Las Vegas Sun

December 22, 2014

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Sides go down to the wire

CARSON CITY -- It's D-Day, and Nevada lawmakers appear unlikely to reach today's 5 p.m. deadline with a tax plan because a new proposal ran into opposition.

No tax plan had been drawn up by 7 p.m. Thursday, when the Legislature ended for the day. Most of those involved believed a second special session would be needed to continue work that was first supposed to be completed Monday and then was due to be done tonight.

"There's no way I can vote on anything," said Assemblywoman Dawn Gibbons, R-Reno, a onetime rare GOP yes vote on taxes. "I will not vote for this plan getting it at 6 p.m. with no information."

Gibbons was referring to the proposed "Nevada Business Franchise Tax" -- a measure drawn up overnight Wednesday by economist Jeremy Aguero at the behest of Senate Majority Leader Bill Raggio, R-Reno, Assembly Speaker Richard Perkins, D-Henderson, and lobbyists for gaming and big business. The plan was presented to lawmakers Thursday but a written version of the plan was not due until today.

This morning the Assembly select committee threw out Aguero's proposal, with support from Gibbons, and instead went with a different variation of the net profits tax.

The tax plan introduced by the committee this morning institutes a 5 percent net profits tax on Jan. 1, 2005. The tax generates roughly $32 million for each percent, but 15 percent of the total tax will be collected and deposited into a stabilization reserve fund. In bad economic times when a company's net profits are down, the reserve is designed to keep the state's revenues stable.

Since the net profits tax cannot take effect until 2005, Assembly lawmakers had to come up with a bridge revenue source to provide the funding needed in the first year of the biennium. The proposal would increase the current $100 business activity tax to $190 for each of the two years in the biennium.

Increasing that tax would generate $72 million in 2004 and $74 million in 2005 and make up the loss of revenue from the net tax.

When the net tax is implemented, the 5 percent financial institutions tax would be reduced to 2.5 percent. The loss of projected $11 million in bank tax would be picked up by the implementation of the net profits. While nobody completely ruled out every aspect of Aguero's plan, opposition was clear as at least seven senators raised their hands against further consideration of the tax the mixes net profits with gross receipts. Lawmakers received a presentation of the tax and were promised more information today.

"At first when I heard it was net, I thought that this would be the thing to get my caucus together," said Senate Minority Leader Dina Titus, D-Las Vegas. "The more I heard about, the more I fear that we're getting further apart."

The tax essentially hits a business on both its net and gross revenues by employing a tiered quarterly levy on the gross receipts and a different tiered rate on the company's net profits. The third element is a cap that would make no business pay more than one quarter of one percent on its gross revenues -- creating an alternative minimum type revenue structure.

"It's a gross receipts Oreo," Sen. Mark Amodei, R-Carson City, said after the hearing. "It's got gross in the beginning, net in the middle and gross again at the end."

The proposal won a bit more support in the Assembly -- the house that has consistently included a tax on gross receipts in its proposals and discussions.

Perkins said Aguero's proposal helped stablize the net profits tax that many lawmakers consider better than a tax on gross receipts.

Since a company's net profit is volatile and can change as a result of internal accounting or changes in the economy, Aguero created the gross receipts portion of the tax to provide stability.

He said the combined gross and net tax could generate $220 million annually.

But Assembly Minority Leader Lynn Hettrick, R-Gardnerville, immediately lit into the tax, pointing out how the tiered-structure takes a bigger bite out of smaller profit companies than it does larger businesses.

"Unless you provide the same basic percentage increase at lower tiers as you do in upper ones, the little guys are getting hit harder," Hettrick said, to no opposition from Aguero.

Neither the Senate nor Assembly even considered the nearly $2 billion education budget Thursday, nor did they find consensus on even some of the minor taxes envisioned as part of the overall funding plan.

Lawmakers failed to even take a vote on taxes at the adjournment of the 120-day regular legislative session early Tuesday morning. Gov. Kenny Guinn ordered them back to work in a special session Tuesday afternoon and set a 5 p.m. deadline today for them to complete their job.

Guinn has already signed a bill appropriating about $3 billion in state general fund money, and another bill authorizing state agencies to spend federal money.

Lawmakers were given the Distributive School Account fund -- the account that funds public K-12 education; a class-size reduction bill with fiscal implications; and the tax bill to complete in the 3 1/2-day special session.

Sen. Bernice Mathews, D-Sparks, raised her hand in opposition to the new tax plan Thursday, likening Aguero to a "fast-talking New Orleans shell game operator."

Mathews said she could not support any tax she did not see on paper.

Aguero, who has devised the plan overnight with input from Las Vegas Chamber of Commerce lobbyist Sam McMullen and Nevada Resort Association lobbyist Billy Vassiliadis, promised to hand out information about tax this morning.

"We told them, 'Look, you've been pulling apart from day one on this, is there something you can come forward with?' " Raggio said. "They were told to try to bring something together."

When Raggio adjourned the 21-member Senate late Thursday afternoon, he said the panel would consider the net profits tax again today.

Several senators objected saying nine of them had stated opposition earlier in the meeting when he asked for a show of hands.

The Sun counted seven in opposition -- Barbara Cegavske, R-Las Vegas; Mathews; Mike McGinness, R-Fallon; Joe Neal, D-North Las Vegas; Ann O'Connell, R-Las Vegas; Sandra Tiffany, R-Las Vegas; and Maurice Washington, R-Sparks.

The seven in opposition leaves no room for a change of heart if the tax is to pass the Senate with the 14 votes required in the two-thirds majority provision of the constitution.

And as both Titus and Amodei remarked after the hearing, support was minimal at best from even the yes votes.

Throughout Thursday's meetings of the Senate and the 19-member Assembly Select Committee on Education Funding and State Revenue, the two houses had different ideas for funding the education budget.

The two houses differed on the amounts they would levy on cigarettes, business licenses, secretary of state fees for business, and the real estate transfer tax. The two houses even had different ideas on how much retailers should get to keep for turning sales, cigarette and liquor taxes over to the state.

The differences are not even limited to the two houses.

In the Assembly, the minority Republican party caucus continues to drive talk of a second special session by insisting the overall budget number already passed is too high.

One Republican made a pitch to Democratic leadership Thursday saying he would vote yes for taxes if just $30 million more was shaved from the $860 million in required revenue to fund the budget.

Elsewhere efforts continued to find five Republicans to join the 23 Assembly Democrats in support of a tax plan.

Three rural Assembly Republican freshman were touted as being easily pushed into the yes column if McGinness, the Senate Taxation Committee chairman, would support the plan.

"The rural guys want another rural guy to lead the way," one lawmaker said.

Lawmakers watched Monday's regular session deadline continue on with out a tax bill for hours as bill drafters were hard at work changing various provisions.

Even if the two houses had agreed by Thursday evening, the drafting would have required numerous changes and taken time that would leave lawmakers scrambling to look over the lengthy document before a vote.

"There's no way we're voting tomorrow," one freshman Assembly Democrat said Thursday evening. "I don't have a bill to read."

Guinn has not specified whether he will keep lawmakers in the capital beyond today's 5 p.m. deadline.

Although Guinn's proclamation specifies lawmakers must end their work by 5 p.m. today, Legislative Counsel Brenda Erdoes said her interpretation of the state constitution leads her to believe lawmakers have the full 20 days allowed for a special session to complete a tax plan.

The attorney general's office says Guinn has the power to dictate the parameters for a special session, including the start and stop time.

Guinn is considering extending this special session through the weekend if lawmakers simply run out of time to complete their work by the 5 p.m. deadline.

The move today at least clears the way for the education budget to win approval by 5 p.m.

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