Out of time, out of tax options

Carson City faces quite a conundrum: state budgets are closed, and so is the window for considering anything other than gross receipts and business taxes to fund them.

It didn’t have to be this way. Gov. Brian Sandoval could have heeded the results of November’s election, when voters overwhelmingly rejected a gross receipts tax and swept into office Republicans who were united in opposing it. He could have sought another way to pay for his proposed education spending increases, one that might have been easier for fiscal conservatives to swallow. Instead, he introduced a less-punitive gross receipts tax, built into a new state business license fee, a plan that that had Senate support but never had a chance of passing the Assembly.

Presented with another opportunity to scrap the idea of taxing gross receipts, which hits even money-losing companies, this month Sandoval pitched another version of the levy. Worse, his proposed “commerce tax” was developed with the help of Assembly Republican leaders who clearly didn’t have the backing of much of their caucus.

However, the commerce tax, which exempts small companies and allows high-payroll businesses to claim a credit against the state payroll tax, is still a version of the gross receipts tax Nevada’s gaming industry has always wanted. And for many Assembly Republicans, that’s a deal-breaker.

Part of the majority GOP caucus is opposed to any and all tax increases. Others are willing to support some tax increases — just not a gross receipts tax. Their positions aren’t rooted exclusively in last year’s opposition to Question 3, the 2 percent business margins tax that nearly 80 percent of Nevada voters opposed. Their positions are rooted in the fact that a gross receipts tax is bad tax policy.

Contrary to the assurances of the governor and his advisers, gross receipts taxes are complicated. They hit all levels of commerce, which leads to pyramiding — piling taxes on multiple transactions as part of a single sale.

The commerce tax is even more complicated, ironically, to make it more fair. Like Sandoval’s now-dead business license fee proposal, the commerce tax hits different industries at different rates that are far, far lower than the uniform 2 percent levy that would have been imposed by Question 3.

The different rates, which address different industry operating costs and margins, have raised questions about whether the commerce tax, as written, is constitutional. Although other state taxes are levied at different rates, there’s plenty of chatter about a legal challenge if the commerce tax becomes law.

There appear to be enough Republican votes in the Assembly to block the governor’s tax plan, which would generate about $262 million per year through the commerce tax and increases in the state’s business license fee and payroll tax. The state constitution requires two-thirds support in each chamber of the Legislature to pass a tax increase. If just 15 of the Assembly’s 42 members vote no on a tax increase, it fails.

The problem facing the GOP lawmakers who oppose the governor’s new tax plan but largely support his $7.4 billion budget (or have already voted for it): There is no alternative to the governor’s new tax plan, a compromise developed with Republican Assemblymen Paul Anderson and Derek Armstrong and state Sen. Patricia Spearman, D-North Las Vegas. And Assembly Republican leadership did nothing beyond that compromise to pursue tax policy its caucus might get behind.

Efforts to reform the state’s live entertainment tax to capture more special event and nightclub revenue have taken a back seat. And the decade-old idea of expanding the sales tax to services at a reduced rate went nowhere — although a highly specific service tax initiated in the Senate, on Uber and taxicab rides, might become law.

So now, with a little more than a week left in the session, the squeeze is on — with Sandoval and Senate Majority Leader Michael Roberson, R-Henderson, tightening the clamp. The Assembly’s entire government reform agenda is at risk if the lower chamber’s Republican majority doesn’t deliver the votes necessary to fully fund Sandoval’s budget. And Assembly Republicans still haven’t itemized the cuts they’d make to Sandoval’s budget in lieu of business tax increases.

The end game of the 2015 Legislature will be a huge hostage swap, likely in a special session. Might it all have been different if a gross receipts tax were never on the table? Now it’s too late to find out.

Glenn Cook (gcook@reviewjournal.com) is the Las Vegas Review-Journal’s senior editorial writer. Follow him on Twitter: @Glenn_CookNV.