Margins tax might not add a dime to education funding

Money is fungible.

This fact appears to have escaped the backers of a margins tax on businesses that is supposed to raise money for K-12 education. The measure is on the November 2014 ballot.

The Nevada State Education Association teachers’ union estimates the tax would raise $800 million a year, a contention business leaders seriously doubt.

But furthermore, the ballot initiative contains no language that would prevent the Legislature from simply taking tax money that currently goes to education and spending it elsewhere — the very definition of fungible, as reported in this week’s newspaper column, available online at The Ely Times and the Elko Daily Free Press.

“The only two things in the initiative that specify education is the title, which says ‘education first,’ and then the fact the initiative requires the money to be deposited in the DSA (Distributive School Account),” says Carole Vilardo, president of the Nevada Taxpayers Association. “There is no language in the initiative that says the money must go to education or that existing revenue that goes to education cannot be supplanted.”

Vilardo noted that a 3 percent tax on hotel rooms in Clark and Washoe counties was earmarked to improve student achievement and increase teacher salaries.

“The Legislature turned around and changed the use of the revenue. It went to the general fund the first year, and then it went into the DSA. It was to come out of the DSA for July 1st of 2011 (and go into a special education support fund). In the 2011 session it was delayed until July 1st of 2013. In the last session it was further deferred to July 1st of 2015.”

“This is what scares me about this upcoming election,” said Kelly Bullis, head of a Carson City certified public accounting firm. “I don’t think the average low-information voter is going to get this. The way this law is written, the money that is collected from this tax is put in the general fund that’s marked for education. What that means is that big pot that the Legislature basically has, this general fund, that they move stuff around. That’s what they vote on every two years. If you already have a lot of money in the education fund, then they don’t need to take money from something else to put in the education fund.”

The legislature could even decrease education funding and there is nothing in the margins tax initiative to stop it, Vilardo said.

Read the entire column at the Ely or Elko website.

Newspaper column: Margins tax may come up short on revenues

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.

Business community leaders say that number is a pipe dream, as reported in this week’s newspaper column, available online at The Ely Times and the Elko Daily Free Press.

“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.

Read the entire column at Ely or Elko website.

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.


Newspaper column: How the margins tax on the 2014 ballot would harm businesses

Voters will be asked next November whether to impose a 2 percent margins tax on Nevada businesses that have gross revenues in excess of $1 million, a proposal put forward by the Nevada State Education Association as a means of funding K-12 education.

Business leaders will soon be starting a campaign warning voters about the harm this tax would do to businesses, as reported in this week’s newspaper column, available online at The Ely Times and the Elko Daily Free Press.

“It will have a huge impact on our members that have revenue of a million dollars, which in a small business is not that large,” warns Bryan Wachter, director of public and government affairs for the Nevada Retailers Association. “They allow you to have a deduction for cost of goods sold, you can deduct compensation, or you can take a standard 30 percent deduction. They let you take that and then you apply the tax to that number. The problem with that is it completely ignores how a small business operates.”

Wachter said there is no deduction of anything else that goes to the bottom line of a business, such as rent and utility costs. Though a business incurs both compensation and cost of goods sold, it must choose one or the other to deduct and not both.

He said a small business that sells $1 million in goods might have a profit of only $60,000 a year. “When you have a tax that could potentially come in at $15,000 or $30,000, you’re putting a lot of businesses in a position where they have to choose to stay in business or not stay in business,” Wachter said.

The retailers are a part of the Committee to Protect Nevada Jobs, which also includes gaming, trucking, agriculture, banks, car dealers, restaurants, manufacturers and more.

Carole Vilardo, president of the Nevada Taxpayers Association, said businesses will treat the tax as just another expense of doing business.

“When I go to my accountant and calculate all my expenses, he comes back and says to me, ‘Your margin is not enough.’ I have a couple of things I can do. I can raise my prices, if the competition will let me, which means you, John Q. Public, is going to pay my taxes that I have to pay. Or I can freeze salaries. I can reduce hours of employees. I cannot hire for vacancies that I had. In the worst-case scenario I may have to let go an employee or two. …” she said.

Read the entire column at Ely or Elko website.

Newspaper column: How the margins tax would work

The November 2014 mid-term election is still a year away, but the campaigning over a key ballot question should be starting in earnest soon — as reported in this week’s newspaper column, available online at The Ely Times and the Elko Daily Free Press.

The Nevada State Education Association managed to gather enough signatures and survive enough court challenges to have its The Education Initiative go before the voters. The initiative proposes a 2 percent margins tax on all Nevada businesses that gross more than $1 million a year.

The union has estimated the tax would bring in $800 million a year in additional funding for K-12 education.

A coalition of businesses is coming together and expects to start its opposition campaign possibly before the first of the year. There is already a website that spells out reasons to vote against the tax.

Carole Vilardo, president of the Nevada Taxpayers Association, explained how the tax would be assessed.

Once a business exceeds $1 million in gross revenue, it must pay the tax, Vilardo said. Then the business may 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. Gaming taxes and the payroll tax are also deductible.

Kelly Bullis’ certified public accounting firm in Carson City has created an online spread that business owners may use to estimate what the margins tax would be for their companies. It may be downloaded from the Nevada Manufacturers Association website.

Read the entire column at the Ely or Elko site.