Las Vegas Sun

March 28, 2024

Nevada’s taxpayers carry a heavy load

Drop-off sites

Here are Tax Day drop-off sites that will be open late for the filing of last-' inute tax returns:

For some Nevada taxpayers, April 15 is foreboding news. For many, May 31 is good news. For all, the federal tax burden on this state's workers is bad news.

This year's federal tax returns are due Friday, about a month and a half before so-called Tax Freedom Day, the point when most taxpayers meet their tax debt for the year and, after that, start earning money for themselves.

Tax Freedom Day last year -- a leap year -- fell on May 27, meaning that taxpayers this year will have to work three more days to meet their responsibility to Uncle Sam.

National study

As Nevadans struggle to hold on to every possible dollar, an annual national study once again shows the state shouldering a heavy burden in the filling the federal coffers -- a situation that experts say might never change because Nevada's relatively high salaries put a greater percentage of its residents into higher tax brackets.

The financial burden placed on Nevadans by state and local taxes is the 20th lowest out of the 50 states and Washington, D.C. But when federal taxes are added, Nevada's residents have the 11th heaviest tax burden, according to the recent study by the the Washington-based nonprofit Tax Foundation.

"High incomes cause that," said Curtis Dubay, an economist with the Tax Foundation. "In general, two thirds of the burden is in the federal taxes. High income means Nevada is a high burden state and the chance of moving down significantly in the rankings is difficult."

The study says that Nevada's local and state taxes -- fuel, property, sales and sin taxes -- eat up 9.7 percent of personal income in the state. But after the amount of federal taxes is factored in, taxes take a much bigger bite, 28.4 percent, out of Nevadans' personal income.

By comparison, the study found that the national average for state and local tax burdens is 10 percent of personal income, but once federal taxes are added, overall taxes eat up 27.8 percent of personal income nationwide on average.

With such a big slice going to the government, it is little wonder why Nevadans and other states' taxpayers wait until the deadline to file their returns.

Last year nearly one in five of the nation's 131 million taxpayers -- 27.1 million -- waited until the final week to file their tax returns by the deadline, according to the Internal Revenue Service.

And they are not all people who have to pay additional taxes. IRS spokesman Raphael Tulino said 72 percent of taxpayers get a refund and that refund checks average about $2,200.

Last year, Nevada taxpayers got $1,998,884 in refunds, the IRS says.

Sen. Mike McGinness, R-Fallon, chairman of the State Senate Tax Committee, said that while the state's total tax burden is bad news, Nevadans should take note that the Tax Foundation study also indicates the state is doing well keeping the taxes over which it has control comparable to those nationwide.

"When we have before us a property tax problem like we have now, people are going to be angry that we have the 11th highest tax burden in the nation and their perception is the state is doing it to them," he said.

"It makes our job more difficult because we are the easiest to step in front of to holler at, when it fact the state numbers are doing pretty well. We'd like to see them come down but we are at least hanging in the ball park."

Nevada's relatively high rate of payment to the federal government has been noted in previous studies, says Carole Vilardo, president of the Nevada Taxpayers Association.

Fed funding shortfall

"It is one reason why we do poorly in federal funding for entitlements and education," she said. "We are last in almost every category when it comes to federal spending."

To address the shortfall in federal dollars returned to the state, the state has turned to its congressional delegation to use its influence to recapture some of the lost funding, McGinniss said.

"It's called pork, but it supports everything from roads to cultural centers," he said. "They try to get that money back into the state."

The Tax Foundation study, using data from fiscal years 2002, 2003 and 2004, ranks states in 41 areas, including individual and corporate income tax rates, excise taxes and spending.

Since 1941, the organization has created national rankings to determine which states have the highest and lowest taxpayer burdens.

Nearly every year Nevada comes out relatively the same -- middle of the pack for state and local taxes and a national leader for the tax burden after the federal tax numbers are punched in.

The new study marks the first year in the last four that Nevada has not been in the Top 10 for total tax burden. Nevada was ranked as having the ninth heaviest overall tax burden each of the previous three years.

However, when only state and local taxes were considered, the tax burden in Nevada ranked 30th in 2004, 33rd in 2003 and 36th in the nation in 2002.

Steven Miller, policy director for the Nevada Policy Research Institute, a conservative think tank, says the Tax Foundation's study does not paint the complete picture of Nevadans' tax burden.

He said that while we are a leader per capita, the state's rich have been shouldering more of the burden in recent years while the poor have had it a bit easier.

"For the great majority of Nevada taxpayers, federal taxes have gone down with President Bush's tax cuts of the past few years," Miller said.

"In 1990, the top 1 percent were paying 25.1 percent of the adjusted gross income, but 12 years later it was 33.7 percent. The bottom 50 percent of taxpayers in Nevada have seen their taxes go from 5.8 percent of adjusted gross income in 1990 to 3.5 percent in 2002."

Tax cut results

Miller said "it will be interesting to look at this study in the coming years" to find out how much the tax increases approved in 2003 will affect the state's rankings. Liquor taxes were increased in August. Cigarette taxes were increased in July.

But Miller cautions that Nevada might not jump too high in the state and local taxes ratings because other states also had tax increases in the past year.

And while Miller agrees that entitlements and education take it on the chin with a lack of federal money earmarked for Nevada, he notes that the strong economy "is attractive to job-seekers and businesses coming into the state.

"This situation has fueled economic opportunity. We have a good economic climate by and large."

The Tax Foundation study supports that assertion, finding Nevada tied for best in the nation with South Dakota and Washington in the corporate income tax index for 2004 category, which measures the economic impact of state corporate income tax laws.

Financial analyst and longtime government budget consultant Guy Hobbs says studies that indicate Nevada is wealthy and not getting its share of federal funds should not be used as an excuse to stop trying for federal grant money.

"In times of uncertainty, finding additional sources of revenue that don't further burden taxpayers is important," he said.

"Part of the responsibility is for organizations to apply for federal assistance that might be available. There are federal programs out there for education, entitlement and housing grants and we have to step up our efforts to apply for them."

Hobbs said he cannot "draw any hard and fast conclusions" from the tax foundation's study without knowing the methodolgy used for the study.

The Tax Foundation's methodology, as explained in the report, includes using tax and Census data and an "other" category that includes net interest paid on debt and an adjustment for a federal surplus or deficit.

Effect of visitors

Hobbs questioned whether the study takes into account the economic effects of visitors. That would be a major factor in Nevada since Las Vegas alone has about 250,000 visitors each day, many of whom are paying taxes on things like cigarettes, liquor and live entertainment.

DuBay, the Tax Foundation economist, said the adjustment is made by factoring in the "exporting of tax burden," which accounts for tourism, severance tax from mining and corporate taxes paid by people who live in other states.

"Nevada is not shouldering its entire local and state tax burden because it is exporting some of its revenues from other states," Dubay said.

Nevada, according to the Tax Foundation study, is 12th in the nation in the tax burden exporting category with $340 million paid in 2004 by out-of-staters.

Atop that category was New York, a tourist destination that collected seven times Nevada's dollar figure; California, another popular tourist stop; and New Jersey, which has legalized casino gambling in Atlantic City; followed by Alaska, which has high severance tax revenues, Dubay said.

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