Lawmakers face looming tax deadline

Erin Neff

Friday, May 2, 2003 | 9:59 a.m.

CARSON CITY -- As economic forecasters confirmed the state's looming deficit Thursday, legislative tax committees continued examining how to plug the $700 million hole.

But the sales tax on services that seemed like a good idea to some in the Senate Taxation Committee proved just the opposite to those discussing the gross receipts tax in the Assembly Taxation Committee.

And vice versa.

Lawmakers rang in May with the realization that they are in the final month of work before the 2003 Legislature adjourns at midnight June 2.

As budget committees finished covering 50 percent of the state's budget either in step or with more money than Gov. Kenny Guinn has earmarked -- the reality of more than $700 million in taxes is evident.

Guinn has proposed nearly $1 billion, highlighted by a new 0.25 percent tax on business receipts expected to raise $220 million a year by 2006.

The Assembly Taxation Committee dissected a similar gross receipts plan Thursday -- the one contained in Assembly Bill 281 and brought by the Nevada Task Force on Tax Policy.

Again the committee heard opposition to the tax, this time from an amazon.com executive who said the proposal would unfairly harm his company because it has high fixed costs and a very low margin business that is just beginning to eek out profits in some quarters.

Amazon.com has an 850,000-square-foot warehouse and distribution facility in Fernley and a 400,000-square-foot operation in Stead.

"I won't tell you that if a receipts tax would pass here in Nevada, we would close our plant in Fernley," Paul Misener of amazon.com said.

Misener said Microsoft, which employs about 300 people in Reno, would likely have greater flexibility in leaving should a gross receipts tax pass because they don't have the capital investment of warehouse facilities.

One floor above, the Senate heard a report from the Business Representative Group about its proposed 5 percent sales tax on services -- a tax the group says is akin to a business tax because businesses would pay roughly 75 percent of it, while consumers would pay for the rest.

Last week the Assembly panel all but killed the service tax after a lengthy hearing and intense questioning of the business group's lobbyists.

On Thursday, the Senate Taxation Committee was more receptive. At one point, Sen. Sandra Tiffany, R-Henderson, asked lobbyist Sam McMullen to highlight the three things the Assembly had found wrong with his tax.

Economist Jeremy Aguero bounced between the two rooms, warning lawmakers about the service tax in the Senate and defending the gross receipts proposal in the Assembly.

"People play a lot of games when it comes to services, and you should be cautious of that as a state," Aguero told the Senate.

In the Assembly, he and Task Force on Tax Policy Chairman Guy Hobbs countered several arguments against the gross receipts, saying the tax is easy to administer, will not harm economic development and will not have as great a "pyramiding" effect as the service tax.

Pyramiding is essentially a tax on a tax on a tax, with the ability for the same product to get slapped with a levy at different points in its evolution.

Hobbs said the service tax at 5 percent has a 20 times greater pyramiding effect as the gross receipts at a quarter of 1 percent.

The one problem with the tax Hobbs said he could not defend is the fact that it is particulary onerous for high volume, low margin businesses like grocery stores.

He argued that lawmakers would be better served by creating additional exemptions to the tax to address those concerns. The tax as his task force proposed would exempt all businesses with less than $350,000 in receipts -- or 50 percent of all businesses.

Guinn's proposal exempts all businesses with less than $450,000 in receipts -- or 62 percent of businesses.

Assembly Minority Leader Lynn Hettrick, R-Gardnerville, argued that if additional exemptions were added the tax could not be considered broad-based.

Hobbs agreed but said the other taxes contained within AB281 -- like business licenses, gaming taxes and slot route taxes -- would create an overall broad-based taxation plan.

Still Hettrick, and then Harry Mortenson, D-Las Vegas, argued it is unfair for a government to require a set amount of revenue from businesses regardless of their profitability in a given year.

"When times get bad, government should suffer when businesses suffer," Mortenson said.

That launched Peggy Pierce, D-Las Vegas, into a philosophical rant about the duties of government to serve people -- duties that rise during poor economic times because more people require services.

"What level of Dickensian poverty do we want to live with in the richest country on the planet?" Pierce asked.

Earlier Thursday, Assembly Democratic leaders held a press conference to unveil an aggressive tax hearing schedule over the next two weeks, including four hearings next week.

"We want to take a very methodical approach," Assembly Speaker Richard Perkins, D-Henderson, said.

Assembly Majority Leader Barbara Buckley, D-Las Vegas, said it was important to find out if the gross receipts can be amended to accommodate low-margin businesses.

Buckley also said that despite the $700 million shortfall, she thought many lawmakers would prefer to raise even more in taxes to allow the state to expand some programs or offer new services.

In the Senate, Taxation Committee Chairman Mike McGinness, R-Fallon, said he expected to take a vote on the service tax proposal next week.

Perkins said his house has shelved the idea because: "I don't think there was five votes for a service tax in the whole Legislature."