Proposed sales-tax increase raises concerns

Tuesday, May 7, 2002 | 11:13 a.m.

Observers reacted cautiously Monday to a revamped proposal to raise sales taxes to generate billions of dollars for local roads and highways.

The Regional Transportation Commission board will consider a package of tax increases, including a sales-tax increase, on May 16. The RTC hopes to bring its proposal to voters in November for a referendum, although the ultimate decision would go to the Legislature next year.

The RTC had earlier this year floated a tax package that depended on a variety of sources, including two now off the board: a gradual increase in gasoline taxes and an increase in smog-check fees.

The agency's new proposal would generate $2.1 billion by gradually increasing the county sales tax by a quarter-cent, to 7.5 percent. The entire package, which also would include a tax on jet fuel and higher taxes on new homes and commercial property, would generate $2.7 billion over the next two decades for transportation infrastructure and air quality programs.

Not everyone was ready to embrace the new tax plan.

Mike Sloan, senior vice president of Mandalay Resort Group, said local sales taxes "already are among the highest in the West."

Although the RTC proposal would double development fees for new homes from $500 to $1,000, Sloan said a larger emphasis on new construction might be appropriate.

"The single biggest factor driving the demand for new roads is the expansion" of large residential communities throughout the Las Vegas Valley, said Sloan, who is a member of the Governor's Task Force on Tax Policy.

The task force is scheduled to release its report on proposed changes to the tax system Nov. 15, a little more than a week after voters would consider the RTC's proposal. The focus of the two groups is different: The RTC is focused on roads and air quality, while the task force is looking at needs for education and health care.

Ken Lange, also a member of the task force and executive director of the Nevada State Education Association, said he is concerned that the burden of sales taxes could fall hardest on those least able to pay them.

In addition, sales taxes can be heavily affected by economic ups and downs, he said, leading to instability in government revenue.

Lange, whose association represents the state's teachers, said he also is concerned that money going to roads might affect money going to teachers.

"Obviously there's intense competitive pressure for dollars in the state," he said.

Ingrid Reisman, RTC spokeswoman, said some priorities have to be set.

"The voters are going to have to tell us how they want their tax dollars spent," she said. "Everyone is looking at the same pots of money right now. The community needs to tell us what it wants to do. In this situation, that means the ballot box."

Task force chairman Guy Hobbs, a partner in financial consulting firm Hobbs, Ong and Associates, argued that the issues are separate.

"They can potentially impact one another, but ours is somewhat of an independent problem from that," said Hobbs, whose company calculated numbers for the RTC proposal.

The task force, which has predicted a $307 million annual state deficit by 2010 with today's tax rate and level of services, could benefit the RTC. One of the proposals on the task force's table is to broaden the sales tax base, which now does not cover services, groceries and other "sales" covered in other states.

"Of all the transactions out there, maybe 20 to 25 percent are covered by the sales tax," Hobbs said.

Expanding the base of the sales tax while simultaneously deepening the bite could bring in more revenue to RTC coffers.

Jacob Snow, RTC general manager, said his agency's board would have to consider how statewide changes to the sales tax system might affect the local recommendation.

But the sales tax proposal has one strong advantage over the gasoline tax increase, Snow said: The sales tax would shift more of the tax burden to tourists.

"Tourists pay for a much larger percentage of the sales tax than they do for the fuel tax," he said. "We just thought it was a better deal for Nevadans overall."

Snow and RTC policy makers have argued that the region faces near total gridlock within a few years if the billions the agency seeks are not available.

"I think everyone agrees there is a growing, critical need," Snow said. "It's just a question of how the locals think we should pay for the program."