Leaving door cracked for state tax overhaul

By David McGrath Schwartz

Tuesday, June 2, 2009 | 2 a.m.

For those hoping for big changes in the state’s tax structure, this could only be called a disappointing session.

The Legislature passed a $781 million tax increase using existing taxes, in what many acknowledged was a “Band-Aid.”

But for those arguing for larger reforms, there is a glimmer of hope for the next session, two years from now.

The Legislature will form a committee that over the next 18 months will sponsor an outside study of the state’s tax structure, make recommendations to change the state’s tax base and start considering ways to elevate Nevada from the basement of statistical comparisons to other states on education, health and human services, economic diversification and other areas.

“We want to come up with a plan we can implement next session to diversify and broaden the state’s revenue structure,” Senate Majority Leader Steven Horsford, D-Las Vegas, said.

Senate Concurrent Resolution 37 directs a committee made up of legislators to:

• Review proposals for broad-based taxes.

• Examine strategies for reducing existing taxes on businesses and consumers.

• Develop a vision for Nevada for the next five years, 10 years, and 20 years.

The committee will hire a third party to conduct the tax structure study.

The measure passed the Senate unanimously last week, and was expected to pass the Assembly on Monday. Even with the bipartisan support, the measure clearly will lead to another major policy battle in 2011, when legislators will also be evaluating taxes set to expire in 2011 and redrawing political boundaries, always an intensely partisan fight.

Horsford’s original idea had been much more aggressive, essentially predetermining which added taxes, such as a corporate income tax, would be necessary. But Senate Minority Leader Bill Raggio balked.

“I was very concerned that a study not be directed toward any type of tax,” Raggio said.

The compromise would provide for the first study of the state’s tax structure since the one sought by then-Gov. Kenny Guinn and authorized by the Legislature in 2001, providing credibility if major reforms to the tax system are deemed necessary.

Raggio has said that a tax study will cost $300,000 to $500,000, money that could come from the Interim Finance Committee’s contingency fund.

“I don’t want the study to be dominated or directed to any type of tax,” he said.

Horsford said the recession, in which state revenue fell 44 percent below the amount needed to fund 2007 service levels, showed the dysfunction of the state’s tax structure. The state relies on gaming and sales tax for 62 percent of its revenue, sources that he says are volatile.

Horsford mentioned as a target a net profits tax on businesses (the constitution prohibits a personal income tax).

Raggio was more cautious. He disagreed, for example, that the state’s tax structure needs significant overhaul. Instead, he pointed to the parts of the study that will look at how taxes are distributed between state and local governments.

“We don’t have a perfect tax base,” he said.

Raggio said studies show that Nevada has a beneficial business tax climate, and has a low number of public employees per capita.

“Fiscally, we’re an attractive state,” he said.

Yet he acknowledged the state’s poor rankings in a number of statistical indicators. “We talk about funding essential services in this state, and we’re not doing an adequate job,” he said.

Horsford tried at various points this session to push for broader reforms. He tried for a corporate income tax, to begin in 2011, as part of the Legislature’s overall tax package. Also dying during the session was his proposal to prepare a new tax structure that would be executed in the future.

Horsford said the results of the coming study and the committee’s work would give the Legislature no excuses for not acting in two years.

“We did our job this session,” he said. “We had the worst budget crisis to face this state, and we came up with enough revenue to fund essential services.

“Long term, we need fundamental change.”

Editor's note: This story was corrected to indicate that the last tax study was conducted after legislative approval in 2001. not the 1987 review by Price Waterhouse/Urban Institute.