EDITORIAL: Assembly must improve tax increase bills

No, the tax increase sought by Gov. Brian Sandoval to fund new education spending isn’t law yet. But the celebration surrounding Tuesday’s Senate passage of a tiered, revenue-based state business license fee sure made it look like a done deal.

It’s not, although the Senate’s work was indeed commendable. Majority Leader Michael Roberson, R-Henderson, delivered on promises to have an open, early debate on taxes and to vote on the revenues needed to fund Gov. Sandoval’s $7.3 billion budget with time to spare in the 2015 session. That even one chamber of the Nevada Legislature would pass a tax increase six weeks before adjournment showed the kind of prioritization not usually seen in Carson City. In sessions past, tax plans were negotiated in secret, then revealed at the wire. Not surprisingly, all were terrible.

But the vetting of the governor’s tax plan isn’t done — not by a long shot. The Assembly, also under Republican control, is considerably less supportive of tax increases, and might not have the votes to pass Senate Bill 252. The bill would change the state’s flat $200 business license fee to a graduated levy based on gross receipts. Businesses would pay between $400 and $4 million per year, putting $250 million per year into the state treasury.

Many Assembly Republicans dislike the governor’s proposal because it resembles the margins tax plan overwhelmingly rejected by voters in November. A competing Assembly tax plan, Assembly Bill 464, would fund Gov. Sandoval’s budget through an increase in the business payroll tax and a slightly higher, flat-rate business license fee.

There is virtue to the Assembly alternative, because it taxes at flat rates. The Senate-passed Sandoval plan has more than two dozen rates for different industries, a structure that opens the tax to a constitutional challenge and ensures that businesses will lobby future Legislatures for rate changes. Democratic senators expressed similar concerns Tuesday, and, citing a Guinn Center for Policy Priorities recommendation, suggested a less-complex, flat-rate gross-receipts tax as a replacement for the tiered business license fee. Ultimately, every Democratic senator voted for SB252, which allowed it to pass 17-4.

Tax increases require two-thirds support in each house to make it to the governor’s desk. If 15 of the Assembly’s 42 members oppose SB252, AB464 or any other tax plan, it can’t pass.

There is urgency to fund Gov. Sandoval’s budget. But the Legislature has an obligation to create the best tax policy possible, one that encourages small business growth and keeps Nevada, which still has the highest jobless rate of any state, competitive among Western economies. A tax based on gross receipts won’t do that. SB252 and AB464 can be improved. Here’s how:

— First, provide small businesses with an exemption, whether through a higher payroll tax rate, a new business license fee or some combination of the two.

— Second, incorporate Assembly Minority Leader Marilyn Kirkpatrick’s proposed reforms to the live entertainment tax, which would expand to reach nightclubs and other big-ticket events. As tourist spending shifts away from gambling, so should the state’s tax structure.

— Third, sunset whatever new business taxes are created on Dec. 31, 2017, with the intention of having the 2017 Legislature extend the sales tax to services starting Jan. 1, 2018, and reducing the rate. That would give the state time to collect financial data on service industries.

— Fourth, pass the pension, collective bargaining and education reforms that will stretch new tax dollars further. Without money-saving, accountability-gaining government reforms, new taxes should be a nonstarter.

Most lawmakers clearly favor creating a permanent tax structure. But if they pass flawed tax policy, they’ll be forced to address unintended consequences in future sessions anyway. The better job they do today, the easier that discussion will be in 2017.