Governor’s new tax plan still has numerous structural, constitutional issues

CARSON CITY — Today, the Assembly Ways and Means and Senate Finance Committees held a joint hearing on Gov. Brian Sandoval’s new tax proposal, which was heard as an amendment to AB464. Sandoval’s tax plan would increase the modified business tax, raise the business license fee and create a new gross receipts tax, called the “commerce” tax.

NPRI executive vice president Victor Joecks offered the following testimony:

Thank you, Mr. Chair. For the record, Victor Joecks with the Nevada Policy Research Institute. We are opposed to the Governor’s tax plan.

Regardless of how much a gross receipts tax brings in, there are inherent structural problems with gross receipts taxation.

First, it raises taxes on businesses that are losing money, which may force many struggling businesses out of business.

Second, gross receipts taxes create tax pyramiding, because the tax is assessed at multiple stages in the production process.

These are some of the same problems that voters had with the recently defeated margin tax, and the reason is that the margin tax and commerce tax are both based on gross receipts.

I’d also like to point out that the commerce tax would only be collected once during the next biennium, because the second payment will be collected by Aug. 15, 2017, which is in Fiscal Year 2018. Since the Modified Business Tax deduction will be taken during Fiscal Year 2017, the commerce tax will net just $60 million in the next biennium. That’s less than one percent of the governor’s recommended spending levels.

That would make it just the 12th largest tax source behind the sales tax, sales tax commission, MBT-non-financial, insurance premium tax, real property transfer tax, live entertainment tax, business license fee, cigarette tax, liquor tax, Secretary of State revenues, and short-term car rental fees.

Also, Article 10, Section 1 of Nevada’s Constitution states: “The Legislature shall provide by law for a uniform and equal rate of assessment and taxation…”

With 27 different rates, depending on the type of business, this tax would create unequal rates of taxation. You've even discussed that today when talking about businesses "code" shopping.

Finally, spending more on education won’t increase student achievement and hasn’t for the last 50 years.

In 1983, when Gov. Richard Bryan took office, Nevada’s inflation-adjusted per-pupil education spending was $4,859, according to Nevada’s Legislative Counsel Bureau. When he left office, it was $5,737.

In his 1987 State of the State speech, he boasted, “Since 1984, Nevada has increased the money dedicated to our public schools by nearly 50 percent, more than any other state.”

When Gov. Bob Miller took over in 1989, inflation-adjusted, per-pupil spending was $5,964. When he left office in 1998, it had grown to $7,239.

In one of his State of State addresses he declared: “Over 61 percent of all new revenues in my budget go to education … I propose increasing education funding by $96 million.”

In 2003, Gov. Kenny Guinn passed the largest tax increase in Nevada history, in order to fund education.

Successful efforts to raise spending, however, have failed to improve Nevada education.

Nevada’s inflation-adjusted, per-pupil spending has now grown to $8,781 in 2011, according to the latest data available. Yet, we’re still here trying to increase student achievement by spending more and more.

Spending more won’t increase student achievement, and it won’t prevent unions from wanting even higher taxes in the upcoming years, whether through legislative action or ballot initiatives.

Thank you for your time.

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