While recent attention has focused on the state's revenue shortfall and the related debate over whether to increase taxes, the fact that state lawmakers have already raised taxes has gone relatively unreported in the media.
Last week during the legislature's 25th Special Session, state lawmakers made several changes to the way Nevada retailers collect taxes. These changes amount to tax increases on retailers. Previously, retailers in the state were allowed to keep a small amount of the sales and excise taxes they collected to offset the administration costs of collecting the taxes. State lawmakers last week changed these rules by passing legislation that requires retailers to forego a significant portion of this break.
The legislation reduced the amount that retailers are allowed to keep from 0.5 percent of tax collections to 0.25 percent of tax collections. This reduction applies to retailers who collect the states' streamlined sales and use tax as well as to those who collect taxes on tobacco and liquor products. However, the legislation does nothing to lessen the administrative cost that retailers must bear to collect and organize these taxes. Hence, the effect is a tax increase on all Nevada retailers.
The legislation also included a similar tax increase against car rental agencies. Rental car agencies are able to collect 4 percent surcharges on the cost of a rental car in order to recover the cost of vehicle licensing. Previously, state law required that one-quarter of this amount be remitted to the state highway fund. The new legislation doubles this tax burden on rental car agencies because it requires that they remit half of the money collected under the 4 percent surcharge. The tax increase will be diverted to the state's general fund so that state government can continue to afford extravagant pay raises for government employees. Once again, the new legislation does nothing to offset the licensing costs that car rental agencies must bear. This is simply a tax increase.
Little attention has been paid to these tax increases, although it is clear that they will raise the cost of doing business in Nevada. In a period of economic recession, Nevada state government seems intent on driving business and tourism away from the state – a recipe for disaster that can't be denied.