Editorial: Courts should let the voters decide on commerce tax — again

In 2014 the voters of Nevada rejected by a 4-to-1 margin a tax on company revenues being pushed by the state teachers’ union.

Instead, the 2015 Legislature adopted a smaller version of the same job killing business margin tax — this time dubbed a commerce tax — despite the myriad arguments against it.

Whether the voters will get a chance again this November to reject this business tax now lies in the hands of the Nevada Supreme Court.

A group headed by Nevada Controller Ron Knecht plans to circulate a petition to place a referendum before the voters to repeal the commerce tax, which is estimated to raise $60 million a year as part of Gov. Brian Sandoval’s $1.5 billion package of new and higher taxes for the biennium.

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

In November District Judge James Wilson of Carson City rejected a constitutional challenge to the petition by a group calling itself the Coalition for Nevada’s Future, but this past week the group filed an appeal with the state’s high court. Nevada Assistant State Controller Geoffrey Lawrence and Controller Ron Knecht present an alternative to Gov. Brian Sandoval‘s tax plan in May. (R-J photo)

Judge Wilson had 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.”

A separate effort to repeal the entire $1.5 billion tax hike was rejected by another judge but appeals continue and refiling of the petition is possible.

Backers of the commerce tax repeal must gather 55,000 signatures by June 21 to qualify for the November ballot.

While the commerce tax does not currently tax businesses nearly as aggressively as the teachers’ union version, it has the potential to grow over time and promises to be costly for businesses to be able to comply. As written, it has different tax rates 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.

The tax rates on gross receipts vary because the profit margins in different industries vary greatly, but the law’s tax tables ignore the fact that profit can vary within an industry, too.

Gov. Sandoval has promised to fight the repeal efforts, calling such petitions “a wrongheaded attack on the children and families of Nevada. Supported by more than seventy percent of legislators, the revenue the petition seeks to eliminate will go directly to the classroom and give teachers the resources to deliver a quality education.”

Do 70 percent of lawmakers trump 80 percent of voters? We think not. The arguments against the so-called margin tax still apply to the commerce tax and are compelling.

The margin tax got on the 2014 ballot through the referendum process. The referendum process should be allowed to give voters a chance to repeal this tax that was already rejected once.

The Nevada Supreme Court should expedite this commerce tax case to give petitioners time to gather the necessary signatures by the mid-summer deadline.

A version of this editorial appears this past week in 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.

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?

Introduction to SB252

 

 

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

 

Some are quibbling over the means of conveying an opinion in print

The advertisement

A newspaper is a newspaper. Newsprint is newsprint. An opinion is an opinion.

But apparently some people are aghast that a newspaper would use its newsprint to convey opposition to ballot Question 3 in both an editorial and a series of in-house advertisements.

Online journalism critic Jim Romenesko noted in his blog that the Las Vegas Review-Journal is running so-called house ads that opposed the margin tax or The Education Initiative. He quotes a defrocked newspaper columnist as saying, “I’m sure this will be disclosed in all news stories from now on, right?”

Just as all news stories will disclose that the paper editorially opposed the ballot measure in a Sept. 28 editorial, though its political columnist endorsed the measure a couple of days later? That would take a lot of explaining. The disclaimer about the editorial, the column and the ad would be longer than any story.

The local pundit has since asked whether the newspaper will register with the Secretary of State as a political action committee and disclose expenditures because state law defines a “Committee for political action” as a group “Which does not have as its primary purpose affecting the outcome of any primary election, general election, special election or any question on the ballot, but for the purpose of affecting the outcome of any election or question on the ballot receives contributions in excess of $5,000 in a calendar year or makes expenditures in excess of $5,000 in a calendar year.”

What difference does it make in what form the opinion appears? It takes the same amount of newsprint, which is going out the door and onto the driveway anyway. What cost?

But there is a section of the law that reads:

NRS 294A.370  Media to make certain information available.

      1.  A newspaper, radio broadcasting station, outdoor advertising company, television broadcasting station, direct mail advertising company, printer or other person or group of persons which accepts, broadcasts, disseminates, prints or publishes:

      (a) Advertising for or against any candidate or a group of such candidates;

      (b) Political advertising for any person other than a candidate; or

      (c) Advertising for the passage or defeat of a question or group of questions on the ballot, shall, during the period beginning at least 10 days before each primary election or general election and ending at least 30 days after the election, make available for inspection information setting forth the cost of all such advertisements accepted and broadcast, disseminated or published. The person or entity shall make the information available at any reasonable time and not later than 3 days after it has received a request for such information.

      2.  For purposes of this section, the necessary cost information is made available if a copy of each bill, receipt or other evidence of payment made out for any such advertising is kept in a record or file, separate from the other business records of the enterprise and arranged alphabetically by name of the candidate or the person or group which requested the advertisement, at the principal place of business of the enterprise.

But I doubt the newspaper will bill itself for those house ads.

Never mind that much of the law is clearly an abridging of free speech and press anyway.

That hasn’t stopped the current Secretary of State Ross Miller from pursuing legal action against people for expressing their opinions in public.

 By the way, the URL in the ad VoteNoQ3.com is a link the paper’s editorial on the topic.

The editorial

 

 

 

 

Newspaper column: Arguments against margin tax keep piling up

Every time someone kicks over another margin tax rock, a monster comes crawling out.

We’ve already learned from previous studies and analyses that The Education Initiative, or margin tax, on the November General Election ballot might not raise as much revenue for education as promised by backers, that the money raised by the tax could be diverted from education to other uses as lawmakers have done in the past, that it could destroy as many as 3,600 private-sector jobs, would increase Nevada’s effective corporate income tax to 15 percent (nearly double California’s 8.8 percent rate) and inflate consumer prices for everyone.

The Nevada State Education Association managed to gather enough signatures and survive enough court challenges to put before the voters a 2 percent margin tax on all Nevada businesses that gross more than $1 million a year. Some deductions for expenses are allowed. The union has estimated the tax would bring in $800 million a year in additional funding for K-12 education. It will be Question 3 on the ballot, as noted in this week’s newspaper column, available online at The Ely Times, the Elko Daily Free Press and the Mesquite Local News.

The Coalition to Defeat the Margin Tax Initiative — which is made up of retailers, miners, manufacturers and assorted businesses and business groups — recently published another study of the tax’s effects on Nevadans.

This latest study was conducted by Nevada economist John Restrepo and his RCG Economics firm in collaboration with UNLV economist Alan Schlottmann and others.

Restrepo focused on the impact the tax would have on those who own several businesses, because the tax would treat an owner’s various entities as one for tax purposes.

“For example, one person may own a car wash business and a retail store with annual revenues of $450,000 and $600,000, respectively,” the report explains. “Each company is considered an independent business establishment, but because they share a common owner, these companies would be combined into an affiliated group for the purposes of the Initiative” and thus exceed the $1 million threshold.

When those shared-owners are calculated, 16,288 large and small Nevada businesses would be affected by the tax.

Dan Hart, a spokesman for The Education Initiative, has dismissed businesses qualms about the harms of the tax by saying that 87 percent of Nevada businesses wouldn’t be subject to the margin tax, because their gross receipts are less than $1 million.

He fails to mention that nearly 80 percent of Nevada’s small businesses have no employees whatsoever, while those that would be subject to the tax employ a majority of private-sector workers in Nevada.

This latest study in fact estimates the tax will affect the employers of 608,000 workers, representing 63 percent of private jobs in 2013. “On a per employee basis, the margin tax would be an equivalent of  $1,314 per year,” the report concludes.

RCG Economics graphic

The study also breaks down the effective tax rate by type of business. When the margin tax is combined with the current modified business tax, the study found a residential home builder would pay a tax rate of 4.7 percent, while a patient care facility would pay 13.8 percent, a construction wholesaler 42.5 percent, some real estate brokers 86.4 percent and family owned restaurants would be taxed in excess of 100 percent.

In light of figures like these, even the Culinary union has come out against the margin tax.

 

Those are merely the current knowns that can be calculated. The report points out that future bottom line impact is incalculable.

“Unless the long-term impacts of the proposed margin tax to the Nevada economy and its residents are clearly understood, a full analysis of the economic and business ramifications of the tax on the state’s economy is not possible,” the Restrepo report concludes. “The proposed margin tax must be measured and evaluated on its impact to Nevada’s economic growth potential, the state’s economic development efforts, and last but not least, on future business investment. Anything short of this lays the groundwork for a potentially bad public policy that would negatively affect the state’s economic future and the lives of its residents.”

The Nevada Taxpayers Association has warned that many businesses are already struggling to survive the recession and “this tax may prove to be the proverbial straw that breaks the camel’s back.”

Anti-tax coalition spokesman Karen Griffin says that “many businesses that sell goods and services in Nevada would pass on their increased costs from the tax to consumers, increasing the costs we pay for food, clothing, health care, electricity, phone bills, and other products and services.”

There is no guarantee that increased spending on education would improve education. In the past 40 years, Nevada has increased inflation-adjusted education spending 100 percent, while SAT scores have fallen.

Columnist has a strange view of how editorial boards work

In his op-ed column in today’s Las Vegas newspaper, Steve Sebelius uses the term majority a dozen times to refer to a “majority” of the paper’s editorial board and the decision to publish an editorial this past Sunday opposing the margin tax for education, Question 3 on the November ballot. He, of course, endorses the tax and I happen to agree with the editorial stance.

“Sunday’s editorial made the case against The Education Initiative, saying it would be economically destructive across a wide variety of businesses, and that, in fact, ‘it does guarantee a much worse economy.’ In these contentions, I believe the majority is simply wrong,” Sebelius writes.

The column leaves the distinct impression that a newspaper’s editorials are determined democratically by a “majority” of the editorial board members. At all the papers I’ve worked at since the early 1970s, that has not been the case.

People would ask me, when I was editor of the Review-Journal, how editorial decisions were made and I would explain that the editorial board would discuss the various aspects of an issue, the board would vote, and the publisher always won — a majority of one.

There is a tagline at the bottom of the editorial column that reads: “The views expressed above are those of the Las Vegas Review-Journal. All other opinions expressed on the Opinion and Commentary pages are those of the individual artist or author indicated.”

Unless things have changed far more than I could imagine at the R-J, the term “majority” is a misnomer.

In fact, in my current incarnation as a free-lance columnist and editorialist for a string of rural newspapers owned by the R-J’s former publisher Sherman Frederick, this distinction has in fact arisen.

Back in December I penned a column pointing out a better way to reduce the caseload of the Nevada Supreme Court than creating an appeals court, which is Question 1 on the ballot.

But the publisher wanted to endorse Question 1. I told him an editorialist is like a gunslinger or a hooker. Who do you want shot or screwed? The price is the same. (Borrowed from a description a lawyer once used for his profession, but it works in this case as well.)

By the time I finished the editorial I may have convinced myself to vote for the appeals court, since the better solution is not on the ballot and the current situation is untenable.

That’s how it really works at the vast majority of newspapers. It’s hardly a democracy.

(By the way, at this year’s Nevada Press Association contest my columns and editorials won first places in the community newspaper division. I also had first places in both categories while at the R-J. Both of those were deservedly captured this year by Glenn Cook.)

Margin tax passage could cost thousands of Nevadans their jobs

Information on the deleterious affects of the proposed 2 percent margin tax on November’s ballot keep trickling out.

Atop a previous report on how the tax would make Nevada’s effective corporation tax rate nearly double California’s comes a study that says the tax could cost the state nearly 9,000 private sector jobs.

The analysis by economist Jeremy Aguero of Applied Analysis, a Las Vegas-based fiscal and policy research firm, for the Coalition to Defeat the Margin Tax Initiative, concluded that sucking $700 million in taxes from the private sector would translate into about 5,800 private jobs lost directly as a result and a total of nearly 9,000 private jobs when the indirect and induced factors are added in. This would cut the state’s private payroll by more than $400 million a year.

The Education Initiative would raise taxes, supposedly for education.

 

Of course, 9,000 jobs lost would be hardly a ripple, since Nevada already has 120,000 unemployed, not counting those who have given up looking for work. But if it is your job lost, it would be pretty significant to you.

The Education Initiative will be Question No. 3 on the November statewide ballot. It calls for a 2 percent margin tax on all Nevada businesses that gross more than $1 million a year. Its sponsor, the Nevada State Education Association, has claimed it would raise $800 million a year for K-12 education. Proceeds from the tax would be placed in the distributive school account, but there is no language in the ballot measure prohibiting lawmakers from extracting a like amount or more and spending it on other things.

Aguero did note in his study that the loss of private jobs could be offset by public jobs if the tax money is used to hire additional teachers and staff.

The reports says “there are plausible scenarios where margin tax funds are not used to hire more teachers, but rather, are used to increase wages and salaries for existing teachers, administrators and support staff; to extend retirement or health care benefits to state workers; or to pay down the state’s unfunded pension and post-retirement health care liabilities. Similarly, there is also the possibility that upon passage of the Initiative that the Nevada State Legislature will allow one or more of temporary state taxes to sunset, including without limitation, the 0.35 percent Local School Support Tax currently deposited into the distributive school account.”

Also, in addition to killing current jobs, Aguero said the tax would chill economic growth and prevent the creation of future jobs:

“While net job losses may be somewhat modest, new job formation would potentially be far more significantly affected. Economic development and diversification have clearly played a critical role in Nevada’s economic recovery and are considered essential to the state’s long-term economic viability. While evaluating the impact on new investment and business relocation in beyond the scope of this preliminary analysis, it should not be ignored. Neither should the reality that even under the best possible outcome — whereby the tax increase does actually lead to substantial improvements in educational attainment — there will be a transitional period in which Nevada has both a higher-than-average business tax rate and a low performing public school system. It is hard to imagine a climate less conducive to economic growth.”

Though the Las Vegas Review-Journal had a story today on the margin tax, it failed to mention the jobs study. The Las Vegas Sun has a brief story, but only online and not in print.

Still no correlation between amount spent on education and actual education

We’ve already learned that Nevada’s doubling of inflation-adjusted spending on education has had no impact whatsoever on the quality and level of education.

A couple of academics writing in Investor’s Business Daily now have crunched the numbers on education spending and outcomes state-by-state, while adjusting for cost of living and demographic differences. Behold: There is no correlation whatsoever … still.

IBD chart

You may notice that Nevada ranks 40th in overall per-pupil spending but 43rd in 8th-grade test scores, but No, 1 spending Wyoming is in the middle of the pack and 50th ranked in spending Utah is well ahead of Nevada in outcome. States that spent less than Nevada are in the top 10 in outcome.

W. Michael Cox and Richard Alm, of the O’Neil Center for Global Markets and Freedom at SMU, concluded:

Better schools are certainly within our means, but we won’t get them with current assumptions and institutions. It’s time to harness the tried-and-true forces of capitalism — most important, choice and competition. Capitalism in the classroom will create proper incentives, spur innovation and drive entrepreneurial activity.

Milton Friedman famously argued that the private sector could do better than government in educating America. In 1955, he laid out a plan to issue taxpayer-funded vouchers for each student, which families would use to pay for the schools of their choice.

Typically, Friedman was both right and ahead of his time. Over the next six decades, the idea of incorporating market mechanisms into education has gained traction as the failure of government schools has become impossible to ignore.

A variety of school-choice options have been introduced in all parts of the country — voucher programs, charter schools, tax deductions and rebates, tax-credit scholarships, private schools, home schooling, online learning and educational savings accounts.

But in Nevada the teachers are pushing for mo’ money, mo’ money, mo’ money, even though mo’ money has done nothing to improve the level of education. The Nevada State Education Association has the margin tax on the November ballot, which will cripple the state’s business and still not guarantee any improvements.

We can keep doing the same ol’ thing or do as Cox and Alm suggest:

Americans are romantic about their public schools. We need to be realistic. We can keep doing what we’re doing — spending more on education, failing our students and undermining the American middle class. Or we can embrace choice and competition, the powerful forces that give us better products for less money in the private sector.

It’s time we let choice and competition work in education — we’ll end up spending less and getting better schools.