Phantom

Republicans and Democrats both say they are working to make Nevada’s notoriously regressive tax system more fair. But Republicans say that means helping businesses and Democrats say that means helping individuals—and businesses.

“Smaller businesses have not gotten as good a deal under our current tax system,” said Senate Republican leader Michael Roberson. “The governor is trying to get people who have skin in the game to come together to make business taxes fairer.”

Assemblymember Maggie Carlton, a Democratic leader, said, “That’s what we’re going to deal with, is tax fairness. I mean, equity. That’s what we’re talking about. We’ve been talking about policy issues. We’re not working on numbers. We’re not trying to get to a certain number. We’re trying to make sure that the system we have is fair and equitable across the board for all businesses and all citizens of the state.”

Does she think fairness will get traction in the legislative process, for a change? Her new position in the minority made her laugh at the query.

“You’d have to ask the guys in control right now,” she said. “I know my people feel that way. We care about fairness with our constituents.”

Whether fairness—however it is defined—will play any kind of role is far from certain. In most past tax changes in the Nevada Legislature, lawmakers started out talking about fairness and, pressed for time and pressured by lobbyists, settled for trying for stability and predictability in taxation.

Members of the public tend to have few lobbyists on hand to speak for them. That is not a problem that afflicts the state’s businesses. From A&A Midwest, an auto wrecking firm, to Zuffa LLC, an “ultimate fighting” corporation, with various chambers of commerce and the Nevada Resort Association casino lobby in between, businesses are well represented at the Nevada Legislature—which explains why business taxes are higher on the radar.

Gov. Brian Sandoval’s plan to raise about $440 million in a biennium (two years) with a business license tax will likely get considerable scrutiny, as tax proposals in Nevada always do, for how well the state can project the revenue it brings in and how much it will fluctuate in hard times. But legislators traditionally have far less interest in the fairness of tax plans, and that has been the case here. Sandoval has called it fair. “I do want to emphasize that it is not just about the revenue,” he said. “As we go into this session, reform and accountability are going to be just as important to me as well.” But independent analysis from outside government of his proposal’s equity has not been forthcoming. That’s because, with a fourth of the legislative session past, Sandoval has yet to produce his plan in written form.

Carole Vilardo, lobbyist for the Nevada Taxpayers Association—a business group—and one of the state’s leading tax experts, said on the day Sandoval proposed his plan that she would wait to see it in writing. She is well known for saying that the devil is in the details. But so far, the plan has not been presented in bill form, so Vilardo is still reserving judgment.

“No, I haven’t seen any language,” she said. “I can’t very well give you a reading when we don’t know what’s in it.”

She’s not the only one waiting on the bill. Fiscal analysts, economists, tax experts want the language so they can find out if it lives up to its billing. So far, the governor has been able to spend a month selling the phantom plan and no one has been able to respond in an informed way.

The fact that the governor calls the tax a “fee” has raised suspicions among lawmakers, making them believe that they should withhold commitments for a while. Fees are generally regarded as costs applying to individuals or an identifiable class of individuals—a barber license, say, or a car registration. Sandoval is talking about how broad his tax is while calling it a fee, which by its nature is supposed to be narrowly based. His willingness to play with the language isn’t winning him any votes, particularly among the already wary tax intransigents of his own party.

One legislator who didn’t want to be named said, “All we know is that it’s ’broad, fair, uncomplicated’”—making quote marks with his fingers, referencing the governor’s mantra over the last month. “That’s not a tax plan.”

Economist Thomas Cargill, who has been scrutinizing Nevada taxation for decades (“It happens,” RN&R, May 23, 2013), wants the language so he can examine a number of factors, including fairness. So far, even the governor’s descriptions have not been encouraging, he said. “In general, it is a poorly designed tax that has many of the same problems as the gross receipts tax because it ignores the different profit margins of various industries.”

Lawmakers have held hearings on the Tax Foundation’s recommendation of extending Nevada’s sales tax to services as well as goods, which would make the sales tax more fair and less regressive.

Economic populist Robert Reich last year wrote that states shielding services from sales taxes are engaged in a giveaway to the financial services industry: “Revenues from state and local taxes are 40 percent of all government revenues, and most come from sales taxes. Yet sales taxes are regressive, taking a bigger chunk out of the incomes of the poor than the rich. In addition, even though the rich spend far more on professional services than do the poor (services of lawyers, accountants, investment advisers, wealth managers, and so on), professional services aren’t subject to any sales tax at all. My view is if they must have a sales tax, state and local governments should also apply it to professional services.”

Though it would involve extending an already existing Nevada tax to services, after Nevada legislative hearings on the proposal, some figures said the concept was too complicated and difficult to apply for the next state budget biennium, both in lawmaking and in implementation by the executive branch.

Naturally, those who might expect to be hit hardest by a Nevada service tax—lawyers, stock brokerages, insurers—are not crazy about the proposal and legislators seem inclined to resort to that tested method for avoiding a decision, a study. No legislator ever went wrong keeping wealthy businesspeople happy. The governor is also supporting a study.

Vilardo says again that the details are important to know, but she said the claims of difficulty in establishing the service tax are incorrect.

“It would not be difficult to put it into place, if in fact you wanted to replace the live entertainment tax and make it the service tax” she said, her voice providing the emphasis. “Live entertainment is a service tax.”

“And there are ways of mitigating the pyramiding,” she added, referring to the way taxes are applied each time a business sells its goods or services as they move through a production chain.

The gambling lobby has been relatively quiet on the tax debate. Casino lobbyists in the past have said they don’t want any more taxes that target their industry but that they can live with taxes that have impact on all or most businesses, casinos included. That willingness contrasts with other business lobbyists who have said they will accept some broad-based business tax but have not, in more than a decade, found one among several proposals offered that they will tolerate.