Sandoval seeks new business license fee to raise $430 million

CARSON CITY — Gov. Brian Sandoval is expected to seek a new business license fee based on gross receipts to raise about $430 million over two years to pay for his proposals to improve public education in Nevada, the Review-Journal has learned.

The fee would be levied in 30 different business categories and would be in addition to the existing Modified Business Tax, or payroll tax. But one change said to be part of the tax plan would be to charge the mining industry the 2 percent payroll tax rate now charged to banks rather than the 1.17 percent rate assessed for most businesses.

In addition, Sandoval in his Thursday State of the State address is expected to ask businesses to file data with the Department of Taxation so the impact of a services tax could be analyzed. There would be no immediate plans to implement a tax on services, however.

A package of taxes set to expire on June 30 this year, generally referred to as the “sunset taxes,” would also continue for another two years and would bring in about $650 million. The package includes higher payroll taxes for the state’s largest employers, a 0.35 percentage point sales tax increase and a $100-a-year increase in the business license fee.

All told, about $1.2 billion in additional tax revenue would be generated in Sandoval’s tax plan, which will require a two-thirds vote in both houses of the Legislature. Both houses are controlled by Republicans.

He will also need support from the business community, including retailers, mining and gaming, among others.

The additional funding would allow the governor to deal with other budget demands, including mental health and Medicaid, in addition to his focus on public and higher education.

With $1.2 billion in additional revenue, total general fund spending over two years would exceed $7 billion and would allow him to seek funding for projects such as the new medical school proposed at UNLV. The initial funding request is about $30 million for the project.

Sandoval will announce details of his 2015-17 budget, and how he wants to pay for it, in a statewide televised address at 6 p.m. Thursday.

While the revenue side of Sandoval’s new budget has been shrouded in mystery, the governor has made no secret that his priority for the new budget, and for the remainder of his new four-year term as governor, will be improving public education.

Sandoval has kept the details of how he will accomplish his goal secret as well, saying Tuesday only that he will present a “comprehensive” approach to improving education in his address.

“What I want to do is to identify a plan to improve the delivery of education in Nevada for the benefit of our K-12 students as well as higher education,” he said. “It’s going to be a comprehensive approach to education.”

But school choice, most likely through an opportunity scholarship program giving businesses a tax credit for contributing to a scholarship fund, is expected to be part of his overall plan. The money would be distributed on a means-tested basis, allowing students at low-performing schools to attend the school of their choice.

He is also expected to push for more charter schools as part of his reform plan.

But he also wants funding for efforts to ensure that students can read by third grade, with holding them back as an alternative, and for expansion of the “Teach for America” program to bring new teachers into the classroom.

Part of the reform plan is expected to include a new funding formula approved by an interim legislative committee over the summer. The recommendations are that the formula include at least 50 percent more in per pupil spending on students in poverty or with limited English proficiency.

The Clark County School District is expected to be the biggest beneficiary from the proposed change to the state public education funding formula because of its higher populations of the weighted groups.

Some lawmakers and policy groups argue that the state can fund critical needs while still living within its means.

The Nevada Policy Research Institute, a conservative think thank, says that if Sandoval and lawmakers pursue tax reform it should be on a revenue-neutral basis. Current tax revenues in Nevada are already more than adequate to provide high-quality government services, the group says.

But many others believe that short of some revenue producing changes to Nevada’s tax structure, it will be tough for Sandoval to follow through on his inaugural address theme of dedicating his next four years to helping Nevada’s schoolchildren succeed.

This includes Senate Majority Leader Michael Roberson, R-Las Vegas, who on Monday said he hopes to approve a plan by March that would raise new revenue for education.

“We are not funding education adequately in this state,” Roberson said.

“We cannot continue to be near the bottom of most rankings,” he added, referring to low graduation rates and other measures of Nevada students’ skills compared to other states. “We know we need education funding and education reform. … I know the governor will lead on this.”

Getting a tax plan through the Legislature is always a challenge, but it is even more so this year because of a divided Republican-controlled Assembly, which was handed the keys to power in a surprise sweep on Nov. 4. The 25-member GOP caucus has a “no tax” contingent and a more moderate group that is willing to consider new revenue as a way to balance the state budget.

The divisions have led to threats of recalls, ousters of conservatives from leadership roles in the Assembly and much bitterness.

But there is also a coalition of Democrats and some Republicans who want to increase funding for public education.

The legislative session begins Feb. 2 and is scheduled to conclude by June 1.

Contact Sean Whaley at swhaley@reviewjournal.com or 775-687-3900. Find him on Twitter: @seanw801.