When the Nevada State Education Association teachers’ union placed a 2 percent margins tax on businesses on the November 2014 ballot, the union estimated the tax would bring in $800 million a year in additional funding for K-12 education.
“In this law they are saying you get to deduct your direct cost against this income to compute the tax. And it gives you a couple of alternative ways of computing it. If you don’t want to go through the trouble to figure out what your direct cost is, you can elect to use a default of 30 percent,” says Kelly Bullis, who operates a certified public accounting firm in Carson City. “Now for most businesses I know that is really low. That by the way is where I think the teachers made their assumption about how much money they’re going to make. They think everybody has less direct cost than 30 percent, so they’re all going to choose the 30 percent by default. Reality is: I think you’ll see in most businesses their direct cost is 50, 60, 70 percent of their gross income.”
Bullis said the union and its advisers simply don’t understand business. He gave an example of a gasoline station. If gasoline costs $4 a gallon, the direct cost to the station owner is probably $3.95. A service station might sell $3 million in gasoline but would be able to deduct most of that as direct cost of goods sold.
Ray Bacon, executive director of the Nevada Manufacturers Association, recalls that when an NSEA expert testified before a legislative committee that the tax would generate about $800 million a year, Assembly Speaker Marilyn Kirkpatrick, D-North Las Vegas, said accountants had told her the tax would not generate so much money and asked the expert to show her their calculations as to how they arrived at that number.
“The last time I knew, she still had not seen them,” Bacon said, “which means they don’t have a clue. It’s a wild ass guess.”
A coalition of business associations will be raising money to put on an education campaign. That should start by the end of November.
Apparently when questioned on Nevada NewsMakers by Sam Shad, even Ruben Murillo, president of the Nevada State Education Association, doesn’t know how much the margins tax will bring in.