Ask not for whom the tax rolls
They seem to be terrified the voters are going to make the corporations pay.
Everywhere you turn there’s a news article, an internet ad, or an illegal screed against the proposal in a taxpayer-funded state agency newsletter. Politicians are using hyperbolic phrases to describe the catastrophe they predict will befall Nevada should voters decide to impose a broad-based tax on 13 percent of corporations doing business in our state.
Half-term state Sen. Mark Hutchison, who is running for lieutenant governor, told an economic development group in Laughlin: “[The Margins Tax] is the biggest threat to our economic recovery you can possibly imagine. It’s the biggest threat to business in Nevada in my lifetime.” Gov. Brian Sandoval called it “the fatal blow” to many Nevada businesses.
All this doom and gloom despite the fact that 46 other states have a corporate tax, including every state that shares a border with Nevada. Most also have a personal income tax, yet businesses are choosing them over Nevada, which has an underfunded school system, a frayed safety net—and no personal income tax.
The Education Initiative (TEI), if passed by the voters this November, will implement a “margins tax” on the largest businesses in our state, only affecting those who meet the threshold of $1 million in revenue each year. Eighty-seven percent of Nevada’s businesses don’t bring in that much revenue and won’t pay the tax.
Those businesses that do qualify have three deduction options to determine the “margin” on which the 2 percent tax will be applied. They can deduct the cost of goods sold, the cost of salaries and benefits, or 30 percent of their gross, whichever formula reduces their tax obligation the most. In Texas, where a similar margins tax was implemented in 2006, and where the economy is booming, most businesses deduct the cost of goods sold. The average deduction is 83 percent of their revenue.
To see how this works, let’s suppose you have just over $1 million in revenue and are able to deduct 80 percent of that revenue as the cost of goods sold. You then have a “margin” of $200,000 with a 2 percent levee, leaving you a tax bill of $4,000. Is that really going to cause you to flee to Oregon where you’ll pay a corporate tax of 7.6 percent?
It’s also useful to look at the 2014 Tax Foundation’s annual report on state and local sales tax rates. Nevada now has the eighth highest statewide sales tax rate in the country, at 6.85 percent. Year after year, instead of imposing a broad-based business tax, legislators have chosen to raise the sales tax instead.
So while corporations basically have a free ride (some have to pay a Modified Business Tax but most businesses aren’t paying that, either), Nevadans fund a lot of state services through an extremely high sales tax. This form of taxation is one of the most regressive, since it takes a larger percentage of income from people at the lower end of the income ladder and a smaller percentage of income from those at the top.
Meanwhile, regional and national pricing structures don’t allow for lower prices in Nevada due to the lack of a business tax. When you buy something at Target in Reno, you pay the same basic price as someone in Oregon, but it costs you more because you pay a high sales tax while the Oregon consumer pays none. There’s no Nevada discount because Oregon makes Target pay 7.6 percent in corporate taxes.
Sound fair to you?
Sandoval recently opined, “Spending is so much more enjoyable when you ignore where the money comes from. But we must try to resist the easy temptation to forget the burdens of taxation, even when that burden may fall on someone else.”
Indeed, Governor. Let’s remember upon whom the burden of taxation falls heaviest in Nevada.