The legislature adjourned June 4 and pretty much closed up shop. There were no looming issues delegated to the interim finance committee so, to coin a metaphor, it’s like the “all clear” signal following a London blitz … no one is threatening to pass any crazy laws for a while.
Wait, I spoke too soon. The infamous AB 46 “tar baby,” a measure that would increase our property and sales taxes to raise money for the Washoe School District’s building maintenance program, was delegated by the legislature to the Washoe County Commission. It will take them a little time to sort out what to do but now the battle will be local.
A more immediate threat is the Education Initiative or “teacher tax,” a proposal by the AFL and teacher union to enact a 2 percent modified gross receipts tax on Nevada business revenues (not net earnings) of $1 million or more.
Enactment will require voter approval at the November, 2014 general election, but now that the spotlight is off of the legislature this measure will be the center of political attention for the next year or so.
How it works: Gross business revenues earned in Nevada, if $1 million or more, are first converted to a taxable margin by subtracting the greater of cost of goods, personnel costs or 70 percent of gross receipts. The remainder is subject to a 2 percent tax.
A credit is allowed for any payroll business taxes paid. The initiative provides that taxes raised under this proposal will be deposited to the State Distributive School Account to be spent on education. Unfortunately the plan is flawed.
Will all the money raised help fund education? Not likely. Just ask our friends in California when the state lottery was approved and half the funds raised were earmarked for education. The solons in Sacramento simply cut their normal education allocation by whatever the lottery raised and spent it on something else.
How about the tax itself? They tried this in Texas and it’s a mess. First of all the formula is unfair. It taxes some industries at a much higher rate than others because of the cost of goods/personnel costs/70 percent exemption choices
In Texas, the only state where this tax is imposed, agriculture pays twice as much as construction and wholesale/retail trade because of the arbitrary choices of exemptions. After agriculture the next most severe impacts are on mining, utilities and transportation and information technology.
Other problems: The tax is complicated and would require creation of a Nevada IRS; it compounds in the manufacturing process increasing costs at each stage of manufacture and marketing; it is punitive to businesses approaching the $1 million threshold by quashing expansion; the tax could be imposed on firms that are losing money; although gaming winnings are exempted casino income from room rentals, restaurants, entertainment and all other sources would be subjected to the margin tax; out of state firms would have their Nevada earnings taxed.
This measure would be certain to cost Nevadans jobs at a time when our unemployment rate is among the highest in the US. It would discourage new businesses from locating in Nevada. Finally mobile firms such as Microsoft and Apple would be packing and moving to Wyoming.
So if, on balance, the proposal will not increase education funding in Nevada and will have all of the adverse business results listed above why would the teacher union be sponsoring this measure?
Maybe they didn’t do their homework.
Jim Clark is president of Republican Advocates and has served on the Washoe County & Nevada State GOP Central Committees; he can be reached at firstname.lastname@example.org.