Pawnshops must pay higher tax, panel says

Tuesday, Nov. 2, 2004 | 10:54 a.m.

CARSON CITY -- Pawnshops are similar to banks because they both loan money and these pawnbrokers must pay the higher financial institutions tax, the state Tax Commission decided Monday.

Commissioner George Kelesis of Las Vegas said pawnshops are no different than other financial institutions. "The only difference is their finance charges are higher."

The commission unanimously rejected the appeals of SuperPawn and MetroPawn to avoid paying the 2 percent tax on gross payroll plus $7,000 a year for each branch.

The tax on other businesses is 0.65 percent on gross payroll.

Leif Reid, a Reno attorney for SuperPawn, which has 20 locations statewide, told the commission that the Legislature never intended pawnshops to be considered financial institutions that pay a higher rate than other retail businesses.

The plain reading of the law, he told the commission, means the tax was intended for banks. "There is nothing in the record that the Legislature ever considered a tax on pawnshops." And pawnshops are regulated in a different section of the law from financial institutions, he said.

Reid argued the nature of the business was different than other financial institutions. "It is far more risky," he said. More than 70 percent of the time, he said, the pawnshop ends up with the goods put up as collateral.

In addition, he said that SuperPawn pays $100,000 a month on the transactions in sales tax. He called the situation unconstitutional double taxation.

He said banks and other financial institutions don't pay sales tax on their transactions.

Commissioner David Turner of Reno told Reid that the customer pays the sales tax. He said the pawnshops are agents for the state collecting the sales tax.

Kelesis said the word on the pawn ticket is "loan" and the customer comes in to get a loan from these businesses. He said they charge a finance fee of 28 percent to 32 percent and the customer has 120 days to repay the loan.

Kelesis said the pawnshops were similar to a bank loaning on collateral. Reid argued it was different because the risk was greater and the transaction was on personal property as opposed to real property.

Kelesis said the pawnshops were "well-compensated" for taking a greater risk.

Commissioner Bob Barengo of Reno said the law defines a pawnbroker as one who is in the business of loaning money.

After the denial, Reid said there have been discussions with his client about filing suit to challenge the decision of the tax commission but that no decision has been reached.