Editorial: Here’s another chance to repeal the Commerce Tax

In 2014 Nevada voters rejected by 79 percent to 21 percent a proposed margins tax, effectively an income tax on state businesses. Despite this unequivocal rejection at the ballot box, lawmakers a few short months later passed a similar, though currently somewhat smaller, tax called the Commerce Tax.

The Commerce Tax passed with a two-thirds majority in the Republican-controlled Assembly and Senate and was signed by a Republican governor.

In 2016 a group called RIP Commerce Tax filed an initiative petition to place repeal of the Commerce Tax on the 2016 ballot, but the effort stalled when, with only a month left until the deadline for gathering signatures, the courts ruled the wording of the petition failed to sufficiently warn voters that a tax repeal would unbalance the state budget — like that would come as a startling development to anyone.

This past week the same group, this time with a new moniker, Repeal the Commerce Tax, filed another petition, fixing the wording to satisfy the courts, and plans to begin gathering signatures.

The group is still headed by state Controller Ron Knecht, as president, and former Las Vegas City Councilman and state Sen. Bob Beers, as secretary-treasurer.

Knecht noted the group has started its petition drive earlier in order to allow for expected legal challenges. He said their lawyers advised them to use exactly the language the courts told them to use the last time.

“Essentially, we are saying here’s what the Legislature passed, do you all agree?” Knecht said in a recent interview. “Do you want to vote for it or against it. If you vote for it, you get the Commerce Tax. You vote against it, you repeal the Commerce Tax. You have the final word.”

The petition includes the entire text of the Commerce Tax law as well as a 200-word description of effect that mirrors the courts instruction to explain the impact repeal would have on the state budget. “They said use exactly what the two courts said and that’s what we did,” Knecht said. “That should make the description of effect pretty much bullet proof.”

By the time the Nevada Supreme Court ruled in 2015, the RIP Commerce Tax had already gathered 20,000 signatures of the 55,000 needed, but they had only a month left to gather signatures, and those 20,000 were ruled invalid.

Knecht said this time the group has joined with Americans for Prosperity for assistance in gathering signatures.

“It is true we have to gather twice as many signatures this time due to turnout in the two elections,” he noted. Petitioners must collect signatures equal to 10 percent of the total votes cast in the most recent general election in each of the state’s four Congressional Districts.

Because the 2016 election was a presidential one and twice as many votes were cast than in 2014, Knecht said the group must gather 112,000 signatures — 28,000 in each Congressional District — but they plan to gather 160,000 signatures to allow for signers who might not be qualified.

“Once the thing gets onto the ballot, the issue is going to be real simple: One, this is about jobs,” Knecht said. “The Commerce Tax is a job destroyer. Repealing it will be a real help. And, secondly, for all those people who think, oh, this is just about corporate taxes and fleecing the millionaires and billionaires, et cetera. Well, you’re wrong. As economists have proven many times over, business doesn’t pay tax, it collects it from its customers. This is about jobs and the burden on Nevada families and businesses.”

According to the petition’s new description of effect, the Commerce Tax is expected to generate about $102 million in the coming fiscal year, which Knecht noted is only about 1 percent of the state’s total revenues. The description notes that such a shortfall can be offset by cutting spending, drawing down the state rainy day fund, raising other taxes or some combination. Somehow the state managed to survive when the recession axed the state revenues by $536 million from 2008 to 2009.

The Commerce Tax imposes a gross receipts tax on all businesses grossing more than $4 million a year. It has different tax tables for 27 different industries — ranging from a low of 0.056 percent for mining to a high of 0.362 percent for rail transportation in 67 different levels of revenue. Those rates could easily be increased.

We urge Nevadans to sign the petition and to vote to repeal this end run on the state’s constitutional ban on an income tax.

A version of this editorial appeared this week in some of the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel,  Sparks Tribune and the Lincoln County Record.

Controller Ron Knecht, left, talks to attorney Craig Mueller during a 2016 court hearing on an effort to repeal the Commerce Tax. (R-J pix)

Attorney offers a glimpse of the future of the commerce tax

Craig Mueller, the attorney for a group seeking to repeal the 2015 commerce tax calling themselves RIP Commerce Tax, argued before the state Supreme Court today that the group should be allowed to collect signatures and have the repeal placed before the voters in November.

Nevada Controller Ron Knecht is heading up the repeal effort.

Though it is hardly a legal argument, as one justice told him, Mueller spelled out a strong political argument against the commerce tax:

When the federal government first proposed an income tax in 19 aught 6 or so, I don’t remember the exact year, it was supposed to be on millionaires, on the edge of the Golden Age. A hundred years later, everyone pays income tax.

Now, the two things I’ve noticed about government, it never gets any smaller, taxes never go down.

Now I hate to be cynical about these things, but those are a simply statement of facts. My clients are very concerned about that trend and very concerned they don’t have their say on this tax.

Just moving the dial forward another 10 or 12 years, this tax goes down 4 million dollars to 3 million to 2 million and it starts to looking an awful lot like a state income tax.

Mueller also noted that the voters turned down a gross receipts tax — identical to the commerce tax in principle if not in specifics — in November 2014 by a margin of 4-to-1. The Legislature passed the commerce tax with the required two-thirds majority and the governor signed it.

Nevada Assistant State Controller Geoffrey Lawrence, left, and Controller Ron Knecht present an alternative to Gov. Brian Sandoval‘s tax plan in May. (R-J photo)

The Coalition for Nevada’s Future argued the petition should not be allowed to go forward because its language is confusing and its form does not conform strictly with legal requirements. They also argue repeal would unbalance the state budget. The state Constitution requires a balanced budget.

Mueller noted the tax is expected to raise only $60 million a year as currently written and the interim finance committee has handed much bigger shortfalls in the past due to economic slumps.

The commerce tax would impose a gross receipts tax on all businesses grossing more than $4 million a year. It has different tax tables for 27 different industries — ranging from a low of 0.056 percent for mining to a high of 0.362 percent for rail transportation in 67 different levels of revenue. And there is nothing to prevent future legislatures from ratcheting up those rates or lowering the threshold.

One of the complications of the ballot measure is that if the voters allow the tax to stand as written, some argue the Legislature would not be able to alter it in any way without a vote of the people. If the people repeal, lawmakers could not impose a similar tax without a vote of the people.

Carson City Judge James Wilson earlier ruled, “The court concludes even if the Legislature enacts a statute, the people do not lose their constitutional right to submit the statute to a vote of the people.”

The justices should rule fairly soon because the group has a deadline of June 21 to collect enough signatures.