Business margins tax on Nevada ballot could pit union against union

CARSON CITY — It is hard not to remember how angry state AFL-CIO leader Danny Thompson became at the end of the 2011 legislative session when lawmakers refused to approve bills to levy new and higher taxes.

His face growing red, Thompson vowed that if the Legislature was too timid to increase taxes needed for education and vital services, then he and the citizens of Nevada would do it for them. Then he joined with the Nevada State Education Association in collecting 150,000 signatures from people who support the Education Initiative, a 2 percent business “margins tax” designed to raise $800 million a year for public schools.

This measure was ignored by the Legislature in 2013, setting the stage for voters to decide whether to implement the tax increase in the Nov. 4 election.

That was then and this is now.

Thompson said Thursday that he supported a bill discussed in the 2011 Legislature that would have levied an 0.8 percent margins tax, not the 2 percent tax sought by the NSEA in its petition. He said the AFL-CIO, which consists of 120 unions and 200,000 members in Nevada, will decide in an early May convention in Reno whether to back or oppose the margins tax. He will abide by the will of the members. The NSEA has 24,000 members, who are teachers and school employees.

But Thompson has some serious concerns about the teachers tax.

“I will say we could support the tax at 0.8 percent,” Thompson said. “At 2 percent there are those who will not support it. There is concern by contractors and others.”

An AFL-CIO vote in opposition to the tax could doom its chances of winning voter approval. Just remember 2006. Businesses universally condemned the AFL-CIO drive to raise the minimum wage in Nevada to $1 an hour above the federal minimum. But 69 percent of the voters backed the increase. The union has clout.

Nick Di Archangel, a spokesman for the NSEA and President Ruben Murillo, said they remain confident that voters will back the tax increase in November. He declined to discuss the apparent shift in the AFL-CIO’s thoughts on the margins tax.

STUDY: TAX WOULD HURT ECONOMY

The biggest reason for AFL-CIO’s concerns might be a confidential draft study by Applied Analysis executive Jeremy Aguero. He has prepared studies for both the Nevada State Education Association and the Coalition to Defeat the Margins Tax Initiative. The coalition is made of large business associations, such as the Nevada Mining Association, Retail Association of Nevada and Las Vegas Chamber of Commerce.

While it is up to his clients to release the draft study details, Aguero said Thursday, the tax “has the potential for a negative economic impact.”

That might be an understatement. State Sen. Mark Hutchison, a Republican candidate for lieutenant governor, said Tuesday that the margins tax would make “Nevada the state with the fourth largest business tax” in the country.

Aguero said a client must have shared that information with Hutchison.

“It will take us from one of the lowest to one of the highest business taxes in the country,” Aguero said.

While lists tend to show Nevada as one of nine states without a broad-based business tax, that is deceiving. Nevada businesses pay a payroll or so-called modified business tax on 1.17 percent of the wages of each employee. That brings in about $380 million a year.

Still the nonprofit Tax Foundation, which studies tax issues, rates Nevada as the No. 3 state for its business tax climate.

A poll of 500 voters in the fall by the Retail Association found 46 percent believe the margins tax would provide needed revenue for education, while 47 percent believe it will hurt the economy and increase unemployment.

But support for the tax declined when respondents were asked whether they would vote for the tax if it hurts small businesses. The NSEA’s own poll in the fall found 61 percent support the tax and 34 percent oppose it.

WHAT IS THE MARGINS TAX?

Talk about out an obtuse name for a tax. It isn’t like most states where businesses are taxed on their profits. It’s a tax only used in Texas.

It is called a margins tax because it is calculated on the margin or difference between a company’s total revenue and what it spends for salaries or goods.

To compute the tax, take your total revenue and from that figure subtract 30 percent of your revenues or the total salaries of all employees earning less than $300,000 a year or the cost of goods sold. Companies with gross revenue or less would be exempt from the tax.

Critics of the tax persistently state that there is no guarantee the margins tax money would go to education.

That is true, but the idea the money won’t go for education assumes the Legislature would defy the wishes of the voters who passed the tax increase and instead spend it other parts of the state budget.

The primary reason why NSEA did not include language in its petition earmarking the tax for public education is it would be hauled into court. In recent years, initiative petitions invariably are challenged for breaking the “single subject rule.”

So its petition cannot call for the imposition of the tax and then also prescribe how the money will be spent.

Aguero said the two sides need to do “a lot of education of voters” so they understand all the ramifications before they push a button in the voting booths. He added his own calculations are the tax would bring in slightly less than $800 million a year.

Di Archangel said the need for the tax money is obvious. Just look at the recent Education Week magazine’s Quality Counts report.

Once again Nevada ranked last in the nation for public education as it has every year since 2010. The report said Nevada students have a lower chance of success than students in any state in the nation. It gave Nevada an overall D grade — the worst — for financing, student performance and other factors.

During the 2013 legislative session, the state Department of Education released statistics that the teachers in high schools in Clark County average 34 students in their classes. That is seven students per class higher than in Washoe County.

Hutchison’s position is the state is spending $500 million more on education in this two-year budget cycle than it did before.

He said the way to secure more money for education is through the growth of the economy. With economic growth, he reasons, tax revenues naturally will increase.

Thompson is confident that virtually everyone is aware that education is underfunded and moves to address the problem, even by increasing the 1.17 percent modified business tax, will come in the next Legislature.

“It is laughable to say we cannot attract well-paying jobs and yet we underfund the universities,” he said.

While the need might be obvious to some, almost two-thirds of voters in Clark County rejected a $720 million school bond to repair schools in November 2012.

CAMPAIGN WAR COMING

That a campaign war is coming is apparent from the donations already received by the two sides. The NSEA reported it raised a fraction more than $1 million in its Jan. 15 report to the secretary of state, almost all from itself. The Coalition to Defeat the Margin Tax Initiative reported $704,000, about half of that from the Retail Association of Nevada.

NSEA spokesman Dan Hart said a few advertisements will begin running after the June 10 primary election and then a mammoth sales effort will begin in September.

Bryan Wachter, government affairs director for the Retail Association, said his organization remains confident the tax question will lose, regardless of what position the AFL-CIO takes.

“For us it is about economic consequences. This is going to cost jobs. I have seen research that our business tax rates would be higher than California. Imagine businesses moving from Nevada to California because it has lower taxes? That is scary.”

Contact Capital Bureau Chief Ed Vogel at evogel@reviewjournal.com or 775-687-3901. Follow him on Twitter @edisonvogel.

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