Nevada system of taxes called worst

Monday, Feb. 3, 2003 | 11:02 a.m.

CARSON CITY -- Nevada's tax system is "regressive and dysfunctional" and is ranked dead last among the states, a national magazine says.

Nevada hits its poorest citizens the hardest with taxes, says Governing, which issued its report today comparing the 50 states.

Gov. Kenny Guinn agrees with the report, says his Press Secretary Greg Bortolin.

"It's the same point on which the budget has been built," Bortolin said. "The report underscores what he has been saying about the budget for six to eight months."

The state, according to the magazine, is last in the three categories of adequacy of revenue, fairness to taxpayers and management of the system.

Governing said, "Although Nevada has excellent opportunities to shift much of its tax burden to out-of-state tourists, it hasn't really taken advantage of this simple expedient."

The publication noted the 2001 Legislature created a tax study committee that recommended a business tax, an amusement tax and increases in liquor and cigarette levies.

"As soon as these recommendations were made, critics began gunning them down," said the magazine. "There is deeply rooted anti-tax ethos in the state, and whether these sensible suggestions will prevail in this year's legislative session is anybody's guess."

The report coincides with the opening of the Legislature. Guinn has suggested a $1.1 billion tax increase.

State Sen. Ann O'Connell, R-Las Vegas, said that while she had not read the report, she thought the overall ranking of 30 based on state tax revenues per capita at $1,820 was positive.

"That's why people come here," O'Connell said.

O'Connell, a fiscal conservative, is opposed to Guinn's proposed $1 billion in new taxes. Instead she favors a re-examination of current programs and services, cuts to government spending and privatization of some programs.

"I think it would be interesting to see where we would rank if we add $1 billion in new taxes," O'Connell said. "I think that equates to about $700 per person and that would clearly put us at a worse ranking."

O'Connell said she agreed with the report's premise that Nevada has too many exemptions to its sales tax. However, she disputed the notion that Nevada's taxes are largely regressive and have an adverse impact to lower-income residents.

"When we took tax off food, we tried to be fair to the lower income families," O'Connell said. "And as far as clothing is concerned, from garage sales to thrift stores, lower-income residents have a lot of options to not pay the tax."

The magazine said efforts to change Nevada's tax structure are complicated by the state's "political procedures." The Legislature meets only every other year for 120 days making it difficult to enact a tax overhaul plan.

In addition, it takes a two-thirds vote in each house to approve any tax plan. For instance eight of the 21 state senators can block any increase in taxes.

The state's two percent sales tax can be increased only by a vote of the people. But local governments are able to raise their sales tax, said the magazine. This leads "to a complex system in which there are many different rates," said the publication.

The state can increase the sales tax in the amount sent to public schools without a vote.

Talking about administering of the tax system, the magazine said the state has interpreted its laws to mean that it can only do random audits of business.

"In other words, even if the state knows that particular kinds of businesses are rife with violations of sales tax law, it isn't allowed to gain the obvious efficiencies available by selecting out those business to audit," it said.

"Budget cuts and staff shortages have curtailed the number of random audits as well," said the magazine. "The revenue department currently has a vacancy rate of about 10 percent."

One of the shortcomings of the Nevada system is its tax collection system.

Carole Vilardo, executive director of the Nevada Taxpayers Association, said in the magazine article, "We're not collecting revenue we're allowed to collect, because the computer software programs will not accommodate the changes that need to be made."

Guinn's budget recommends $12. 5 million next fiscal year and $20 million the following year to the state Department of Taxation to upgrade its system, mostly to collect the proposed 0.25 percent tax on gross receipts of business.

Bortolin said Guinn has served on a number of tax study committees that have made recommendations in the past to cure many of the problems.

State Budget Director Perry Comeaux said he agrees with many of the major findings. The report said the sales tax base is "narrowly drawn and riddled with exemptions, covering virtually no services in a state where the economy is almost entirely service-based."

Comeaux said the sales tax on products was a good idea in the 1960s and early 1970s. At that time, he said 70 percent of the economy was based on products and 30 percent on services. But that has reversed itself with services accounting for 60 percent.

The Las Vegas Chamber of Commerce has proposed the sales tax be extended to services. That's not in Guinn's plan.

The state depended on gambling taxes but Comeaux said the growth will be slowed with the advent of Indian gambling in neighboring states. He said the governor's tax plan will "make real changes in the future" and at the same time produce some immediate revenue.