EDITORIAL: Sandoval might need tax ‘Plan C’

With less than a week remaining in the 2015 Nevada Legislature and a budget standoff looking less and less resolvable, Gov. Brian Sandoval and lawmakers on both sides of the state’s tax debate must decide whether their lines in the sand are worth defending in special session.

Gov. Sandoval has proposed a $7.3 billion, two-year budget that includes hundreds of millions of dollars in new education spending and requires more than $1 billion in tax increases to fund. Although most of that figure can be covered by making permanent a few existing tax rates that otherwise will expire June 30, Gov. Sandoval has proposed a new gross reciepts tax to balance his budget, among other increased business taxes.

There is a graveyard outside the Legislative Building for all the proposed gross receipts taxes that have died from lack of support over the past decade plus. The freshest grave entombs the governor’s first try this year, a tiered business license fee based on a company’s revenues. And his latest plan, called a commerce tax, has a good chance of pushing daisies, too.

The Republican-controlled Assembly does not appear likely to pass any form of a gross receipts tax, no matter the rate and structure. Gov. Sandoval’s receipts-based business license fee would have generated almost $440 million for the 2015-17 budget cycle; it was dead on arrival. His commerce tax is projected to produce just $61 million, an amount that represents less than 1 percent of general fund expenditures and is part of a compromise plan that includes a higher, flat business license fee and an increased payroll tax rate. Small businesses would be exempt from the commerce tax, and companies would be able to apply 50 percent of the tax as a credit against their payroll tax burden. The plan resulted from negotiations with Republican Assemblymen Paul Anderson and Derek Armstrong, but judging from questioning during a Monday hearing on the bill, the GOP caucus might block it anyway. That could keep lawmakers in Carson City for an overtime session — or two or three.

The problem for Gov. Sandoval: Voters rejected a more punitive version of a gross receipts tax last year — a 2 percent margins tax — at the urging of the governor and Republicans up and down the ballot. The arguments they made against the margins tax apply to the commerce tax, as well. It’s based on revenue, not profitability. It taxes all layers of commerce.

The problem for the Republican lawmakers who oppose the tax: The governor’s budget has been passed. If Assembly Republicans won’t support the commerce tax to fully fund the budget, then leadership has an obligation to line up majority support for offsetting cuts or come up with a different tax increase that has the two-thirds support required for passage.

The question for Gov. Sandoval: Does he make the Legislature return to work June 2, after the adjournment of the constitutionally capped 120-day regular session, over a tax that might never pass when the votes are probably there for a different $61 million plan?

The question for Assembly Republicans: Are they interested in working with Gov. Sandoval and Senate Republicans toward a compromise, or would they rather play chicken?

Whatever the sides do and however long it takes them to do it, the solution should fully fund Gov. Sandoval’s budget. A “Plan C” is still doable. And as we recommended months ago, the best compromise involves expanding the live entertainment tax and making any gross receipts tax temporary. Extending the sales tax to services and reducing the rate would be real tax reform, broadening and stabilizing the base, making it less regressive while keeping the structure simple and largely voluntary.

Lawmakers should resolve to go home next week.