Those who believe that the State of Nevada needs to take more money out of the hide of business—so that the government can do its thing— always use homebuilders as examples of companies “that are not paying their fair share.” The implication is that homebuilders pay no taxes and are greedy companies that give nothing back to the community. Builders headquartered outside of Nevada have especially been targeted, as critics contend that these builders “earn huge profits in Nevada, then take their money elsewhere.”
The fact of the matter is quite different. More money in the price of a new home goes to government in the form of fees and taxes than is spent on the land where the home is built. And that’s even though land prices have been exploding in the Las Vegas valley.
Let’s start with the fees and taxes paid before a shovel of dirt is turned. All fees are listed on a per-house basis.
|Subdivision processing fees||$97|
|Plan check & review fees||$42|
|Public works inspection fees||$94|
|Tortoise mitigation fees||$57|
|Grading & dust permits||$18|
|Water connection fees||$4,920|
Our total is already $5,244 and the builder hasn’t even moved any dirt. Also, this list only includes direct payments to local governments or government entities. Indirect costs that are a result of government regulations—subdivision bond fees, utility deposits, engineering costs, labor cost of government relations, legal fees for zoning, and interest costs on capital while approvals are obtained—add thousands of dollars that are not included here. And remember, the builder hasn’t started building the house yet.
When the builder is ready to start the house, local governments are there again with their hands out. For this example our builder is constructing a 1,750 square foot house to be priced at $158,000.
|Plan check fees||$360|
|Superintendent and laborer FICA||$102|
These items add up to another $3,641. Now our builder can finally start construction. Hard costs (lot development and hard construction costs) for this house are $89,423. Thus, the Nevada sales tax paid on these hard costs is $5,812.
So out of this $158,000 house, governments—state and local—are directly paid $14,697. And what does the homebuilder make for his trouble? After buying the land for $10,267, paying hard costs, government fees and taxes, and selling expenses, the net profit is $14,608.
It looks like the builder made out almost as well as did local and state government. But wait. After all that, the federal government is still lying in wait to take its share. Assuming a 39 percent bracket, that’s another $5,697.
So the much-maligned homebuilder, who took the risk, marshaled the resources, obtained the capital and ultimately delivered a product that a customer wanted, finally ends up with $8,911.
Builders are not only forced to contribute massive amounts of cash to keep the ever-growing local municipal bureaucracies flush; they must also continually kowtow to petty bureaucrats and building inspectors to gain project approvals. Contractors build virtually all of the infrastructure in the valley, employ approximately 15 percent of the valley’s workforce, and are forced to donate land for parks, fire stations and other public areas, all the while supplying a wide variety of high quality housing for the fastest growing area in the country. Yet supposedly these greedy companies don’t contribute anything to the community.
Doug French, executive vice president at a Southern Nevada bank, is a policy fellow of the Nevada Policy Research Institute.