Results of tax study in Guinn’s hands

Monday, Nov. 18, 2002 | 11:12 a.m.

A massive state tax study now in the hands of Gov. Kenny Guinn includes evidence of the lopsided nature of Nevada's tax structure when compared with other states.

One key finding was that Nevada derived 85.8 percent of its state tax revenue last year from sales and gaming taxes, nearly double the national average. Another was that the state ranked last in the amount of money it received from the other governments -- primarily federal -- in the fiscal year that ended on June 30, 2000.

The study, prepared by the Governor's Task Force on Tax Policy in Nevada and forwarded to Guinn on Friday, includes recommendations for new or increased business, property, entertainment and "sin" taxes to help eliminate projected state budget deficits. The general fund that supports public services such as eduction, prisons and welfare is projected to have a cumulative deficit of $4.56 billion by fiscal 2010.

"Our analysis concludes that, if the state is to continue to afford the levels of services that it provides today, the current revenue mix of the state will not be sufficient to support that level of services," the task force stated.

"One thing that became very clear to the task force was that the most viable solution to the funding imbalance would involve a mix of sources, each contributing to a blended solution that would reduce the pressure placed upon any single source while also diversifying the impact that any single source might otherwise have."

Nevada's tax structure relies heavily on gaming and casino entertainment taxes as well as sales taxes. The 85.8 percent of state tax revenue that came from those sources stood in contrast to the 46 percent received by states nationally from taxes on sales and businesses revenue last year. Gaming is currently the primary industry whose revenue is taxed in Nevada.

The difference was that state budgets on average also derived 37 percent of their revenue from individual income taxes and 6 percent from corporate income taxes, two categories that aren't taxed in Nevada.

"Nevada's economy is one of the narrowest in the nation and its fiscal system follows that," Las Vegas economic analyst Jeremy Aguero, a task force consultant, said.

Proponents of broader-based taxation have argued that Nevada cannot continue to rely heavily on sales and gaming taxes because of their volatility. That's a primary reason the Nevada Legislature decided last year to create the task force in search of remedies.

Task force chairman Guy Hobbs, a former chief financial officer for Clark County who is managing partner of the Las Vegas consulting firm Hobbs, Ong & Associates, said the comparisons with other states told him that Nevada has a healthy tax climate for businesses.

That gives the state the ability to impose small amounts of taxes without scaring businesses away.

"The goal is not to get to the national averages but it indicates we have tax capacity that other states don't have," Hobbs said. "It means that we have more flexibility for the future."

Aguero said the main reason Nevada ranked last in money from other governmental sources has to do with lack of funding from the federal government. Other states on average received 20 percent of their funding from other government sources for the fiscal year that ended in June 2000, but in Nevada that figure was only 14.5 percent.

The report found that had Nevada received its fair share of federal funding that year, it would have received an additional $400 million.

"We have been almost last in every category of federal funding, but we're doing better, thanks to Sen. John Ensign and Sen. Harry Reid," Aguero said.

He said part of Nevada's problem has been that it has been undercounted by the U.S. Census, which affects federal funding levels that are tied to a state's population. Nevada also has higher-than-average income levels and lower-than-average poverty levels, which also translate to less federal funding, he said.

"We get less federal funds than other states that have a higher percentage of people who need those services," Aguero said.

In the fiscal year that ended on June 30, 2001, Nevada ranked 30th by generating $1,820 per capita of its own revenue. That statistic can be misleading, however, because it did not account for the tourists who visit this state and also contribute tax revenue. If tourists were subtracted, Nevada would have ranked lower.

The study also found that Nevada ranked 47th in per-capita state expenditures for the fiscal year that ended in June 2000.

"Nevada ranked relatively low in all major spending categories barring highways, in which the state placed 25th nationally," the task force reported. "Per capita spending on education, public welfare, hospitals, health, parks and administration placed Nevada among the 10 lowest states nationwide."com