifying before the legislature’s interim tax committee last month, said the banking industry pays a higher average wage of $42,242, based on 2001 data.
That coupled with the higher tax rate means banks pay an average of $845 per employee under the modified business tax versus an average of $215 per employee for other businesses.
“Instead of paying three times we’re paying a four times effective rate,” said Daigel.
When the benefit of the elimination of the old head tax is added in, Daigel said other businesses pay an average of $115 per employee while banks pay $745 per employee almost six and half times more.
“That makes it more difficult for us to compete [with other businesses] for employees,” said Daigel.
“That affects the overall health of the banking industry in Nevada.
As we all work to expand the diversity of the Nevada economy we agree we need more white collar jobs.
You’re placing a tax burden on the industry that pays the fourth highest wage in Nevada, and does its share, if not more than its share, of charitable work in the state.”
Banks are also paying the excise on branches, a tax not applied to any other type of business.
“Clearly we heard in the last [legislative] session that [the legislature] did not want to have any industry specific tax mechanisms,” said Daigel.
That’s especially hurting smaller banks, said Barry Smith, president of Nevada Bank and Trust Co., which has 11 branches in rural towns.
“We had one branch last year in the red and now we’re looking at a second branch in the red,” said Smith.
“When you’re a business and provide a service and can no longer make a profit you close it.”
Smith said that due to the state’s new taxes, adjusted for the elimination for the former head tax and the healthcare deduction allowed under the modified business tax, the bank is now making $65,000 less than it did before.
“If the tax rate were .65 percent and there was no $7,000 branch tax would those two branches go into the black?,” asked Assemblyman Lynn Hettrick (RDouglas County), a member of the Legislative Committee on Taxation, Public Revenue and Tax Policy.
Smith claimed they would.
According to the Nevada Tax Department, the modified business tax on financial institutions and other businesses has so far raised more revenue than anticipated.
Chuck Chinnock, executive director of the department, speaking at the committee’s meeting, said the tax was expected to generate about $51 million quarterly.
In the first quarter of its collection, the state’s second fiscal quarter, the department collected about $52 million from the tax, and another $54 million during the third quarter.
The committee is looking at making a number of changes to the 2003 tax bill through bill draft requests it will submit for the 2005 session.
Many of those are technical clarifications that came to light when the Nevada Tax Commission ran into problems writing regulations based on the bill.
Others such as possibly reducing the bank tax rate to out the industry on par with other businesses are policy decisions.
Carole Vilardo, president of the Nevada Taxpayers Association, at the committee’s meeting last month, presented a series of suggested changes.
They include changing the modified business tax from a levy on gross wages to taxable wages.
Vilardo said that would help protect higher wage jobs, which are penalized under a gross wages scheme.
The committee took testimony on the proposed changes, and plans to take action on them and possible others at its next meeting scheduled for July 14.
The panel plans to meet again on August 24 before filing its BDRs.
“If you’re going to produce roughly 80,000 ounces (of gold) a year at $800 an ounce … and gold is at $1,900 or $2,000 per ounce, that’s going to create a tremendous amount of cash flow.”