Assembly committee shelves taxes on services

Erin Neff

Friday, April 25, 2003 | 9:34 a.m.

CARSON CITY -- At the end of a 4 1/2 hour hearing on a proposed sales tax on services Thursday, Assembly Taxation Committee members decided they had heard enough.

The committee moved "no further consideration" to stop testimony against the proposed 5 percent tax on services such as attorneys, landscaping and transportation.

While the move technically only meant the meeting was over, the intent by the Democrats who control the panel was to shelve the tax in a way similar to that taken by Senate Taxation Committee members last week on the proposed gross receipts business tax.

The difference between the two committees' actions was that the Assembly panel did hold a lengthy hearing on the service tax, while the Senate never took testimony on how the gross receipts tax would work.

"I believe that we did get sufficient testimony to indicate that this is probably not the way we should go," Assembly Tax Chairman David Parks, D-Las Vegas, said after the hearing. "(The sales tax on services) is going to go on the shelf and we're going to look at other revenue sources in the next two weeks."

The Business Representatives Group testified at length on the merits of the proposal first unveiled in detail several weeks ago as an alternative to the proposed 0.25 percent tax on business gross receipts over $450,000.

Sam McMullen, a lobbyist for the group, which includes most chambers of commerce in the state, testified that the sales tax on service proposal would bring in more money and could be implemented sooner than the gross receipts.

On Wednesday the business group had attempted to skip Thursday's hearing by notifying Parks by e-mail that all of their representatives were going to go to the Senate Taxation Committee.

After some arm twisting from Assembly leadership and a furlough from Senate Tax Chairman Mike McGinness, the business group did show up and presented a modified form of the proposal they presented recently in the Senate.

Las Vegas Chamber of Commerce President and CEO Kara Kelley said she thought the sales tax on services "is not regressive." "Businesses are major users and purchasers of outside services," she said. "It is a tax that business will pay." The business group's plan would raise an estimated $485 million a year by creating a 5 percent service tax and, at the same time, reducing the existing sales tax on goods from 7.25 percent to 5 percent. The chamber, led by McMullen's statements at the end of the 2001 session, had promised to work on a broad-based tax solution and bring their proposal to the Legislature.

But after heated exchanges between McMullen and two of the tax panel's Democrats on Thursday, Assemblyman David Goldwater, D-Las Vegas, angrily declared that the chamber had not lived up to that promise.

Goldwater was chairman of the tax committee when McMullen made the pledge on behalf of the chamber in 2001.

"You said you were going to be bringing me a broad-based business tax," Goldwater said after one exchange in which McMullen answered a specific question with: "I don't know. I'm sure there's a fair way to do it."

"I'm terribly concerned that you expressed to me 'I don't know' and 'we are not quite sure how to do that,' " Goldwater said. "The 'we're not sure' three-quarters of the way through the Legislature is not encouraging."

Assemblywoman Peggy Pierce, D-Las Vegas, said she did not consider the tax to be broad-based, in part, because the proposal exempted a list of services that businesses use -- like advertising and communications. She said services subject to the tax, like accounting, computer services and legal services, are the types that small businesses cannot afford to do in-house.

"Sam, if I was a small business and I saw you and the chamber coming down the street with this plan, I'd walk the other way," Pierce said. "This is not going to touch the big retailers. This is not going to touch the big banks."

After the panel questioned McMullen, Kelley and Ray Bacon of the Nevada Manufacturers Association, service tax foes got another 90 minutes of testimony.

Guy Hobbs, the chairman of the Nevada Task Force on Tax Policy, said his panel rejected the sales tax on services and opted to recommend the gross receipts to the governor because it was more fair to small businesses.

Roughly 50 percent of the state's businesses would be exempt from the gross receipts tax as his panel proposed it. Under the governor's plan, 62 percent of the state's businesses would be exempt. "Small business isn't insulated at all," Hobbs said, testifying from Las Vegas about the sales tax on services.

Labor unions, the Progressive Leadership Alliance of Nevada, the American Civil Liberties Union, the League of Women Voters, Realtors, the Nevada Mining Association and lobbyists for brothels and Indian tribes all opposed the sales tax on services.

"This proposed service tax is nothing but a sleight of hand by the business community to magically make the gross receipts tax disappear," said Bob Fulkerson, PLAN's state director.

Parks said he intended to hold a similar hearing on the gross receipts tax next Thursday.