Railroad exempt from tax on payroll

Monday, Sept. 15, 2003 | 11 a.m.

CARSON CITY -- In its rush to enact a tax package, the Legislature inadvertently exempted the Union Pacific Railroad from the new payroll tax, and the railroad may even receive a tax reduction.

Because the railroad pays into a federal unemployment fund, not the state fund, the law does not require it to pay the 0.7 percent tax on gross payroll, Joseph Guild Jr., attorney and lobbyist for the Union Pacific, told the Tax Commission on Friday.

Railroad lawyers came to that conclusion after realizing that Senate Bill 8, which imposed the tax, defines payroll as employees who are covered by the state unemployment fund, he said.

"I feel embarrassment," Guild told the hearing of tax officials who are trying to write regulations to put the new taxes into effect Oct. 1.

He said the railroad supported a broad-based tax during the session.

In fact, he left Carson City believing the railroad would pay the assessment.

"But during the crush of business at the end of the session, we had little opportunity to discuss it," Guild said. Now not only will the railroad get a free ride on the payroll tax at least until the law can be fixed in the 2005 Legislature, but it also will get a tax break when the new levy goes into effect Oct. 1.

At that point the $100 per year per employee tax, which the railroad has paid, will be repealed. Union Pacific has fewer than 200 employees in Nevada, he said.

Barbara Campbell, chairwoman of the Nevada Tax Commission, said staff lawyers would examine if Guild's analysis was correct. David Turner, a member of the Tax Commission, asked Guild if there were other businesses that might have escaped the new tax. Guild replied he did not know of any.

The railroads have paid into a federal program to cover unemployment benefits instead of separate state ones since 1939. "Congress decided that railroad unemployment compensation was a national scheme rather than being left to the states," he said.

Guild said the only other railroad that might be exempt is the Burlington Northern and the Santa Fe. But he said he did not know if it had any employees in Nevada, although it runs trains through the state.

"We stand willing to pay a corrected tax" if the 2005 Legislature enacts one, Guild said.

But the railroad isn't ready to volunteer to pay. As a public corporation, Guild said, the railroad has a "fiduciary duty to the stockholders." The railroad is not going to pay anything it is not required to pay, he said.

Guild said he informed the governor's office last week of the railroad's analysis and has told others, as well.

In other business, the Tax Commission members wrestled with drafting regulations on which companies are covered by the 2 percent payroll tax imposed on financial institutions. There's a question whether a car dealer that finances an auto or other businesses that sell on credit come under the law.

"We didn't write it correctly," said Sen. Randolph Townsend, R-Reno, who helped develop the tax plan. He said it was not the fault of the bill-drafters but the fault of lawmakers for not conveying their thoughts correctly to those who prepared the bills.

It was never the intent of the Legislature to include car dealers and other similar businesses in the 2 percent financial institutions' tax, he said.

"We didn't get into a debate what was to be included," Townsend said. "There was no other definition." The directions to the legislative bill drafters were "not as clear as possible."

The tax commissioners will return Sept. 25 to further work on the regulation on the business and financial institution taxes.