A Nevada IRS?

Perhaps nowhere else in the country is the Internal Revenue Service (IRS) hated as much as here in Nevada. Since the early 1980s the ubiquitous tax-gathering agency has been harassing casino dealers for a share of their tip money. Late last year four casino dealers, one a 64-year-old woman, were each sentenced to six months in prison for trying to keep some of their own money. How much loot did these big-time tax cheats keep out of the national treasury? As the Las Vegas Review Journal reported, “[S]entencing the four to jail, [Judge] Hicks ordered restitution from each. The amounts ranged from $1,148 to $1,532.”

This huge crime took place at Mesquite’s Virgin River Casino between July 1992 and July 1995. How much taxpayer money was spent during the seven years it took to put these wayward pasteboard pitchers in the pokey—and all for maybe $5,000? We probably don’t want to find out on a full stomach. Yet according to Natalie Collins, a spokeswoman for the U.S. Attorney’s office in Las Vegas, “The United States will continue to prosecute individuals who commit such offenses.”

Having one IRS is bad enough, but now Governor Kenny Guinn is asking the Gang of 63 to erect another here in Nevada to collect his proposed gross receipts tax (GRT). Many former casino dealers now own small businesses in Nevada, and if Guinn has his way, they can look forward to the kind of arrogance and harassment from state government they experienced from the feds as dealers.

Governor Guinn says he’ll need $30 million just to get a computer system in place for his Nevada IRS. No one has estimated the number of employees needed, but it takes 1,400 in Washington to collect that state’s GRT, known as the B & O tax. Fourteen hundred tax collectors to collect a tax the Washington State Department of Revenue Tax Reference Manual 2002 describes as, “easy to understand, simple to calculate for taxpayers and auditing is relatively uncomplicated.”

Washington’s Manual 2002 goes on to list some of the other “important advantages” of the B & O tax, such as: “It assures that profitable businesses and those organized as non-profit, as well as unprofitable enterprises (including those that intentionally operate at low profit margins by paying abnormally high salaries to owners) pay some tax for the government services they enjoy. Economically, it encourages firms to operate with maximum efficiency.”

If that paragraph doesn’t send chills up the spines of Nevada small business owners—and non-profit agencies that sell goods and services to fund their programs, such as Opportunity Village—I don’t know what will. What is an abnormally high salary? And since when did taxes ever encourage maximum efficiency? Firms and individuals spend millions of dollars in resources just to avoid taxation. Efficiency would be gained only if they didn’t have to. It is very clear that a dangerous mix of power and envy fuels Washington’s tax collectors.

Governor Guinn’s GRT is intended to raise $220 million in its first year (2005) to make Nevada “a state we can be proud of,” according to its proponents. Having an army of ruthless, heartless tax collectors roaming the state of Nevada, putting 64-year old women in jail for not paying $1,500 to the government, is nothing to be proud of. No doubt the IRS is licking its chops at the prospect of having a sister agency in Nevada to feed it confidential taxpayer information.

Every baby sitter, pool cleaner and housekeeper in the state will constantly hear the taxman’s footsteps. They may not be required to pay—assuming their revenues don’t total $450,000—but they will have to prove that fact, which means costs. James Payne, in his book Costly Returns: The Burdens of the U.S. Tax System, estimated that for every dollar collected by the IRS, “we pay 65 cents more in compliance and other costs.” And if such a hidden financial burden weren’t bad enough, it “is compounded by the arbitrariness and other abuses of a coercive tax system.”

As Cort Christie of Nevada Corporate Headquarters told Review-Journal columnist Vin Suprynowicz, “the gross receipts tax will be the final nail in the coffin, because that means, ‘You’re creating an IRS or a franchise tax board in Nevada, complete with reporting and audit requirements. …At that point Nevada changes. Psychologically, you’re no longer a ‘business-friendly state’ but a ‘business tax state.’”

The last thing any Nevada taxpayer wants is another IRS. Just ask any casino dealer.

Doug French is executive vice president of a southern Nevada bank and a policy fellow of the Nevada Policy Research Institute.