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By Anjeanette Damon (contact) 
Published Tuesday, March 5, 2013 | 1:12 p.m.
Updated Tuesday, March 5, 2013 | 3 p.m.
Speaking in a packed hearing room, the executive director of the Nevada State Education Association today urged a panel of lawmakers to pass a business tax initiative that has few fans at the Nevada Legislature.
Indeed, Gary Peck took opponents head on in his opening remarks in support of a ballot initiative for which his organization collected more than 150,000 signatures to ensure it made the 2014 ballot should lawmakers decline to pass it into law.
"We hope that there will not be a caucus of no," Peck said. "We hope that we will not hear the same old arguments that have lead this state into a ditch and our K-12 education system into a ditch that is damaging our kids every single day."
Peck and his organization has an uphill battle in Carson City. Legislative leaders from both parties have given the margins tax initiative a cool reception.
The ballot initiative would implement a 2 percent tax on business revenue of more than $1 million a year, generating about $800 million in revenue that would be earmarked for public schools.
Although Democrats proposed the same tax -- at a lower rate -- two years ago, they no longer are championing it at the Legislature.
But the teachers union officials argued both that the margins tax "is the right tax for this state now" and that an underfunded education system is at the heart of the state's economic troubles.
"Changing to a margins tax will help us diversify our revenue base and make it more stable," said Richard Sims, chief economist for the teachers union. "And it would be used to fund education, which is the only way of improving long term diversity and stability in the economy."
The Legislature has 40 days to decide whether to enact the margins tax. If it does not act, the question will be placed on the 2014 ballot for voters to decide.
Advocates for education, the Hispanic community and labor unions came to the support of the measure.
AFL-CIO boss Danny Thompson, a former legislator, chastised lawmakers for never properly funding education.
"The reason I am embarrassed and everyone in this room should be embarrassed is that we have the lowest graduation rate in the United States of America," he said. "I get a kick out of people saying you don't solve a problem by throwing money at it. We have never thrown money at the education in this state. Ever."
In the next breath, however, he acknowledged that the margins tax likely won't pass the Legislature.
"I fully understand this bill probably never will come to a vote," he said. "There are not the votes to pass this bill. There are not the votes to override the veto. There's no question in my mind this will go to the people to decide."
Skeptical lawmakers--both Democrats and Republicans-- peppered the teachers union representatives with questions.
"Even if a business isn't profitable, they would still be subject to (the margins tax)," asked Assemblywoman Irene Bustamante-Adams, the Democratic chairwoman of the Assembly Taxation Committee.
The answer: Yes.
"This is a broad-based tax getting away from profits because profits are so flexible and leads to incentives economist don’t like on tax avoidance," Sims said, arguing a margins tax is more stable.
Lawmakers also questioned why teachers would model a tax after a Texas measure that some are seeking to repeal in the Lonestar State. And they wanted to know how the margins tax would be implemented-- a question even the teachers union representative had a hard time answering.
"I'm trying to understand how the tax would actually wok for a business," Bustamante-Adams asked.
"I'm not sure I can actually answer that question," Sims responded.
Frank Flaherty, a lawyer for the Nevada teachers union, stepped up to the table to give a brief explanation, saying businesses would be taxed on gross revenue generated in Nevada minus the cost of personel or of goods sold.
A phalanx of business lobbyists testified against the tax: banking, small businesses, retailers.
"We agree that this is complex and confusing and largely contradicting," said Bryan Wachter of the Nevada Retailers Association. "And I want to clarify as well that 150,000 people were not qualified on the signatures for this. The secretary of state qualified 107,000 signatures. That's roughly 10 percent of the voting population."
"Businesses may not even be profitable and we’re going to tax them?" said an incredulous Stan Wilmouth, president of Heritage Bank in Reno. "I can’t believe we would even consider for a company that wouldn’t even make money, that is pouring money back in from own personal assets that we would tax that."
But while Democrats may not be in favor of the margins tax, they took pains to point out they'd like more tax revenue for education.
"When you come to the table, don’t come with just, 'No, no, no,'" said Majority Leader William Horne, D-Las Vegas. "I want to hear some options. I want to hear options from everybody, not, 'This is terrible.'"
They should be supporting SJR15 instead, a much needed step to put our tax base on an even keel.
I am going to have to agree with boftx on this one. The union is not seeing the bigger picture here and what "their" idea could do to many businesses.
Left to their own devices, the teachers' union would tax Nevada back to the stone age.
I'm not too sure *why* the teachers union is out to put more taxes on the businesses, when it is well-known that the mining industry pays the lowest in taxes ever. Makes you wonder if mining is greasing their palms?
Many are concerned about the impact on business with the threshold of $1,000,000 in revenue. Some feel that businesses that are not profitable will be forced to pay the tax and may go out of business. Let's look at the numbers. In order to reach the $1,000,000 in revenue, the average daily sales must be about $2,770. The tax on that amount would be $55. If the business had 100 transactions per day, the average sale would be $27.70 and the tax would be FIFTY FIVE CENTS. If there were 1000 transactions, the average transaction would be $2.77 and the tax would be less than SIX Cents. I would suggest that if the margins on a business were so tight that those numbers would be a hardship, how survivable is the business. Business would pass the tax on as part of their fixed costs, so I don't think that those numbers would stop anybody from making a purchase.
The proposed Margin tax will drive business out of business. Let's reframe that arguement for a moment. Every business in Nevada currently pays a 2% modified business tax or payroll tax. That means that Wal-Mart, Target, Costco, Sam's Club, Home Depot, Lowe's and any other national corporation only pays a tax on what it pays employees. They pay no other taxes to pay for the services that are provided to them by the schools, cities, and counties. What the Margins tax does is has business pay 2% on the revenue generated in Nevada. Which do you think will produce more money to pay for education and other services. A 2% tax on the salary paid to employees or a 2% tax paid on revenue generated in Nevada?
The last issue is ecomomic development. For years we have been told "low taxes and a favorable business climate" will bring businesses to Nevada. It doesn't work. The first question that a business considering moving to Nevada or starting here is what are the qualifications of the workforce. Are they educated and can they learn the skills to work for my company. The second question is directly related to the first. If the business is going to move existing employees here or try to hire people to move to Nevada, they will ask, "What are the schools like." Do you think that telling them we rank at the bottom in every category is going to make them come? Would you?
Those people who are opposed to the Margins Tax, what are you alternatives? Over 150,000 Nevadans think this is the answer to the failure of the legislature to act for years.
It's nice to see Tanker1975 playing fast and loose with facts on a different set of taxes other than mining.
@Happyleper. What is not accurate? What's your suggestion?
@Happyleper. What is not accurate? What's your suggestion?
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My suggestion is merely that you talk about taxes paid in this state fairly and accurately. As an example, I've yet to see you describe the true amount of net proceeds of minerals paid -- you only talk about the state portion, which is only about half of what is actually paid.
With respect to your inaccuracies here, allow me to list them:
1) The modified business rate on the businesses you list is not 2 percent - it's actually lower.
2) These businesses do pay other taxes, including sales tax on the purchases where the tax is due, property taxes, state and local license fees, and so on.
Again, my comment had nothing to do with the proposed margin tax. It has everything to do with the ability of some posters on this website to tweak facts to suit their own needs and arguments.
Here's a much better solution: The state can keep its hands out of my wallet and do a better job of spending the revenue it already has.
A margins tax will be a tax on all of us, because it will be passed along to the consumers by the merchants. But of course, you all knew that, even if you didn't to admit that uncomfortable truth.
That's my solution: You get NO MORE MONEY from me. Is that clear enough?
@HappyLeper.
Sales taxes. Taxes on the value of a purchase, PAID by the consumer and passed through the business as the collector of the taxes and sent to the state. When was the last time a business paid the sales tax for you?
Property taxes are only paid when the business owns the property. Most businesses don't own their buildings, but lease them. Look at all of the strip malls with vacant store fronts. Those signs say "For Lease".
We are talking about money that either is dedicated to education or passes into the general fund.
The figures I have used for mining taxes come from mining. Again, we are only talking about what goes to the state general fund, not what is paid to counties.
Since the modified business tax is less than 2%, actually about 1.66% of salary, the amount that those large corporations pay is even less.
Tanker1975, your responses make it abundantly clear that you know far less about the state's taxes than you think you do.
"Frank Flaherty, a lawyer for the Nevada teachers union, stepped up to the table to give a brief explanation, saying businesses would be taxed on gross revenue generated in Nevada minus the cost of personel or of goods sold."
What about Rent, Utilities, equipment, insurance, and all the other costs that are not personel or goods sold?
Comment removed by moderator. Personal Attack
If low taxes are such an amazing incentive, why aren't we the nation's economic leader? Because the people who run most businesses also want the social/cultural/practical things that high-tax states have, even if they have to take a tiny hit at tax time.
Two percent on profits over a million, and many of you are acting like we're robbing Sam Walton's surviving children into the poor house. For shame!
This gross receipts is not good for Nevada or for all the small businesses in the State. The only beneficiaries are the teachers union. The administrators are grossly overpaid for what little they do. The legislators should ignore this garbage from the teachers union. If you want money go after the mining industry which pays tiny taxes.
Two percent on profits over a million, and many of you are acting like we're robbing Sam Walton's surviving children into the poor house. For shame!
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The margin tax is not a tax on profits. Any business whose annual revenue exceeds $1 million is required to pay based on 2 percent of their margin, which has nothing to do with whether the business actually generates a profit.
To expand on my comment from last night regarding Tanker1975's "knowledge" of taxes in this state:
1) The sales tax is paid by businesses on the items that they consume for their own business, not just by consumers on what they consume. If a business needs cleaning supplies, cash registers, computers, or other equipment, they are liable for the sales tax, just like any other consumer.
The large retailers you mention aren't just responsible for collecting sales tax from their customers. They pay it when they have to, also.
2) Property tax in Nevada is not just on real property (buildings and land). Businesses are also responsible for paying personal property taxes on their equipment. Those taxes, in part, are distributed to school districts.
3) Since you are only wanting to talk about taxes that fund schools or to the state's General Fund, you should probably include the state business license and the corporate fees that are imposed by the Secretary of State -- those are both dedicated to the General Fund.
4) Likewise, if you want to talk about taxes that fund schools, you cannot ignore the local portion of the net proceeds of minerals tax -- a significant part of that local portion of the tax goes to the school district in the county where the mine is located.
Essentially, your saying that taxes for schools only matter for certain taxes, but not the net proceeds of minerals tax, is you trying to move the goal posts and shift your argument to suit you.
5) The modified business tax rate is only 2% on banks. For other businesses (such as the ones you mention), the rate is zero for a certain part of their wages, and 1.17% on wages above a certain amount.
6) The modified business tax is not paid on all salaries -- there is a deduction allowed for health insurance expenses.
Again, my point is that if you (or, for that matter, anyone here) wants to complain about taxes, it really helps to actually understand the system.
Taxpayers urge teachers to teach the basics and stop finger pointing.
THE issue regarding government spending in NV: DEMOGRAPHICS are unsustainable: our economy has NOT kept pace with illegal immigration and the resulting increase in student population. There is no way the same economy (or less) can support K-12 and social welfare for so many illegals. OUR children are suffering as teachers demand more money while we have trouble providing food and shelter for OUR kids.
@happyleper.
Would you be talking about the business and license fee of $200 annually that is collected by the Secretary of State? If there were 100,000 businesses in Nevada that paid it, it would generate $20 Million annually.
The property taxes paid by business on personal property, ie. business equipment, again are not a significant portion of the general fund.
Many national chains get their cleaning supplies, etc from direct ordering from the parent company. The amount of sales tax paid by those businesses is not a significant portion of the general fund.
How much of the local portion of the net proceds from minerals taxes went to CCSD from the mines located in Clark County? Those taxes are paid locally and can't be used to look at the amount the industry pays to the state general fund. Those funds allow some of the small school districts with mines to spend 17K or more per student. CCSD spends approximately 6k per student.
You forgot to mention that some businesses are exempt from the modified business tax.
You are reinforcing my point that we need a better, fairer, and more equitable system of providing revenue to Nevada so that basic services, including education can be funded.
Do you have any better ideas than the margin tax? If so, please tell them so that we can change the tax system in Nevada.
You are reinforcing my point that we need a better, fairer, and more equitable system of providing revenue to Nevada so that basic services, including education can be funded.
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And you are reinforcing my point that you are woefully ignorant about the existing tax structure in this state.
1) I am specifically referring to the $200 license, which generates somewhere around $65 million per year for the General Fund, not $20 million.
I was also talking about the corporate fees levied by the Secretary of State, which generate another $65 million or so for the General Fund. (There are additional fees on businesses levied by the SOS that generate another $25 to $30 million per year from the General Fund as well.)
2) There is absolutely no revenue from property tax that goes to the state's General Fund, and I never claimed that there was. You are the one stating that they pay no taxes towards education -- about a quarter of the property taxes paid in Clark County go to the school district, and that includes business payments on their real and personal property.
Additionally, I'd also note that you've shifted your argument from "they don't pay any property tax" to "it's not a significant amount." Please make up your mind.
3) Aside from the fact that you cannot likely prove that the amount of sales tax paid by businesses on their purchases is "insignificant" -- see the effect of mining purchases in rural counties on their taxable sales as a counter-example -- I'd also point out that this is you shifting your argument again by stating that their taxes are not significant, when before you stated that they paid nothing.
4) All net proceeds of minerals taxes are paid to the Department of Taxation and then distributed to the rightful entities. The local entities do not collect their own revenue for this tax source.
The amount of revenue distributed to each entity from the mines is based on the property tax rates in that county, so it's not difficult to determine how much any entity gets, based on the published information.
5) The only businesses that are exempt from the modified business tax are nonprofits, governments, Indian tribes, and so on, which are usual exemptions from taxes in Nevada and elsewhere. The major exemption on the tax has to do with the first $62,500 in wages each quarter (which I already mentioned), but this does not necessarily exempt the business. It exempts the wages.
With respect to your last question, I will reiterate what I said before -- my issue is not with the margin tax. My issue is with people who comment here who don't know what they're talking about when it comes to taxes.
A margins tax is perhaps the worst type of business tax to impose, particular for businesses that operate with near-single-digit margins (such as restaurants). Bad idea.