Nevada’s apple rots at its core

By Jon Ralston

Wednesday, May 2, 2012 | 2 a.m.

Confession: I love Apple.

My dad had an Apple II. My first computer was a Macintosh. I have never owned a PC (sorry, Mr. Gates).

But when I read The New York Times piece about the company’s playing The Biggest Little City as The Biggest Little Suckers in the world, I knew that something was rotten in Reno. And the subtext of the story, while not focused on the Northern Nevada tax haven, reveals less about Apple finding a way to save money than how this state has allowed exactly the wrong kind of economic development. Even more infuriating: This gives the lie to all the rapacious folks over the years who have pulled a fortune from the Nevada economy, given back a pittance and wailed like newborns whenever anyone suggested a business tax.

This part of the Times expose (the story of Apple’s Renophilia was first reported by KLAS-TV last year) bears repeating:

“Yet, with a handful of employees in a small office here in Reno, Apple has done something central to its corporate strategy: It has avoided millions of dollars in taxes in California and 20 other states.

“Apple’s headquarters are in Cupertino, Calif. By putting an office in Reno, just 200 miles away, to collect and invest the company’s profits, Apple sidesteps state income taxes on some of those gains.

“California’s corporate tax rate is 8.84 percent. Nevada’s? Zero.”

And look what that has wrought: Company executives who gaze longingly at Nevada, their salivary glands in overdrive, thinking how easy it is to plant a few employees here and then grow astronomical profits while providing not one scintilla of assistance to the state.

But I am not the least bit incensed with those bad corporate citizens, nor am I upset with Apple, which is taking advantage of the laws as they are written.

What happens in Reno does not stay in Reno. This is a statewide phenomenon, the natural byproduct of decades of not-so-benign neglect by state leaders who have bowed to sound-bite (“no new taxes”) arguments instead of standing up to special interests and considering more nuanced solutions (“broadening the tax base, bringing in more payers, lowering sales taxes, excising the payroll tax”).

I can only imagine the discussion in the Apple boardroom:

“Hey, what about Nevada? They don’t charge businesses anything.”

“But they might get suspicious if such a well-known company opened a storefront just to hide a tax haven.”

“No worries. We’ll call ourselves Braeburn Capital. Those rubes won’t get the joke that it’s a kind of apple.”

“Yeah. And it’s sweet and tart. A sweet deal for us, and those Reno folks are the tarts.”

Think I’m close?

This is not the economic development Gov. Brian Sandoval is touting to reinvigorate the state’s economy — at least I hope not. Indeed, while the Nevada Policy Research Institute and others have criticized the governor’s methods — tax incentives to bribe companies to come here to compete with other states — he has identified a half-dozen or so sectors Nevada should try to woo.

Indeed, the governor was in Los Angeles on Monday, taking the hands-on approach he promised he would and touting the state to biotech, film and real estate folks.

I continue to think Sandoval, all of his good intentions notwithstanding, will be hamstrung by these companies looking at our educational system and following up the governor’s entreaties with statements like, “Well, I don’t think we want to move there. But we might consider doing what Apple did.”

Beyond the lack of value placed on education — and thus the consignment of the state to fertile territory for tax dodgers, call centers and warehouses — the Apple story also points up the inherent absurdity of Nevada’s tax structure, which is not designed to allow the state to benefit from new businesses; instead, they are a drain on resources that could be used to provide better education, infrastructure, health care and more.

As one wag put it, “From the state’s view, a new business that is not gaming, mining, insurance or the sale of taxable goods is all cost and no revenue.”

Leaders tout businesses such as Switch Communications and Zappos as wonderful additions to the state and city. While they may be fine corporations, they will not help fund education. They will pay a tiny payroll tax, a minuscule business license fee and, through their employees, sales taxes. Compared with what established industries such as gaming or mining or insurance bring into state coffers, they pay nothing for the privilege of doing business here.

Before NPRI’s screed-makers fire up their laptops, I am not arguing for higher taxes (yet) as much as saner tax policy. Or any tax policy.

That’s what this episode exposes. This is Nevada distilled: always settling for a bite of the apple, never devouring the whole thing.