One Man’s View:

Finding where Nevada gets revenue is a taxing experience

Monday, April 20, 2009 | 5:41 p.m.

Tim O'Callaghan

Have you ever sat down for a moment to examine where the state of Nevada gets its revenue? I have, and it's slim pickings to say the least.

I downloaded a copy of the Nevada Department of Taxation Combined Sales & Use Statistical Report to explore the budget woes.

I've always looked at income to determine how much I can spend in any given budget year. That's what I set out to do with the state budget, but I got sidetracked by the staggering changes in revenue flow.

There are just over 100 taxable sales and use categories that contribute to the states revenue stream, which doesn't seem like a lot. Some are small contributors and other are enormous. However, I'm sure other categories could be added.

The first two categories on the taxable list may surprise those of you who have not ventured far enough north of North Las Vegas to discover that ranching and farming do exist in Nevada. Those of you living within a breeze of R.C. Farms, the pig farm, are very familiar with the fact we have categories, 111 Crop Production, and especially 112 Animal Production.

What is interesting is crop production was up 15 percent for the first half of fiscal year 2008-09, producing $7.3 million in revenue. According to the state of Nevada Department of Taxation 2008-2009 Personal Property Manual, taxable property "Includes machinery and equipment such as tractors, combines, hay balers, forage harvesters, unlicensed farm vehicles including utility trailers, wagons and utensils used to grow crops mainly for food and fiber. The subsection comprises establishments, such as farms, orchards, groves, greenhouses, and nurseries, primarily engaged in growing crops, plants, vines, or trees (including Christmas trees) and their seeds."

Peri & Sons Farms in Yerington is one of the best producers of onions in the U.S. It produces over 3,000 acres of sweet, yellow, red and white onions every year. Last year while we were visiting family there, I noticed the Peri's were also growing baby greens, too.

In the same period, tax revenue from Animal Production fell 2 percent but is still producing $1.2 million in revenue.

With that said, I'm not surprised revenue from crop production is up and animal production is still relatively stable. It is an indication of how hard Nevada ranchers and farmers must work to earn a living for their families. Farms, ranches and equipment, which are all part of the tax equation, are expensive to buy, operate and maintain.

Then there's Category 722, Food Service and Drinking Places. What I find interesting about this is not the 10 percent decline in revenue statewide, rather, the changes in various counties. For instance, there is loud clamoring from Clark County bars and grills that the Nevada Clean Indoor Air Act has, well, cleaned them out. People are not coming in anymore because they can't smoke, drink, eat and gamble at the same time.

I actually bought in to this idea until I started looking at the county-by-county numbers. While Clark and Washoe have bar-breaking declines of 10 and 12.5 percent respectively, many of Nevada's smaller counties had upswings in sales tax revenue. For example, Carson City had a 7 percent gain, on the low end, while Eureka had an amazing 30 percent gain in revenues on the high end.

Although, I can't say for sure, it's likely that the rural county increases can be attributed to the continued boom in mining.

Food Service and Drinking Places provided the highest sales and use tax revenue stream for state coffers at $3.6 billion in the first half of 2007-08 and are down to $3.2 billion for the first half of this fiscal year. If this trend continues, it will lead to more than half a billion of the $2.8 billion budget shortfall facing Nevada. With that said, I'm not convinced this shortfall can be laid only on the back of the Nevada Clean Indoor Air Act. However, I must admit it didn't help either.

From my own observations, I've noticed the folks who dined at high-end establishment have been eating at Chili's and Applebee's and the folks eating at those establishment are now eating more often at fast food places. In other words Nevadans are notching down a bit and eating at home more often than not.

Even though families may be eating out less, it appears they have been going to the movies more often. The movie industry is booming and ticket sales are way up. That doesn't mean theater operators are doing better, because concession sales are way down. News reports have attributed the gain in ticket sales to the people needing to escape the realities of a bad economy, even if it's for a couple of hours.

In my family's experience, we have gone to the movies more often recently, making sure we catch a movie right after dinner. My bride prefers I get the bag of popcorn as opposed to the bucket and bottled water so she can pour in one of those nifty soft drinks in a packet.

More recently we have been hitting the video store and staying home. Last weekend we had a what we call a date night, when all of the kids are out with friends and we have no one to answer to. We went out, had a margarita, a burrito then stopped at the local theater bought a bucket of popcorn and headed home to watch one of the many unopened DVDs we own.

By the way, the bucket of popcorn was $7.50 — and theater owners are wondering why sales are down.

What does this have to do with the state budget crisis? A lot if you consider the drop in tax revenue, the drop in household incomes, the need to raise revenues to pay for, let's say, higher education and the ability of households to pay for that higher education?

The Nevada Legislature needs to raise taxes in order to get out of this mess. The tough question is whose ox is going to get gored?

There is room in the revenue stream to expand some sales and use taxes in small increments without increasing bureaucracy. I wouldn't suggest a tax on services such as hair stylist, barbers and pool sweeper per se, because that would require an entire agency for collection and enforcement.

Nevada's budget crisis is a vicious cycle, which leaves me to ask: How much of your ox are willing to have gored?

Discussion: 6 comments so far…

By SmartAz

4/21/09 at 8:30 a.m.

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During tough times people need a little escape from the grind. Certainly movie tickets are up, and popcorn is down.

Me an' the Mrs. use to eat out several times a week. Not anymore. We buy quality meals and eat at home.

By chance did you look at alcohol sales? My guess is that it's up. In down times people turn to things that might temporarily ease the pressure. For some, booze is the answer.

What if Nevada were to start taxing the legal prostitution industry? Despite Clark County not generating that money, the state coffers would surely benefit. After all, cigarettes, gambling and booze foot the bill for so many things, why not get the Bunnies to join in?

Seriously, the state could have a campaign with eight-sided signs that they call "State Tax on P***y" or "STOP" for short. The state wouldn't have to invest anything because they could launch the campaign with red "STOP" signs on many corners already.

Let the industry that's already there, and not paying, pitch in. By doing that, nobody's ox will be gored.
By Tim O'Callaghan (Staff)

4/21/09 at 9:40 a.m.

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SmartAZ,

We can agree to disagree on the taxing of legal tricks in Nevada, however, The STOP idea could be incorporated with the "RED MEANS STOP" campaign.

The sale of alcoholic beverages would be included in the 722 category which is down by 10 percent statewide. There has only been small increases in liquor revenues in recent years.

Likely, it would be difficult separate resident uses to make your point of people drinking more to escape situations. you might look at the increase in folks seeking treatment.
By Tim O'Callaghan (Staff)

4/21/09 at 9:51 a.m.

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I'm posting this link because I'm getting several emails asking specific tax questions. It is more educational to do this exercise on your own.
Cheers,
Tim

http://tax.state.nv.us/documents/2008_An...
By OhSee

4/21/09 at 11:36 a.m.

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I wonder how many people stuff their purses, coats and bags with contraband goodies for consumption in the theater? Can the theater stop you from doing so?
By Tim O'Callaghan (Staff)

4/21/09 at 2:31 p.m.

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From Andre in Germany via email...

Hello Tim!

About 50% of the global tax related rules and regulations are issued in Germany.
"Their" solution to gore the german ox: If somebody has a part time job or a 2nd, 3rd etc income or a Geringfugige Beschaftigung ("minor source of income" - no real translation, its bureaucrats language), he can earn 480 net per month. The employer pays automatically 120 or 20% of the gross income of 600 as flat tax, but no health insurance, no other social insurance, no retirement pay, no other cost.
As a result the german Finanzamt (our version of your IRS) gets taxes automatically and a lot of regular full time jobs are split into those cost-cutting "mini-jobs". Lets quench out some dollars from your little people!

Finanzamt: winner with relative high taxes from low incomes with little operating expense
Employer:winner with more flexibility, lower costs
Employees: if he has a first job with health insurance and other benefits - winner; if not...
By Tim O'Callaghan (Staff)

4/22/09 at 9:07 a.m.

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This message was sent via email by a friend and local business owner.

"As a small business owner - sole proprietor - I can't afford to pay more taxes. My net income is very modest - in the $60k range - and I paid $19,700 in taxes.

Something is wrong with that.
Something is also wrong with the fact that I provide tens of thousands of dollars worth of pro-bono PR services for charities and I'm not able to write that off. It's exactly the same thing I do for clients.

I have no problem paying my fair share, but I feel I'm paying much more than that. Our system is broken."

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