Economists: Despite decades of talk, Nevada tax structure unchanged

CARSON CITY -- Nevada's tax structure, heavily reliant on tourism and casino taxes paid by visitors, is a decades-old story that hasn't changed and will continue to pose budgeting problems, economists told two separate panels of state lawmakers Thursday.

In briefings to the Senate Revenue and Assembly Taxation committees, Jeremy Aguero of Applied Analysis said tax studies dating back to 1960 urged the state to broaden its tax base, as did others over the past 40 years.

During that time, "any type of significant reforms have been few and very far between," Aguero said.

A 1966 study recommended instituting corporate and personal income taxes. Personal income levies are now prohibited by the state constitution, and establishing a corporate income tax has at times been talked about but never implemented.

"The bottom line, the tax structure in the state of Nevada does not emulate our economy," said Guy Hobbs of Hobbs, Ong and Associates.

"Our economy continues to evolve, the tax structure does not," he said, adding that Nevada's sales tax, which is only applied to retail purchases and not food, covers only a small percentage of economic activity.

Some lawmakers and economists have suggested extending the sales tax to services as well. That recommendation was part of a 1988 tax study, prepared by Price Waterhouse and the Urban Institute.

"We continue to increase the rate to chase a small and declining base," he said. "Further inattention to that base will lead to further erosion," Hobbs said.

With Nevada facing a budget shortfall projected to range from $1.6 billion to $3 billion, economic diversification is again a hot topic in the state capital.

Republican Gov. Brian Sandoval, who campaigned on a no-new-tax platform, has said he will not sign any bills that contain a fee or tax increase, arguing that raising taxes would be the worst thing that lawmakers could do when Nevada leads the nation in unemployment, foreclosures and bankruptcies.

But Matthew Murray, an economist at the University of Tennessee, said it is unlikely Nevada can tax or cut its way out of the economic abyss.

He urged lawmakers to "commit to a balanced approach," saying "revenue increases need to be considered along with tax cuts."

"You can't do it solely by cuts or solely by taxes," he said.

Murray and the other economists also said that while the Great Recession hit Nevada's economy hard, structural deficits ingrained in its tax policies -- such as requiring two-thirds majority votes in the Legislature to pass taxes and the constitutional prohibition of personal income taxes -- have exacerbated the problem and probably will continue to do so.

With the bulk of Nevada's general fund coming from revenue sources paid by tourists and gamblers, the state has "relied on the interests of others to determine your economic health," Murray said.

"Now is an opportunity to take control of your own destiny," he said.