2 GOP leaders to propose hybrid tax plan

More Nevada companies would be subject to a payroll tax, and an annual business license fee would increase for most industries in a “hybrid tax plan” two GOP leaders will introduce Monday in the Legislature, according to a Republican familiar with a draft.

The proposal was put together by Assembly Ways and Means Committee Chairman Paul Anderson, R-Las Vegas, and Assembly Tax Committee Chairman Derek Armstrong, R-Henderson, as an alternate proposal to fund education reform and boost spending on K-through-12 schools, universities and colleges.

It would raise about $100 million more than GOP Gov. Brian Sandoval’s $1.1 billion plan to raise and extend taxes, resulting in a proposed two-year budget of $7.4 billion compared to the governor’s $7.3 billion proposal.

The new tax plan blends Sandoval’s proposal to use the existing business license fee as a vehicle to raise revenue with expansion of the modified business tax, or payroll tax, that would continue under the governor’s plan. Several Democrats, however, want to do away with the payroll tax.

The goal of the GOP proposal, which has not been adopted by the Republican Assembly caucus, is not to compete with Sandoval’s plan but to offer an alternative for discussion as he urged lawmakers to do, said the Republican who described the draft on condition of anonymity.

“We felt obligated that we look at a couple of different plans,” the Republican said. “We’ve been working on this since Day One. We haven’t developed it in a vacuum. It’s been in discussion for several weeks. We think of it as a hybrid plan that’s an alternative we should look at.”

Monday is the start of the eighth week of the 120-day legislative session, which is nearly half over. It’s also the deadline for committees to introduce bills, other than emergency measures.

Anderson, who also is majority leader of the Assembly, and Armstrong presented their plan to Sandoval in person Friday morning. The two committee chairs also shared details with other GOP leaders.

Under the plan, the payroll tax would be set at one rate, somewhere between the current 1.17 percent for most businesses and 2 percent for the financial sector. The Republican said the exact rate still was being tweaked but would remain the same for all companies.

The hybrid plan also would reduce a tax exemption for companies making less than $50,000 payroll per quarter. Now, companies that have a payroll of less than $85,000 per quarter are exempt.

The modified business tax is imposed on payroll and paid quarterly. Under existing law, the first $85,000 in quarterly wages — or $340,000 annually — is exempt, meaning only a quarter of companies that could be subject to the tax actually pay anything.

Of Nevada’s more than 300,000 businesses, which includes those not subject to the tax, less than 4 percent pay.

Under Sandoval’s plan, the payroll tax would become permanent with the rate staying the same 1.17 percent for most companies and going up to 2 percent for the mining industry.

The business license fee is now a flat $200 a year for companies. Under the hybrid GOP plan, the annual rate would range between $300 and $500 a year, depending on the amount of a company’s revenue.

The higher business license fee would raise about $125 million a year, or about half the amount of the governor’s proposal.

Sandoval’s plan would have companies paying anywhere from $400 for an annual business license to $4 million, depending on annual gross receipts, although no Nevada companies would pay the top rates for now.

Another twist on the business license fee under the GOP hybrid plan would be to exempt big industries that pay other major taxes in Nevada. Mining, gaming and insurance companies that pay a premium tax and real estate companies would be exempt to avoid double taxation, according to the draft plan.

“We’ve got 13 iterations on this,” the Republican said about the various working drafts that have been tweaked while under development.

Final details still were being worked out with modifications possible before the proposed GOP hybrid tax plan is introduced later Monday.

For example, it’s likely that a consumer-friendly provision will be added to the proposed legislation to reduce vehicle registration fees with the Department of Motor Vehicles, the Republican said.

Other proposals out there could become part of the plan as it makes its way through the legislative process.

Former Assembly Speaker Marilyn Kirkpatrick, D-North Las Vegas, has been working to expand a so-called “luxury entertainment tax” to capture sales at big events such as NASCAR, Burning Man and the Electric Daisy Carnival outdoor music festival. She and others also have advocated updates to property tax collections.

Whether the hybrid proposal has a chance of passage is hard to say given some Democrats’ objections to continuing the payroll tax and given a conservative GOP contingent in the Assembly which has vowed not to raise taxes after winning election on no-tax-hike platforms.

Still, most lawmakers and even the governor have predicted that in the end there might be some sort of hybrid compromise that passes.

It will take widespread agreement given the requirement that taxes must be approved by a two-thirds vote margin instead of by a majority. So at least 14 of 21 senators and 28 of 42 Assembly members must vote yes to make it happen.

Last week, Sandoval presented his business fee proposal to a joint hearing in the Senate. He was backed by three former governors, including Republican Bob List and Democrats Bob Miller and Richard Bryan. They all agreed that tax reform is long overdue in Nevada.

Sandoval, who just began his second term, said it’s now or never.

“We have a duty to take this challenge on now rather than leaving it for future legislatures, future governors and the next generation of Nevadans,” Sandoval said during the joint hearing Wednesday. “It is my heartfelt belief that we have a once-in-a-lifetime chance to define who we are and what Nevada will be.”

Contact Laura Myers at lmyers@reviewjournal.com or 702-387-2919. Find her on Twitter: @lmyerslvrj.