DMV rebate might cause tax trouble

Kirsten Searer

Thursday, May 12, 2005 | 10:55 a.m.

CARSON CITY -- Gov. Kenny Guinn's idea to rebate vehicle registrations to taxpayers hit another hitch Wednesday.

Anyone who itemizes their federal income taxes would have to return the entire amount of the rebate to the IRS, Democratic leaders said.

Guinn's plan would rebate anything from $40 to $300 to car owners, depending on how much their car is worth. But Assembly Majority Leader Barbara Buckley, D-Las Vegas, said legislative attorneys now think many people wouldn't get to keep a cent.

"The news continues to get worse from our point of view," she said.

The idea of a rebate is far from dead. Buckley and other Democratic leaders said they are committed to rebating some of the $600 million surplus, and plan to introduce their own plan today.

Assembly Speaker Richard Perkins, D-Henderson, met with Guinn Wednesday night to discuss the Democratic plan, which he said has "some similarities" to Guinn's plan.

Guinn's chief of staff, Mike Hillerby, said this morning that the meeting went well, though Guinn and Perkins didn't settle on any specific plan.

Hillerby said he thinks all leaders are committed to a $300 million rebate, though the governor's office maintains that not all of the checks would go to the IRS because it is not a refund of motor vehicle money but rather money from the general fund.

Guinn spokesman Greg Bortolin said Guinn is open to talking about a credit toward next year's vehicle registration if the IRS rules that the money would not be ruled as income and therefore not be taxable. But he said Guinn is focused on some sort of vehicle registration rebate instead of rebating any other tax.

"There's going to be a lot of things floating around," he said. "We're sticking to the vehicle registration."

The key, Buckley said, is what kind of tax would be rebated.

The news came after Guinn issued a terse press release reacting to comments Democrats recently made in the media.

Buckley and Perkins both said it would be "insulting" for Nevadans to have to pay back any of their refunds to the IRS.

Guinn said their accusations are a "smokescreen" because Democrats don't want to offer a rebate.

"The notion that it would be 'insulting' to give a rebate that might be taxable is ridiculous," he said in the press release. "The 'insult' to Nevadans would be not giving them their money."

Guinn also called the Democrats "presumptuous" for implying that his administration didn't know that the rebates could be taxed.

Guinn chief of staff Mike Hillerby said the administration has long known that some of the rebate could be taxed, though he said staff members are working with the IRS.

The problem comes because people can deduct the vehicle tax -- also known as the governmental services tax -- on their federal forms.

Anything deducted from taxes is then considered income, meaning it is open to be taxed.

But Hillerby said he thinks there is a way around it because the actual rebate would come from surplus general fund money, not from funds generated specifically by the governmental services tax.

Still, Hillerby said the governor remains open to talking about other ways to refund about $300 million to taxpayers.

The governor choose the vehicle registration tax because the state doesn't have an income tax, so the DMV database is the best list of Nevada residents who pay taxes that the state has, Hillerby said.

Guinn has threatened to veto a budget that doesn't include a rebate, but Hillerby said he doesn't think the debate over a rebate will force a special session.

"We're not going to get that far," he said.

Legislators are set to wrap up by June 6.