Nevada drops a notch on business tax climate

CARSON CITY — Even with the tax increases implemented in July, Nevada has the fourth best “business tax climate,” according to a report released today by the Tax Foundation.

The report by the Washington, D.C.-based think tank did not rank states in order of their tax burden on businesses, but in terms of their tax law simplicity for businesses and whether they would frighten away businesses seeking to relocate.

“We tried to measure taxes in how they affect businesses,” said Scott Hodge, president of the Tax Foundation. “States with the best business climates are likely to be those with the lowest tax burdens.”

Hodge said that next month the Tax Foundation will release a report on the 50 states’ tax burden on businesses.

The Tax Foundation calls itself a nonprofit, educational research organization that judges taxes on their simplicity, transparency, whether they are revenue-neutral and are at low rates and broad-based.

Nevada’s No. 4 ranking is one spot lower than its ranking last year.

South Dakota, Wyoming and Alaska all ranked better in terms of their business tax climate. Last year, Nevada ranked ahead of Alaska.

The three states with the worst tax climates are New Jersey, New York and California.

“We should be No. 1 on that list,” said Daniel Burns, the spokesman for Gov. Jim Gibbons. “The governor did not want to increase taxes at all. He did everything he could to avoid tax increases.”

Gibbons, a Republican, vetoed bills that levied $780 million of the $1 billion in tax increases, but his vetoes were overridden by the Democrat-dominated Senate and Assembly.

Gibbons did allow the 3 percentage point increase in room taxes to go into effect without his signature.

Somer Hollingsworth, president of the Nevada Development Authority, said there is nothing wrong with a No. 4 rating.

“I think it is excellent, given the recession,” he said. “All the infrastructure that made Las Vegas great and No. 1 for 20 years is still here. When the recession is over, we will have it all. We are and always were a pro-business state.”

Hollingsworth said his organization has used Tax Foundation reports in trying to attract businesses to Southern Nevada.

But Carole Vilardo, president of the Nevada Taxpayers Association, said she believes Nevada ranks further down the list for best business tax climates. It is her understanding that the Tax Foundation does not consider the effects of the state’s modified business, or payroll tax, in its calculations.

In a response to a question from a reporter during a telephone conference, Hodge, however, said that tax was part of the calculations.

Vilardo said Nevada’s ranking could change, for better or worse, depending on what legislators do in other states in coming months.

“Other states are making changes and most of them are increasing taxes,” Vilardo said.

Kail Padgitt, an economist with the Tax Foundation, said Nevada fell one spot because the Legislature imposed an 0.35 percentage point increase in the sales tax rate.

The state sales tax rate now is 6.85 percent, although Clark County residents pay 8.1 percent when local sales taxes are added.

Legislators also nearly doubled the business payroll tax rate. Businesses now pay a 1.17 percent tax on the wages they pay each employee. That compares with an 0.63 percent rate before July 1.

Even with this increase, the Tax Foundation ranked Nevada third behind South Dakota and Wyoming in terms of corporate taxation. Hodge said Nevada’s ranking takes into consideration the taxes increased on July 1.

Nevada’s sales tax ranking on businesses is now 44th out of 50 states, but its property tax ranking on businesses is 14th.

Despite the tax increases, Padgitt said the ranking of states like Nevada did not change much because states across the nation generally increased taxes far more than they reduced spending.

He said states like Nevada that do not have corporate or individual income taxes generally ranked among the best for their business climates. States without sales taxes, such as Oregon and New Hampshire, also have good business tax climates, Padgitt said.

Contact reporter Ed Vogel at evogel@reviewjournal.com or 775-687-3901.