Las Vegas Sun

March 28, 2024

State Government:

Metro Chamber says it’s OK with some tax hikes; unveils reform plan

LVMS

Las Vegas Sun file

Fans crowd around Victory Lane to watch winner Jimmie Johnson during the NASCAR Shelby American GT 350 auto race at the Las Vegas Motor Speedway, Sunday, Feb. 28, 2010. The speedway, along with some other outdoor venues, is exempted from Nevada’s live entertainment tax, which is a target of a new study by the Washington-based Tax Foundation.

Insiders characterize the Nevada Legislature’s budgeting process as a study in chaos, with lawmakers putting off the work until the last minute and then furiously patching together what looks like a shotgun wedding of tax increases and financial gimmickry.

The Las Vegas Metro Chamber of Commerce wants to change that.

Gov. Brian Sandoval, legislative leaders and the state’s business interests have laid out the state’s top priority for the upcoming session: reforming the state’s outdated tax system to bolster funding for public education and health care and fill a $160 million budget shortfall. In other words, the goal is to raise taxes without upsetting the business community and the far right.

The chamber, an organization historically opposed to tax hikes, is on board. But it wants to see the Legislature take a more methodical approach to creating a budget.

“We’re frustrated like a lot of people are,” said Cara Clarke, a metro chamber spokeswoman. “We don’t want to see something cobbled together.”

The chamber commissioned the Washington, D.C.-based Tax Foundation to study the state’s system and formulate a plan to reform it. North Carolina, Nebraska, New York, Rhode Island and Indiana hired the organization to do similar work.

The foundation, a nonprofit, includes former congressional Republicans and executives of international corporations on its board of directors. The Koch brothers are among its financiers.

In producing the report for the chamber, it crunched some numbers, compared policies and unveiled a road map the Republican-controlled Legislature can use as a framework in Carson City.

“This allows us to have a meaningful tax conversation in December — not May 15,” Clarke said.

The chamber released some of the foundation’s work on Tuesday afternoon. This month, a more complete report from the foundation — filled with revenue projections — will be in the hands of legislative leaders and other business interests.

Here are a few of the foundation’s suggestions:

Sales tax

The foundation called Nevada’s sale’s tax structure narrow, outdated and complicated. That description may be the makings for a mantra among pro tax reform lawmakers in the upcoming session.

The sales tax system is rooted in 1956, said Joseph Henchman, Tax Foundation vice president for legal and state projects. It’s based on a system that taxes consumers on the goods they buy but not the services they use.

But today, the state’s service industry comprises more than 80 percent of consumer expenditures in the state.

The current system, according to the report, is taxing a smaller number of things and forcing the state’s rate to be higher on those items. The Tax Foundation recommends applying the sales tax to a range of services as well as consumer goods, although it doesn't offer specifics on which new items to tax. Henchman said more details would be included in the final report.

“Rates can only be increased so much,” the report said. “At some point, service expansion is inevitable.”

Live entertainment tax

One of the foundation's recommendations: Get rid of this tax and apply sales tax at shows on the strip and elsewhere in the state. The tax was the product of a special session in 2003 and imposes a fee on live entertainment at venues with 200 or more seats. At these events the tax is imposed on food, beverages and merchandise, but the tax is dependent on a number of factors, including the size of venues, their locations and whether there's gaming.

There are also a number of exemptions to the tax, which have been approved in what has been described as a haphazard manner by lawmakers. Venues like minor league baseball parks and the Las Vegas Motor Speedway have obtained exemptions, as have outdoor venues. So events like Burning Man aren't subject to the tax.

The tax generated nearly $140 million this year, but the foundation says compliance is complex. It doesn’t apply to all businesses and is encouraging performers to avoid venues where they’re subject to the tax.

Modified business tax

Businesses that have a payroll of more than $85,000 per month are subject to the tax, which brought in more than $350 million in 2013. The foundation said it “has room for potential” and several opportunities for reform. Banks pay a 2 percent rate while other businesses pay 1.17 percent. Branch banks pay nothing.

When the bank tax rates were set in 2003, lawmakers said larger institutions deserved to pay more than small branch banks.

The foundation suggested repealing the $85,000 threshold.

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