Sandoval’s business license scheme is just margin tax lite

First of all, don’t call it a business license fee. It is a tax.

A fee is something you pay to cover the cost of a service. Getting a license requires a fee to cover the cost of the service.

Generating revenue for the general fund to pay for public education is a tax. Pure and simple. As such it will require a two-thirds approval by both houses of the Nevada Legislature.

Gov. Brian Sandoval proposed his business license fee scheme in his State of the State speech and is scheduled to outline it for legislative tax committees this week.

He insists the fee is different from the margin tax rejected by voters in November by four-to-one. The Nevada State Education Association managed to gather enough signatures to have its Nevada Education Initiative go before the voters. The initiative proposed a 2 percent margins tax on all Nevada businesses that gross more than $1 million a year.

Sandoval’s plan doubles the business license fee on all businesses from $200 to $400 and also imposes a tax on gross receipts, but it is less than 1 percent and starts at much lower levels of gross receipts. The law, introduced as Senate Bill 252, is a 130-page behemoth with 27 separate tax tables for different industries. For some industries the tax kicks in at about $125,000 a year and more others it doesn’t apply until nearly $200,000 a year.

While the margin tax allowed businesses to take one of three deductions: A. A straight 30 percent of revenues, leaving the tax due on 70 percent of revenue. B. The cost of goods sold. C. Employee compensation up to $300,000 per employee — Sandoval’s tax has no such deductions, except for gaming revenues.

The margin tax was estimated to hit private industry with $800 million a year in taxes, while Sandoval has said his tax will rake in $250 million. The lowest tax would be $400 and the highest would be $4 million.

Like the margin tax, it pays no heed to whether a business is profitable. It hits the gross receipts no matter the cost of doing business.

According to a fact sheet posted on the governor’s website, there are more than 300,000 businesses that currently pay the licensing fee. The fact sheet insists the license fee is “significantly” different from the margin tax. In fact, it will ding far more businesses than the one pushed by the teachers’ union.

For all its flaws, the margin tax was uniform. Sandoval’s is a contortion. Those 27 different tax tables arguably defy the state constitutional mandate that: “The Legislature shall provide by law for a uniform and equal rate of assessment and taxation …” How can this possibly pass constitutional muster?

According to that fact sheet, the tax rates varies from a low of 0.056 percent for mining to a high of 0.362 percent for rail transportation.

A study conducted for Nevada Policy Research Institute estimated the margin tax would kill 3,600 private sector jobs. Will the Sandoval tax kill only 1,000?

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Introduction to SB252

 

 

Tax table for newspapers, magazines, books and other publications.

Tax table for newspapers, magazines, books and other publications.