Sandoval lashes out at criticism of tax without rebutting a single fact

Gov. Brian Sandoval engaged in the lowest of political treachery and deception, launching into an ad hominem attack on the Tax Foundation’s analysis of his business license fee (BLF) based on graduated gross receipts.

Sandoval said of the study commissioned by the Las Vegas Metro Chamber of Commerce:

“The report issued today by the Las Vegas Metro Chamber of Commerce’s Tax Foundation is utterly irresponsible, intellectually dishonest and built upon erroneous assumptions. I know I am not alone in expressing my disappointment in the Chamber’s judgment especially for an organization that repeatedly claims to want to help move Nevada forward. Moreover, this act sits in direct contradiction to what the Chamber’s leaders have expressed to me on several occasions privately in my office. The only good to come from this stunt is that for those of us who are working in good faith to solve Nevada’s education challenges, it removes all doubt about where the Las Vegas Chamber stands. I believe the Chamber’s leaders have done their membership a terrible disservice and have harmed the credibility of an organization that purports to stand for education.”

The statement is all bluster and void of facts. He names not a single erroneous assumption. He makes no cogent argument, instead resorting to salacious name calling.

On the other hand the Tax Foundation study was dripping with facts and figures.

Gov. Brian Sandoval (Reno Gazette-Journal photo)

It is Sandoval who is probably engaging in erroneous assumptions. Both the Tax Foundation and the Nevada Registered Agent Association both say Sandoval’s estimation that the BLF will eventually net $250 million a year in revenue is wildly inflated. The agents say it is overstated by $65 million a year and the Foundation says it may be as much as $100 million. Both say the governor overstates how many will pay the tax.

The Foundation notes the governor projects a growth in the number of business licenses from the present 308,000 to 340,000.

The Foundation cites the agents’ study that estimated a net drop of 124,000 registered businesses in the state and a 55 percent reduction in new filings.

Of course, the spineless Chamber immediately disavowed any knowledge of the study and apologized to the governor for the “tone and tenor” of the study.

The Foundation called the tax a “complex, arbitrary tax that will do long-term harm to Nevada’s economic growth.”

“It will be Nevada’s most complex tax for both taxpayers and tax administrators, with a multi-step method of rate calculation bordering on arbitrary, 67 rates plus cliffs and phase-ins for each one, and unclear guidance for multi-industry and interstate companies,” the study said. “It is also decidedly non-neutral, with stated tax rates deliberately varying widely by industry such that it exacerbates tax pyramiding and likely violates federal prohibitions against discriminatory taxation.”

It also violates the state Constitution’s dictate that taxes be uniform and equal.

To illustrate the unfairness of the tax, the Foundation quotes the Guinn Center as saying: “Under the revised Business License Fee structure, publishing, software, and data processing were grouped into one category and taxed at a rate of 0.276 percent, the fifth highest rate. However, the profitability rate for those industries varies significantly: publishing (12.81 percent), software (4.19 percent), and data processing (0.80 percent).”

That is downright arbitrary and capricious, as well as utterly irresponsible, intellectually dishonest and built upon erroneous assumptions.

In an email responding to the governor’s ad hominem attack, the Tax Foundation listed key facts:

  • The proposal would convert the existing flat $200 Business License Fee into a tiered system of 67 revenue ranges for each of 27 industry categories. Additionally, foreign filers and non-employer businesses would pay a flat fee of $400, bringing the total to 29 categories of filers and 1,811 possible flat-dollar-amount tax liabilities.
  • The proposal is targeted to generate $250 million per year once fully implemented and is projected to raise $438 million over the first biennium. However, these revenue estimates may be overstated by hundreds of millions of dollars.
  • While attempting to mitigate the inherent flaws of gross receipts taxes, the designers of the BLF created a complex tax structure that violates the principles of simplicity and neutrality. The proposal requires significant additional administration costs and compliance burdens, and a quick implementation invites disaster.
  • BLF rates are arbitrarily calculated using Texas data from a single year, despite the high likelihood that such data is not representative of Nevada’s economy. BLF rates do not correlate with profitability, resulting in punitive taxes for some and taxation of unprofitable firms.
  • The BLF designers incorporated revenue cliffs that result in absurdly high marginal tax rates, reaching as high as 13 million percent. BLF designers concede pyramiding will be a problem, violating the principle of neutrality.
  • BLF industry categories were arbitrarily selected and will result in tax arbitrage and economic distortions, as seen in states with similar taxes.
  • Texas and Washington, while providing the model for the Nevada BLF proposal, are considering proposals to repeal their analogous taxes.
  • The BLF proposal violates the principle of transparency by mislabeling an obvious tax.
  • The BLF as proposed likely violates the interstate commerce clause and federal law.

Newspaper column: Study calls for simple and fair taxation

The word that will be buzzing through the halls of the Nevada Legislature like a swarm of bees from February until June will be “taxes” — whether to raise them, create new ones or fix the ones we have.

Our lawmakers would do well to heed the advice in a study by the Tax Foundation titled “Simplifying Nevada’s Taxes: A Framework for the Future.”

Commissioned by the Las Vegas Metro Chamber of Commerce, the 80-page report remains neutral on just how much tax revenue the state needs but rather concentrates on reforming the tax system so that it will ensure Nevada is economically competitive and fair.

“Nevada should consider fixing what is broken with the current tax system instead of pursuing a brand new tax to layer on top of the narrowly based, complex existing taxes,” the Tax Foundation suggests. “A number of elements of the tax system exist only in Nevada, and those in particular should be scrutinized. Changes should address state revenue volatility, be fair, and reduce carve-outs that plague the system.”

In a criticism that should be no surprise to most Nevadans, the study found the state relies too heavily on volatile tourism taxes and in general the tax structure is narrow, complex and inequitable. Its base should be broadened and rates lowered.

Though a number of Nevada’s panoply of taxes — from insurance taxes to car rental fees to real property transfer taxes — come in for criticism, the two that deserve the closest scrutiny are the ones that pick the pockets of every Nevadan — sales and property, which combined generate more than 65 percent of state and local tax revenue.

One of the main problems with Nevada’s sales tax system is that it has failed to fairly reflect Americans’ changing spending habits over the decades. While in the post-World War II era our personal consumer spending was about 60 percent on goods and 40 percent on services, today’s spending ratio is reversed with only about 35 percent going for goods and the rest on services — which Nevada mostly does not tax.

The study suggests that taxing services would be more equitable and stable and allow the overall statewide average sales tax rate of nearly 8 percent to be lowered. But since the sales tax is regressive — taking a bigger percentage bite out of the incomes of poorer families — some services should be exempted, such as medical and hospital care, just as food and medicine are exempt now.

In addition, the study suggests simply repealing the state’s Live Entertainment Tax, which has a labyrinth of exemptions and exclusions that make it expensive and nearly impossible to enforce, and applying the sales tax to such events. For example, some of Nevada’s biggest events are specifically and questionably exempted from the Live Entertainment Tax — Burning Man, minor league baseball, the Electric Daisy Carnival and NASCAR’s Nextel Cup series.

As for property taxes, the Tax Foundation found Nevada’s system to be unique in the nation. No other state assesses property values for tax purposes the way Nevada does.

“Unique features include a depreciation factor and a ‘ratchet’ effect in the property tax cap that has presented challenges for local governments,” the report says. “Although the concerns that prompted these features remain valid, the resulting system is cumbersome, convoluted, and unstable, especially in the wake of a recession.”

The “ratchet” referred to is the law that was enacted during the state’s boom years when property values were escalating exponentially every year. To curb the impact, lawmakers capped the annual increase in property taxes at 3 percent for residences and 8 percent for commercial property. Since prices fell during the recession, state and local governments are lagging in revenue recovery due to the caps.

But the biggest difference in Nevada is that the tax is based on replacement value rather than market value. In addition, Nevada is unique in applying a depreciation factor on property even though property seldom actually depreciates. The 1.5 percent annual depreciation for up to 50 years means a person living in a newer house than a neighbor with an older house of the same value may be paying considerably more in taxes.

The Tax Foundation’s analysis should be closely studied by our lawmakers, not as a way to increase taxes, but as a means of achieving fairness, stability and predictability.

In his State of the State speech Gov. Brian Sandoval ignored everything the study recommended and made some unequal taxes even more unequal.

 A version of this column can be found online at The Ely Times, Mesquite Local News and the Elko Daily Free Press.