Nevada tax climate remains favorable to business

CARSON CITY -- Nevada remains the state with the fourth-best tax climate for business, according to the 2011 rankings released Tuesday by the Washington, D.C.-based Tax Foundation.

The nonprofit education organization put Nevada behind South Dakota, Alaska and Wyoming in how its tax system affects businesses.

"The top eight tax systems all raise sufficient revenue without imposing one or two of the three major state taxes -- sales taxes, personal income taxes and corporate income taxes," said Scott Hodge, president of the Tax Foundation.

Nevada has no corporate or personal income taxes, but its state sales tax rate, 6.85 percent, ranked 43rd worst. Counting local taxes, individual counties have sales tax rates as high as 8.1 percent.

Despite its high ranking, Nevada leads the nation with a 14.4 percent unemployment rate. Nearly 193,000 fewer Nevadans hold jobs today than did in May 2007, according to the Employment Security Division.

The state's inability to create jobs has led some politicians in the fall campaign to emphasize that the state needs to spend money to improve its educational system in order to provide the skilled work force companies need.

Others have maintained it must keep its low tax base to attract business.

Looming ahead is a possible move in the Nevada Legislature to increase taxes to cover at least part of what some estimate is a $3 billion revenue shortfall.

The unemployment tax rate paid by business already is slated to increase 50 percent on Jan. 1. In a hearing Monday, two restaurant executives said the higher unemployment tax might force them to expand elsewhere or to lay off workers.

State taxes were increased by nearly $1 billion in 2009, but most of them will expire June 30 unless reauthorized by the Legislature.

Geoff Lawrence, a fiscal analyst with the Nevada Policy Research Institute, said Tax Foundation analyses omit the effect of local taxes on business and individuals.

"State taxes are relatively low, but local taxes are relatively high," added Lawrence, who noted Nevada ranked third in the business tax climate report in 2009, but rose to fourth after state taxes were increased.

To some businesses, an educated work force, more than low taxes, is the primary motivation when they decide to move or expand, he added.

"It depends on what you are making," Lawrence said. "A textile plant doesn't need an educated work force. Intel would need more educated workers."

Lawrence said his conservative think tank favors the use of vouchers and tuition credits to improve education, not higher spending.

States with the worst tax climate for business were New York, California, New Jersey, Connecticut and Ohio.

The Tax Foundation over the years has consistently ranked Nevada as having one of the best business tax climates in the nation.

The organization generally has taken a position of opposing tax increases. It is best known for its predictions of Tax Freedom Day, or the day when the average person has earned enough money to pay all his or her taxes. April 9 was Tax Freedom Day this year.

In its report, the Tax Foundation said that even states with excellent tax climates have begun to offer incentives to attract businesses.

For example, North Carolina agreed to $240 million worth of tax incentives to lure Dell Computers to its state. Dell announced in 2009 that it would be closing the plant after only four years of operations.

The Tax Foundation says the goal of its rankings is to focus legislators' attention on good tax fundamentals -- enacting low tax rates and granting as few deductions as possible.

"The temptation is for state lawmakers to lure high-profile companies with packages of tax bonuses," said Kail Padgitt, author of the report. "But that strategy often backfires if the company does not prosper."

Contact Capital Bureau Chief Ed Vogel at evogel@reviewjournal.com or 775-687-3901.