2003 Legislature through the eyes of: Guy Hobbs

Friday, June 13, 2003 | 6:21 a.m.

Few Nevadans have a keener interest in the ongoing legislative debate over state taxes than Guy Hobbs.

After all it was the Governor's Task Force on Tax Policy in Nevada, which Hobbs chaired last year, that got the ball rolling.

The task force pitched a comprehensive tax plan to the Nevada Legislature -- the centerpiece of which was a proposed new tax on gross business receipts -- for review during the 2003 general session.

Four months later, the task force's work product -- an 1,100 page document that took a year of meetings and hearings to produce -- is in tatters.

Hobbs, a former Clark County chief financial officer and managing partner of the Las Vegas consulting firm, Hobbs, Ong & Associates, expressed dismay with the process on Tuesday in a televised appearance on "Face to Face With Jon Ralston" on Las Vegas ONE.

Asked whether he was frustrated that the task force's work product has been ignored and whether he was tired of answering legislators' "inane" questions about taxes toward the end of this year's legislative session, Hobbs said:

"If you want to ask whether or not it's frustrating, yes, Jon, there's no doubt it is frustrating. But we knew when we delivered it that it would be subject to the political process.

"Am I surprised that we didn't see the kind of activity that we would have expected until around day 115 as opposed to day five? Yes, I'm a little bit surprised at that. Am I surprised that we didn't have in-depth hearings on both sides on all of the elements of this? Yes, I'm very surprised at that."

The best case scenario, Hobbs said in a subsequent interview, is that the Legislature will reach a compromise that will offer long-term solutions to what he and other financial experts consider to be an unstable tax base in Nevada.

"It's easy to tax the next biennium," Hobbs said. "It's harder to fix the system for the next several bienniums to come. You certainly don't want to revisit this every session."

But Hobbs said he fears that that is precisely what will happen if the Legislature agrees to a net profits tax, which has become one of the leading possibilities to fill the role of "broad-based business tax."

"By far the worst thing they could do is approve a net profits tax," Hobbs said. "With a net profits tax you'll experience extreme volatility over the next 10 years."

Most states have some form of net profits tax, but Hobbs said that during economic downturns those states have seen their tax revenues drop by as much as 50 percent in a single year.

Another problem with a net profits tax has to do with bookkeeping, he said. That is, a creative businessman will try to find ways to avoid paying the tax.

"People manage their taxes like any other expense," Hobbs said. "If there's a way to avoid a tax by creating a bottom-line strategy, you'll do it."

He said the proposed tax on gross business receipts that was recommended by his task force but rejected by lawmakers is more stable than a net profits tax because "consumption isn't as volatile as profits."

"Because the gross receipts tax was the first proposal out of the gate, it got all the slings and arrows," Hobbs said.

A potential payroll tax has also been considered by lawmakers, one which would involve employers paying a levy that would be based on a percentage of the salaries they pay their employees. Hobbs views that tax as less problematic than the net profits tax but one with its own flaws.

One flaw is that a payroll tax would be harder on a service business that relies on employees than on a business such as a convenience store that sells products but has few employees, Hobbs said.

"Does it act as a disincentive to hiring more employees?" he said. "The labor folks will tell you that it does."

Lawmakers seem to be close to adopting the task force's recommendations of creating a new entertainment tax and increasing taxes on cigarettes, beer, wine and hard liquor, Hobbs said.