State faces a taxing dilemma

Erin Neff

Friday, July 26, 2002 | 3:58 a.m.

WEEKEND EDITION: July 28, 2002

Increased taxes are more certain than death for most Nevadans.

The Nevada Task Force on Tax Policy is heading toward a November recommendation to the governor and Legislature that won't focus on just one sector of the economy or on one type of tax.

Everyone will pay.

And the emerging proposal, described with words such as "potpourri" and "package," will likely mean that some Nevadans will pay more than once.

"We might have to be the bad guys," said task force member Luther Mack, who owns nine Reno-area McDonald's restaurants.

The task force was created by the Legislature when the 2001 session ended without any major proposals to address the state's economic shortfall, which currently sits at $270 million.

True to its stated role to study the state's economic problems, examine ways to broaden the tax base and identify additional revenues, the panel is readying a recommendation that is expected to propose:

Creating a broad-based business tax.

Increasing the current cap on how much property tax a local government can charge.

Expanding what's covered under the sales tax.

Increasing sin taxes such as those on cigarettes and alcohol.

Increasing certain fees businesses pay and possibly ask voters to approve a lottery.

But it won't be easy convincing the Legislature and Gov. Kenny Guinn -- who established the task force as political cover from angry citizens and business threats -- that increased taxes won't ruin what makes Nevada attract so many newcomers.

"Fair is going to be in the eye of the beholder," said Carole Vilardo, Nevada Taxpayers Association president. "There is no way you're going to satisfy everybody."

A survey of task force members by the Sun found growing consensus not just for the multitiered proposal, but also for ways to lobby lawmakers and the public for support of the taxes.

"We were created to take the heat," panelist Brian Greenspun, president and editor of the Las Vegas Sun, said. "We're also going to have to present this in a way to build support."

Task force Chairman Guy Hobbs, an accountant who guided the panel over months of esoteric discussions aimed at building proof that revenue is needed, offered the understated: "The Legislature will have options."

But these options mean reversing Nevada's long-standing aversion to taxes, highlighted by a constitutional prohibition on income taxes.

In 1981, Nevada shifted from an economy driven by property taxes to one fueled by gaming and sales taxes. But those tax revenues are highly susceptible to economic downturns -- a problem some classify as a structural defect that will result in a $1.2 billion deficit in coming years.

"We know it's a giant hole that needs to be filled," Greenspun said. "The hole is so huge and if you couple that with the need to broaden the tax base ... it becomes clear to me that we have to find new revenue."

Although no proposal is technically off the table, some would require statutory changes or constitutional amendments requiring two votes of the people.

As a result, the task force is expected to come with a multitiered recommendation to allow some proposals such as fees and sin taxes to take effect quickly while others work to build support for the long-term proposals.

Business tax

The biggest revenue generator will likely be a broad-based business tax, although the panel has yet to determine the rate at which it will be set or whether it will be based on gross receipts or net profits.

Panelist Mike Sloan, a Mandalay Resort Group executive, said he believed major banks, home builders and retailers make millions in Nevada without paying anything that "scratches the surface of the money they've made."

"We need a broad-based business tax, not one that doesn't include (the gaming) industry or mining," Sloan said.

Those who focus solely on taxing gaming miss the mark because business activity generates $120 billion a year in Nevada, compared with the $20 billion gaming generates, Sloan said.

When the 2001 Legislature adjourned, the business community -- headed by the Las Vegas Chamber of Commerce -- promised to develop a "broad-based" tax plan that its members would support.

The plan that business representatives presented to the task force earlier this month included increasing some corporate filing fees, doubling the existing $100-per-person "head tax" businesses pay and imposing a sales tax on unspecified services.

"I'm not sure what message we were sent," panelist Ken Lange, Nevada State Education Association executive director, said.

That proposal, and a separate Las Vegas Chamber of Commerce presentation, offered few specifics about the taxes. But task force members said they will come with their own ideas.

"The need for a broad-based business tax is still there, and we have the opportunity to explore ways to impose it," Lange said.

Property tax

Several task force members said they supported raising the state-imposed property tax cap, which stands at $3.64 for each $100 of assessed value.

Since cities and counties cannot impose property taxes above the cap, jurisdictions with rates near it have few options to raise additional money for services. If the panel recommends raising the cap -- and the Legislature ultimately approves that recommendation -- local governments would then have the burden of actually raising the tax.

Panelist Russ Fields, Nevada Mining Association president, admits that while there is "political difficulty" in raising property taxes, he believes they are important to include in any package the task force recommends.

"The only way we can come out of this with a fair, balanced, broad and sufficient plan is to include everyone," Fields said.

But in North Las Vegas -- whose residents pay the highest property taxes statewide -- homeowner Daniel West, a casino dealer who supports a wife and three children, said he is absolutely opposed to a property tax hike.

"I think residents are the last people who can afford to pay," West said. "All of my costs are rising and some of the businesses, especially the casinos, seem to be raking in money hand over fist."

Assemblyman David Parks, D-Las Vegas, who serves on a committee studying local government taxes, says he thinks it will be easier to recommend raising property taxes than it will be for local governments to do it.

"The political will is just not there," Parks said. "Counties have the ability to charge up to 9 cents on the fuel tax, and most of them have stayed at the previous 5-cent cap."

Other taxes

Task force members support raising the cigarette tax because at 35 cents a pack, it is lower than all neighboring states, and also because health lobbyists say higher taxes can induce people to quit.

In part because of a plan submitted by the Progressive Leadership Alliance of Nevada, and also because the current tax is relatively low, panelists also support increasing the excise tax on alcohol.

A proposal by Vilardo's group to implement an amusement tax on all movie, show and nightclub entrances also has some support on the panel. That tax would generate roughly $53 million annually, and as Vilardo envisions it, would replace the existing casino entertainment tax.

Hobbs advocates expanding the current sales tax -- not by raising the rate, but by adding services to the list of taxable items. Although that proposal has not been thoroughly analyzed, Hobbs said the current sales tax is as weak as the state's reliance on gaming and sales taxes for most of its revenue.

The current sales tax, he said, is so heavily skewed toward building trades, it will cause problems when construction hits a downturn.

Some panelists support increasing filing fees for businesses, while others said they would still like to examine the possibility of Nevada authorizing a lottery, preferrably entry into the multistate Powerball.

Finding faults

All of these taxes make Knight Allen's head spin.

"The predetermined goal and objective of this group is for a broad-based tax system," said Allen, a Las Vegas resident who follows the task force's proceedings and frequently offers his input. "All it does is expand the power of government."

Allen said he fears imposition of new taxes on businesses because consumers will ultimately be hurt.

"You and I are the market," Allen said. "If a business tax is imposed, the subscription to the Sun will go up, the cost of Cox Cable will rise, a meal in a casino will cost more and buying a shirt will be more expensive."

Ken Mahal, an 81-year-old retired government employee, said he is not convinced state government has reduced every expense it can, and thus, is not certain the entire tax plan is necessary.

"I know that government can always spend everything taxpayers allow it to have," Mahal, Nevada Seniors Coalition president, said. "We have been brainwashed to believe that government is efficient. It isn't. It boggles your mind how wasteful government is."

Vilardo said she thinks the task force should focus on both needed revenues and ways to reduce expenditures. Her recommendations include ways to increase efficiencies in government to save money, such as electronic collection of taxes and elimination of duplicate funds or services.

Regardless of what the task force recommends, Guinn and a two-thirds majority of the Legislature will have to approve any tax increases. And that might be difficult given a spate of other taxes that lawmakers will also be asked to approve.

"How many times is a lawmaker going to push the green button for taxes?" Vilardo said.

Clark County voters will consider a homeless tax initiative and a quarter-cent sales tax increase proposed by the Regional Transportation Commission. Washoe County voters also have a transportation tax issue on their ballot. If they pass, lawmakers must also approve them.

"All of the Assembly will be up for election after the 2003 session, and you can bet that people will run campaigns outlining how much in new taxes that lawmaker approved," Vilardo said.

Hobbs said that despite the panel's work so far, he fears lawmakers could ignore the recommendations.

"You think about how bad things are today, but what if halfway through the session, the economy turns around and they don't see the need to do anything," Hobbs said.

Assemblywoman Barbara Cegavske, R-Las Vegas, isn't convinced that a need exists for more revenue.

"We can't keep going back to the business community for more money," Cegavske, assistant minority leader, said. "I'm also no convinced that we need new revenue.

"We have agencies that we have proven have duplication," Cegavske added. "It's a really tough decision to make to just throw money at problems like education without accountability."

Assembly Speaker Richard Perkins, D-Henderson, said since Guinn and so many lawmakers are currently focused on medical malpractice, few have given taxes any thought.

"Those discussions can evolve more over the next few months," Perkins said. "Passing tax proposals depends on the Republicans.

"I don't want this to sound like we're tax-and-spenders, but it only takes a handful of people to hold something up," he said.

Selling the taxes

Several task force members said they think even after their Nov. 15 deadline to make a recommendation, they will have to stay involved.

And some said they believed their recommendation will include ways in which lawmakers can muster the political will to approve tax hikes.

"I don't think the public would ever go for a personal income tax," Mack said.

As a result, support could be lobbied for the other taxes by telling residents the panel opted against the income tax, he said.

Lange said he supports having some taxes sunset at a given time when newer taxes are implemented. That way, a tax whose support might take several years of lobbying, could come in to replace a different tax.

"We could actually create a structure where we boost the rate on certain taxes until the broader-based ones take effect," he said.

Subsequently, if the group recommends a gross receipts business tax, Vilardo's group has promised to push for repeal of the $100 per employee head tax.

"There will probably be a blending of a number of issues," Hobbs said. "I think one of the goals should be to make this less painful."

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