Nevada Governor to Veto Increase to Sales, Payroll, Hotel, and Car Taxes

May 28, 2009

Nevada Gov. Jim Gibbons (R) announced that today he will veto a recent tax package passed by the legislature, along with the associated General Fund budget. Gibbons had proposed spending $6.1 billion over the next two years; the legislative package projects $6.75 billion, including $781 million from increasing tax rates.

The tax proposals are (courtesy Las Vegas Review-Journal):

Sales Tax: Now 6.5% minimum (7.75% in Clark County). Proposal adds 0.35 percentage points statewide, raising $280 million.

Modified Business Tax: Now 0.63% of nonfinancial business payrolls. Proposal adds another bracket at 1.17% for payroll over $250,000. Payroll under $250,000 would be taxed at 0.5%. Raises $345 million.

Motor Vehicle Registration Tax: Currently cars are treated as being only worth 85% of their purchase price after the first year, 10% in years thereafter, with a minimum of $6. The proposal changes the depreciation schedule so that a car is worth 95% after the first year, 10% in years thereafter, with a minimum of $16. Raises $94 million.

Business License "Fees": Doubled from $100 to $200. Raises $60 million.

Hotel Room Tax: Now 9-10% in Clark County, would go up to 13%. Raises $220 million.

With Las Vegas's economy softening, and Nevada hurting generally (it's one the leading states in foreclosures and underwater mortgages as a percentage of total homes), taxing payroll and sales even more heavily might be a problematic move.

The car, business license, and hotel taxes are indefensible: as always, it's easy to hit up these sources for revenue but sound tax policy means the tax rates should be set in some relation to governmental services provided. The car tax and business license "fee" shouldn't just go up because the state needs revenue. It's not justifiable that users of those services should disproportionately pay for state servicse for everyone.

It remains to be seen whether the Legislature will go back to the drawing board or override the Governor's vetos.

More on Nevada here.

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