Nevada governor reviewing spending

Monday, May 15, 2000 | 12:08 p.m.

The money would come from sales taxes on currently untaxed services, such as fees charged by lawyers, accountants, business consultants and public relations firms. Taxes would be collected on barber and beauty shop charges, equipment rentals, auto repairs and dry cleaning.

Guinn, a Republican, last week said for the first time his staff is looking at the tax increase. But he emphasized that a decision won't be made before September or October.

In the meantime, his administration is reviewing state spending in an effort to avoid new taxes.

"The governor is doing everything he can to streamline state government before he looks at anything new," said Scott Scherer, Guinn's chief of staff.

Scherer also said the administration is looking at a 1990 Nevada Taxpayers Association study by consultant Brad Case that says levy on untaxed services could generate $102 million a year.

"We asked him to be very conservative," said NTA president Carole Vilardo, whose group includes business leaders from across the state and traditionally has opposed tax increases. "We didn't want him to overestimate projected revenue."

Her organization at the time was not looking at higher taxes, but at a counterproposal to an initiative petition by the Nevada State Education Association that called for a corporate profits tax.

The taxpayers association supported Case's service tax proposal, but in exchange it wanted the Legislature to cut the sales tax rate to 3.6 percent.

At the time the state sales tax rate was 5.75 percent. Now it's 7.25 percent in the larger counties. Case based his estimates on the state economy in 1987. Since then, the state population has doubled and the amount of money the Department of Taxation receives from sales taxes has nearly tripled.

Just taxing lawyers' fees in 1987 would have produced $15 million a year, according to the Case study.

"I got calls at the time from professional people who literally went ballistic," Vilardo remembers.

She figures a service tax today would fetch more than $300 million a year.

Case was hired by the association because he had prepared the sales tax portions of an earlier Price Waterhouse study of state and local government financial needs. The report, commissioned by the Legislature and released in 1988, has gathered dust sitting on legislators' shelves.

Price Waterhouse said Nevada had the most "unfair tax system in the nation," featuring regressive taxes that hit the poor the hardest. Businesses should pay profit taxes, and individuals should pay state income taxes, the firm said.

Price Waterhouse also recommended a state sales tax on food - even though such a tax was constitutionally prohibited by an overwhelming vote of the people in 1979. And the firm called for a rebate program in which the poorest people would get back much of what they paid in sales taxes.

Such proposals were obvious political suicide. The Price Waterhouse study - and an accompanying task force analysis of it led by then-private citizen Kenny Guinn - quickly were forgotten.

But Guinn and his committee concluded that Nevada needed a business tax and a sales tax on services.

He even testified in 1991 for Democratic Gov. Bob Miller's controversial 1 percent business activity tax, which was rejected by the Legislature in favor of a $100 per employee per year business tax. Guinn also told a Reno business group in 1990 that the state needed higher sales taxes because the economy was not keeping up with demand for state services.

Guinn has set the groundwork for a possible increase. He invited the business community and legislators to a May 4-5 fiscal forum in Southern Nevada at which he released projected estimates of state revenues through 2009. State tax revenues have increased at a 8.6 percent annual average rate over the past decade.

Current revenues are close to the historical increase. But the state expects that tax increases this decade will be cut in half as new Indian casinos in California compete with Nevada's gaming properties.

If enrollment growth in the school and university system does not decline, and Guinn cannot cut state government spending, then the state could face an annual deficit of nearly $1 billion by 2009, according to the governor's estimates.

But key lawmakers, including Senate Taxation Chairman Mike McGinness, R-Fallon, and Assembly Speaker Joe Dini, D-Yerington, doubt the Legislature will approve any tax increase during the 2001 session because current tax receipts have exceeded projections.