Nevada Considering Problematic “Margin” Tax
May 18, 2011
We’ve released a new report analyzing business tax proposals in Nevada. Some highlights:
- Nevada lawmakers, hit hard by the recession, are considering new taxes to close their state’s budget gap. Options on the table include a corporate income tax, a gross receipts tax similar to Ohio’s, and a “margin” tax similar to Texas’s.
- State corporate income taxes are in long-term decline across the country, and have proven to be volatile sources of revenue.
- Gross receipts taxes greatly distort business activity and are widely understood by experts to be economically destructive.
- The Texas “margin” tax, a hybrid between a gross receipts tax and badly designed corporate income tax, has faced persistent collection shortfalls, confusing rules, and a perception of unfairness toward small and unprofitable businesses. It should not be used as a model tax reform.
- Nevada ranked 1st in the corporate income tax sub-index of our 2011 State Business Tax Climate Index, and 4th best overall.
- If the state had had a California-style corporate income tax on July 1, 2010 (the snapshot date of the most recent Index), its corporate income tax sub-index rank would have been 32nd instead of 1st.
- If the state had had a Ohio-style gross receipts tax on July 1, 2010 (the snapshot date of the most recent Index), its corporate income tax sub-index rank would have been 39th instead of 1st.
- If the state had had a Texas-style margin tax on July 1, 2010 (the snapshot date of the most recent Index), its corporate income tax sub-index rank would have been 45th instead of 1st.
- As the economy improves, Nevada’s tax system is an advantage for future capital investment and job creation. As policymakers consider fiscal options through 2011, they should keep this advantage in mind.
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