Consensus on business tax plan is elusive

Erin Neff

Monday, April 28, 2003 | 11:08 a.m.

CARSON CITY -- Among the first of many possible changes to the proposed gross receipts tax on Nevada businesses could be an alteration of the name to sweeten public dialogue.

"We shouldn't call it gross receipts," said Assemblywoman Dawn Gibbons, R-Reno. "Business people are so skittish and they hate what they've heard about it so far."

That's precisely why lawmakers are now privately proposing changing the gross receipts tax, beginning with the name, to make the proposal, which is the centerpiece of Gov. Kenny Guinn's answer to the state's $704 million deficit, politically palatable.

The idea is to design tax exemptions to help win the political support of the two-thirds of the Legislature needed to pass a new tax.

"The way it was sent over from the governor's office, it wasn't intended to pass without exemptions," said lobbyist Pete Ernaut, Gov. Kenny Guinn's former chief of staff. "All along, the plan was to have the Legislature determine what the exemptions should be."

The proposal would place a quarter of one percent tax on businesses' gross receipts. As proposed by Guinn, the tax would be placed on gross receipts over $450,000, but the tax itself and its details are still being debated in the Legislature.

Supporters of the tax, including the gaming industry, labor unions and educators, remain hopeful the gross receipts concept will make it into the final tax plan approved by the Legislature.

Opponents, including chambers of commerce and low-profit-margin businesses, say there is no way to make the tax more friendly.

"I don't think there's a way to do it to make it work," said Kara Kelley, president and CEO of the Las Vegas Chamber of Commerce. "We've been asked all along if there is any circumstance under which we can accept gross receipts.

"We haven't found a way to do it. Maybe somebody can, but we really don't think it's the way to go."

Kelley and others in the Business Representative Group are proposing a sales tax on services -- itself a plan with numerous exemptions -- as an alternative to the gross receipts tax.

Guinn said the chamber is not living up to a promise made at the end of the 2001 session to be a part of the state's tax solution.

"The Chamber of Commerce is throwing all kinds of static by putting a hot dog vendor into an ad condemning the gross receipts when the hot dog vendor wouldn't even pay that tax," Guinn said. "A service tax is not a broad-based business tax, and they have got to get to a broad-based business tax whichever way they need to get there."

When the Senate Taxation Committee voted recently to remove the gross receipts tax from the governor's tax bill, some surmised that tax was dead and the sales tax on services was the only proposal that could survive the session.

"Everything is still under consideration," Senate Majority Leader Bill Raggio, R-Reno said. "We are under a concerted effort to develop a consensus on a budget number and then we have to work on building a consensus for taxes.

"Even though there've been some votes taken in committee, everything is still up for consideration."

And, in the Assembly, Taxation Committee Chairman David Parks said it was too soon to rule out gross receipts since the tax had yet to be fully discussed with potential exemptions.

"There are too many questions about possible adjustments to the tax," Parks, D-Las Vegas, said. "We want to hear what they are."

Future exemptions

When the Nevada Task Force on Tax Policy proposed the gross receipts tax -- at one quarter of one percent on gross receipts -- the panel wanted to leave decisions about exemptions up to the lawmakers.

"One of the things that we consciously knew was that certain questions would come up when the tax was proposed," Task Force Chairman Guy Hobbs said. "There are literally dozens of questions, and as soon as they have a hearing on our bill, we will be able to vet some of that."

Still Hobbs said he suspects discussions about adjustments to the proposed tax to begin in earnest and to begin with the main exemption already in the tax.

Guinn set a baseline threshold exemption at $450,000, meaning any business which brings in less than that amount would not pay. Roughly 62 percent of all businesses in the state would not have to pay the tax under that proposal.

The Nevada Task Force on Tax Policy set the bar a little lower at $350,000, exempting about 50 percent of the state's businesses.

Now the talk isn't about either of those thresholds, but about raising the bar higher.

"It absolutely can go higher than $450,000 to $500,000 or more," said Michael Hillerby, Guinn's deputy chief of staff. "It's just a matter of raising and lowering other taxes and rates to get the correct number for the revenue."

In addition to the gross receipts, Guinn has proposed increases in cigarette, liquor, slot route, business license and property taxes and a new levy on admissions and entertainment.

The gross receipts tax, as proposed by Guinn, would raise about $220 million a year.

Economist Jeremy Aguero, who provided the technical assistance to the task force, said the tax would still raise close to that amount if the threshold exemption was raised to $500,000.

At $500,000, roughly 65 percent of the state's businesses would be exempt.

That troubles Nevada Taxpayer Association President Carole Vilardo who warns that the gross receipts would no longer be a broad-based business tax if so many businesses are exempt.

"You can't turn around and say this is the answer to the need for a broad-based business tax," Vilardo said. "The problem we've had with most legislative sessions is that unfortunately we wind up treating taxes as political issues, not policy issues."

Lawmakers agree in theory, but they realize that winning two-thirds support for a tax increase will require ways to provide political cover for legislators who vote for it.

"The gross receipts as it sits today is not a good tax," Assembly Speaker Richard Perkins, D-Henderson, said. "It could not pass without some equity adjustments."

As a result, lawmakers are expected to begin asking what types of businesses they might also be able to exempt from the tax.

The first rumors in the Legislative Building have been about exempting grocery stores.

Grocery stores and car dealers, which operate on a low profit margins, have complained vociferously because the gross receipts tax does not take a business' profitability into account.

Hobbs said it may make policy sense for lawmakers to exempt grocery stores, or at least exempt the food sales from the gross receipts totals. The state currently does not have a sales tax on food.

But Aguero warns that exempting grocery stores outright is problematic because they account for roughly $4 billion of the tax base for the proposed gross receipts' tax.

Winning a few votes for the tax might come at the expense of revenue.

But lawmakers are still so politically afraid of the total tax package, that the exemptions could be the only way to push the entire package through -- whether it raises $800 million or $1 billion in new taxes.

Political fears

One third of senators and all of the Assembly's 42 members are up for election next year. The 2002 elections were the first in which redistricting was in effect, meaning some incumbents may not have a strong base in their new districts.

In the Assembly, at least six Republicans and three Democrats are in districts with close voter registration margins between the major parties. Republicans have a more difficult task, as many will face tough primary races if the taxes approved are considered unpopular.

Hillerby said the difficulty for the governor's office is that the gross receipts tax is considered popular when voters are polled. Voters, he said, consistently say they want the state to tax gaming and big business.

"Yet within these walls there's this real concern about the tax and what it means," Hillerby said, standing in the lobby of the Legislative Building.

Gibbons, who represents a conservative district and is married to U.S. Rep. Jim Gibbons, R-Nev., has been quietly shopping an idea to create three tiers of businesses subject to the gross receipts.

"It's really not that much money to pay," the assemblywoman said, referring to the tax's rate of one quarter of one percent.

She envisions tiers to the tax, so a business grossing $2 million would pay roughly $2,300 in taxes.

"That's not a lot," she added.

Sen. Randolph Townsend, R-Reno, is exploring whether a business that offers health insurance and benefits to its employees should get an exemption on the gross receipts.

"In as much as a business that provides no benefits to its workers ends up costing the state and local governments for health care and other programs, it makes sense to reward those businesses that take some of the strain off of the system," Townsend said.

Townsend is working to amend Assembly Bill 356, a minimum wage proposal from Chris Giunchigliani, D-Las Vegas, that as amended in the Assembly included a tax break on the business activity tax for businesses that provide health benefits.

Hillerby said he hopes lawmakers will begin discussing the various adjustments to the gross receipts in the coming weeks.

But, he insists the governor's current proposal is already fair. As an example, he said a car dealer would pay just $50 on the sale of a $20,000 car.

"Anytime you start on the exemption road, it's hard to stop," Hillerby said.

Assembly Assistant Minority Leader Josh Griffin, R-Henderson, finds it hard to start on the road to selling the tax to his caucus.

"Are there ways to make the tax more palatable? Yes," Griffin said. "Are there ways to make it passable?

"I don't know."

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