Yesterday we released an independent report (PDF) analyzing Nevada Governor Brian Sandoval’s proposed Business License Fee taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. . The proposal replaces Nevada’s current $200-flat business license fee with a tiered gross receipts taxA gross receipts tax is a tax applied to a company’s gross sales, without deductions for a firm’s business expenses, like costs of goods sold and compensation. Unlike a sales tax, a gross receipts tax is assessed on businesses and apply to business-to-business transactions in addition to final consumer purchases, leading to tax pyramiding. .
Governor Sandoval quickly responded with a statement calling our report “utterly irresponsible, intellectually dishonest, and built on erroneous assumptions.” His ally Senator Michael Roberson added that our report “is nothing more than a disingenuous hatchet-job.”
The disappointing ad hominems from Governor Sandoval and Senator Roberson cloud the serious issues raised in our impartial analysis:
- The BLF proposal has 67 revenue ranges for each of 27 industry categories, totaling 1,811 possible tax bracketA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. s.
- BLF taxpayers will face absurdly high marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. s, reaching over 13 million percent and likely distorting business decisions.
- If the BLF tax burden were calculated in terms of a state corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. , rates would range wildly from 0.2 percent to a punitive 77 percent.
- Tax-motivated business restructuring would harm Nevada business competitiveness, and the punitive rate on the railroad industry likely violates federal law.
- The tax rates for each industry were calculated using Texas data from a single year, which is not representative of Nevada’s economy.
- The revenue estimates are probably overstated, which will lead to a revenue scramble when the tax underperforms.
Our findings echo the strong consensus from other independent scholars all over the country that gross receipts-style taxes make states less competitive and harm job creation. Governor Sandoval and Senator Roberson have an obligation to explain why their proposal won’t cause the same negative effects that have befallen other states.Share