Nevada tax rate open for debate

Sunday, April 30, 2000 | 10:30 a.m.

Fiscal Forum

The Fiscal Forum will explore Nevada's economic health over the next decade.

The forum will be held from 8:30 a.m. to 5 p.m. Thursday in Building D at the Community College of Southern Nevada's West Charleston campus.

The event will wrap up Friday morning with a series of round-table discussions. The admission fee is $10.

Nevadans have long been told they pay some of the lowest taxes in the country, but the U.S. Census Bureau and a taxpayers association say otherwise.

Whom to believe depends on whom you ask.

State officials boast that Nevada has one of the "least burdensome" tax systems in the country because there are no individual and corporate income taxes. But the Census Bureau ranks Nevada 15th in state taxes per person and the nonpartisan Tax Foundation of Washington has the state ranked ninth when federal taxes are included.

The census figures for 1998, the latest available, show that the amount of money businesses and individuals paid the state averaged $1,847 per person. That was $87 above the national average. Most of this money came from taxes on sales, gaming, business licenses and motor fuel. Not included were property and sales taxes collected by city and county government.

Nevada ranked first in the nation in per capita gaming-related taxes, second in insurance premium taxes, third in occupation and business license taxes, sixth in taxes on motor vehicle operators' licenses and 10th in motor fuel taxes, according to the federal data.

But state political and economic experts say the numbers are skewed against Nevada because a large percentage of its sales and gaming taxes are paid by out-of-state tourists. They also said that Nevada ranks high in certain areas of nongaming taxation to make up for the absence of state individual and corporate income taxes.

"The problem with the per capita measurement is that it does not factor in how many people are in the state on a given day," said Scott Scherer, chief of staff for Gov. Kenny Guinn. "We have a large number of tourists so it skews the figures. We have more than 30 million visitors a year."

Nevada's self-image as a low-tax state is about to be put to the test. A powerful teachers union and a state senator have launched separate petition drives to raise business and gaming taxes to help fund education, the state highway patrol and economic development.

The state's fragile tax system is also expected to be a major topic during a Fiscal Forum hosted by Guinn scheduled for Thursday and Friday at the Community College of Southern Nevada's West Charleston campus. The forum, which is open to the public for a $10 admission fee, will include participation from politicians and academicians who have been asked to forecast the state's economic health over the next 10 years.

"We view the forum next week as the beginning of the debate on taxation," Scherer said. "We want to get to the point where everyone has a common understanding of our state history, economic and demographic trends. We can then have a meaningful debate on the proper way to restructure our tax base."

Taxation has traditionally been one of the stickiest political issues in Nevada. No politician has dared to recommend that the Nevada Constitution be rewritten to institute a state individual income tax. Nevada remains one of only seven states with no individual income tax and one of only four states with no corporate income tax.

The Nevada Department of Taxation proclaims on its website that "Nevada's tax structure continues to be one of the least burdensome in the United States."

But because the state relies heavily on sales and gaming taxes, that will pose a problem should Nevada experience a sharp economic downturn, said Keith Schwer, director of UNLV's Center for Business and Economic Research.

"Our tax system is not a stable one because the taxes we collect tend to go up and down with economic activity," said Schwer, who will address the forum. "In the last 20 years we have been blessed because we had only one downturn (in the early 1990s). Somewhere down the line an economic downturn is likely again. We just don't know the timetable."

Schwer said the state's economy ought to be healthy for at least the next two years. But he said it would take a major economic downturn before there would be any serious political appetite to change Nevada's tax structure.

Two major petition drives are under way in an effort to encourage the 2001 Legislature to raise taxes. One by the Nevada State Education Association, the 22,000-member teachers union, is a proposed 4 percent business tax that would raise an estimated $250 million annually for education.

Another by state Sen. Joe Neal, D-North Las Vegas, would increase large resorts' gaming tax on gross receipts by 5 percent or about $388 million annually to fund education, economic development and the Nevada Highway Patrol as well as to reduce motor vehicle taxes. The gaming tax, whose top rate of 6.25 percent is the nation's lowest, hasn't been increased since 1987.

But Assembly Taxation Committee Chairman David Goldwater, D-Las Vegas, added that it would take strong leadership from the governor's office to support any significant tax change. And Guinn has come out against the two petition drives, arguing his preference for consensus budget solutions.

"We have such a weak Legislature by virtue of the fact we meet only every other year," Goldwater said. "To invoke a new tax would be hard for us to do."

If the petition drives succeed but the Legislature turns down both tax proposals, they would be placed before the state's voters in 2002.

Scherer said one possible way to broaden the tax base could involve the service sector, including such professionals as attorneys and accountants.

"Our tax structure obviously needs to get broader," Scherer said. "Our service economy is growing faster than our economy on goods. But our taxes are based on goods, not services. It certainly makes sense for the service sector to pay its fair share."

One way to address Nevada's tax structure without raising taxes is to continue to review the way state revenues are distributed, said Carole Vilardo, president of the Nevada Taxpayers Association. She said one revenue source under review is the motor fuel tax, which is now divided into three distribution formulas.

"In some cases you have distribution formulas that were put in 40 years ago that don't reflect the way they should be distributed now," Vilardo said. "We haven't done a real serious review of a lot of these."

According to the 1998 Census figures, Nevadans on average paid $287.79 in so-called "amusement" taxes, which covered gaming receipts, casino entertainment and boxing events, and $48.79 for gaming-related license taxes such as on slot machines. Nevada ranked first in both categories.

The state ranked second behind Hawaii with an average $63.40 in taxes that were built into individual and business insurance premiums, well above the national average of $33.92. Only Delaware and South Dakota paid more than the $62.69 Nevadans averaged for occupation and business licenses, which was close to triple the national average.

Nevada ranked sixth by averaging $6.60 for motor vehicle operators' license taxes and 10th in motor fuel taxes at $141.83 per person. But Vilardo said the motor fuel tax ranking is an example of why the census numbers were skewed. Nevada uses only its fuel tax revenues to build and repair state highways.

"We don't take state general fund money to rebuild highways," she said. "In other states they use general fund money in addition to fuel taxes. Nevada is the seventh-largest state in land size, and you need roads to get from point A to point B. Because of our small population and the size of our state that has kept our gas taxes on the high side."

Vilardo also recalled that a 1989 study commissioned by the Legislature found that 28 percent of the state's sales tax revenues came from tourists. That's another reason she said comparing Nevada's per capita tax rates to those of other states can be misleading.

Yet organizations such as the Tax Foundation rely on census data and other federal statistics to study the nation's tax rates. The foundation each year sponsors Tax Freedom Day, the date it calculates must be reached by average taxpayers before they have worked enough to pay off their state and federal taxes for the year.

This year that date has been calculated nationally as May 3, but the foundation ranked Nevadans in a ninth-place tie for worst off by having to work until May 6 to pay off their state and federal taxes. Worst off, according to the foundation, are residents of Connecticut, who must work until May 18.

The foundation also singled out Nevada as one of six states that rely so heavily on sales taxes it could be fiscally threatened by the spread of Internet business. Although there is generally no sales tax on goods sold over the Internet from one state to another, Nevada companies that do business through websites are supposed to charge sales tax for goods sold to Nevadans.

Goldwater said more could be done to make sure Nevada Internet businesses are either charging or reporting sales tax for in-state transactions.

"We don't want to tax the Internet," Goldwater said. "But we want to make sure that if we have a sales tax, no one vendor is treated different than another."

The assemblyman said another dilemma that must be addressed is that the pace of state spending continues to exceed the rate of revenue increases. But he said there is not much room to reduce spending in areas such as education and Medicaid.

"If you don't do something on the revenue side, you'll be in trouble," Goldwater said. "But that's an issue for debate."

Steve Kanigher is a staff writer for the Sun. He can be reached at (702)-259-4075 or by e-mail at steve@lasvegassun.com.

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