Taxing charity?

Geoffrey Lawrence

Nevadans have been asked to support an amendment to the state constitution that would make it easier for legislators to increase the tax burden and would create uncertainty over the tax structure.  Question 3 on the November ballot will read:

Shall the Nevada Constitution be amended to require that, before it can enact an exemption from property tax or from sales and use tax, the Nevada Legislature must: (1) make certain findings regarding the social or economic purpose and benefits of the exemption; (2) ensure that similar classes of taxpayers must meet similar requirements for claiming exemptions; and (3) provide a specific date on which the exemption will expire?

Measures that require sunset clauses on all tax exemptions may be well-intentioned by attempting to limit the scope of corporate welfare schemes.  However, there would also be a host of unintended consequences.  For example, some of Nevada's most significant tax exemptions include property tax exemptions for entities such as charitable organizations or churches and sales tax exemptions on necessities such as food items.  These types of tax exemptions are generally of greatest benefit to low-income families.  If such exemptions were allowed to expire, it is low-income families who would be penalized the most.

What should be of even further concern to Nevadans is that the prospect of a perpetually changing tax code would increase the cost of business and could endanger some specific business models, including tax-exempt non-profit companies.  The risk of potentially losing their tax-exempt status could preclude such businesses from opening in Nevada.

In fact, requiring sunset clauses on all tax exemptions may be completely unnecessary for limiting the scope of dubious exemptions such as corporate welfare schemes.  There is nothing that currently prevents the Legislature from including a sunset provision into any new tax exemption or from developing a fiscal study of the proposed exemption.  In fact, the Legislature already does this with regularity.  Measures such as those included in question 3 would only change this by requiring that these things be done when considering every proposed tax exemption.

What requiring sunset provisions would do is accomplish an important political goal for supporters of big government.   Mandatory sunset provisions would allow tax cut opponents to place limits on exemptions that have broad political support and would allow them to postpone the debate over such measures until a time when they might be more easily defeated.

This recognition is significant considering the fact that this policy is being presented to voters at a time when some policymakers are calling for tax hikes to protect large government spending in the face of looming budget shortfalls.  If state policy were to require sunset clauses on all tax exemptions, then Nevadans should expect legislators who believe in big government to allow even worthwhile tax exemptions to expire whenever government revenues decline.

Geoffrey Lawrence

Geoffrey Lawrence

Director of Research

Geoffrey Lawrence is director of research at Nevada Policy.

Lawrence has broad experience as a financial executive in the public and private sectors and as a think tank analyst. Lawrence has been Chief Financial Officer of several growth-stage and publicly traded manufacturing companies and managed all financial reporting, internal control, and external compliance efforts with regulatory agencies including the U.S. Securities and Exchange Commission.  Lawrence has also served as the senior appointee to the Nevada State Controller’s Office, where he oversaw the state’s external financial reporting, covering nearly $10 billion in annual transactions. During each year of Lawrence’s tenure, the state received the Certificate of Achievement for Excellence in Financial Reporting Award from the Government Finance Officers’ Association.

From 2008 to 2014, Lawrence was director of research and legislative affairs at Nevada Policy and helped the institute develop its platform of ideas to advance and defend a free society.  Lawrence has also written for the Cato Institute and the Heritage Foundation, with particular expertise in state budgets and labor economics.  He was delighted at the opportunity to return to Nevada Policy in 2022 while concurrently serving as research director at the Reason Foundation.

Lawrence holds an M.A. in international economics from American University in Washington, D.C., an M.S. and a B.S. in accounting from Western Governors University, and a B.A. in international relations from the University of North Carolina at Pembroke.  He lives in Las Vegas with his beautiful wife, Jenna, and their two kids, Carson Hayek and Sage Aynne.